Question 1

The short-run aggregate supply curve is positively sloped because:

Accepted Answer

A)   wages and other costs of production respond immediately to changes in prices.
B)   profit is lower when prices increase, so output decreases.
C)   workers are willing to work for lower wages rather than be laid off.
D)   higher prices lead to higher profit and higher output.

Question 2

Suppose that the U.S. government doubles its spending on health care. The _____ curve shifts _____, output _____, and prices _____.

Accepted Answer

A)   short-run aggregate supply; right; increases; decrease
B)   short-run aggregate supply; left; decreases; increase
C)   aggregate demand; left; decreases; decrease
D)   aggregate demand; right; increases; increase

Question 3

Demand shocks do NOT include a(n) :

Accepted Answer

A)   reduction in money supply.
B)   tax increase.
C)   increase in government expenditure.
D)   increase in commodity prices.

Question 4

The negative relationship between the aggregate price level and aggregate output demanded gives the aggregate demand curve a _____ slope.

Accepted Answer

A)   positive
B)   vertical
C)   horizontal
D)   negative

Question 5

The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.

Accepted Answer

A)   higher; lower output as costs of production increase
B)   higher; higher output, since most production costs are fixed in the short run
C)   lower; higher output, since production costs tend to fall in the short run
D)   lower; higher profit and higher productivity

Question 6

Use the following to answer questions:
Figure: The Multiplier 1 and the price level decreases: A)  AD1 will shift to the left, reflecting a multiplied decrease in real GDP at every price level. B)  AD1 will shift to the right, reflecting a multiplied increase in real GDP at every price level. C)  an upward movement along the AD1 will take place, reflecting an increase in the price level. D)  a downward movement along the AD1 will take place, reflecting a decrease in the price level." class="answers-bank-image d-inline" rel="preload" >
-(Figure: The Multiplier)  Refer to Figure: The Multiplier. If this economy is at Y1 and the price level decreases:

Accepted Answer

A)   AD1 will shift to the left, reflecting a multiplied decrease in real GDP at every price level.
B)   AD1 will shift to the right, reflecting a multiplied increase in real GDP at every price level.
C)   an upward movement along the AD1 will take place, reflecting an increase in the price level.
D)   a downward movement along the AD1 will take place, reflecting a decrease in the price level.

Question 7

Suppose that the stock market crashes, which causes a large decrease in the value of many households' financial assets. The most likely outcome is a _____ the aggregate demand curve.

Accepted Answer

A)   rightward shift of
B)   leftward shift of
C)   movement up
D)   movement down

Question 8

A rise in labor productivity will MOST likely result in a(n) :

Accepted Answer

A)   increase in aggregate demand.
B)   decrease in aggregate demand.
C)   decrease in aggregate supply.
D)   increase in aggregate supply. D

Question 9

Suppose that a presidential candidate who promised large personal income tax cuts is elected. Which outcome is MOST likely?

Accepted Answer

A)   a decrease in short-run aggregate supply
B)   a decrease in aggregate demand
C)   an increase in short-run aggregate supply
D)   an increase in aggregate demand

Question 10

Use the following to answer questions:
Figure: Aggregate Supply 
-(Figure: Aggregate Supply)  Refer to Figure: Aggregate Supply. At point F, potential output is _____ than actual output and unemployment is _____.

Accepted Answer

A)   less; high
B)   less; low
C)   higher; high
D)   higher; low

Question 11

The aggregate demand curve is negatively sloped in part because of the impact of:

Accepted Answer

A)   the wealth effect on consumption.
B)   the interest rate effect on government spending.
C)   the stickiness of nominal wages and salaries.
D)   the flexibility of nominal wages and salaries.

Question 12

Potential output:

Accepted Answer

A)   is the level of output that the economy would produce if all prices, including nominal wages, were fully flexible.
B)   varies with the price level.
C)   depends on the level of consumer confidence.
D)   is greater in periods of expansion than in recessions.

Question 13

When short-run aggregate supply increases, it means that the short-run aggregate supply curve shifts to the right, showing that producers are willing to produce more at each price level.

Accepted Answer

A) True 
 B)False

Question 14

The interest rate effect leads to a downward-sloping aggregate demand curve because a higher price level causes consumption to _____ and investment to _____.

Accepted Answer

A)   decrease; decrease
B)   decrease; increase
C)   increase; decrease
D)   increase; increase

Question 15

The aggregate demand curve is negatively sloped because of the:

Accepted Answer

A)   substitution effect of an aggregate price level change.
B)   wealth effect of an aggregate price level change.
C)   elasticity effect of an aggregate price level change.
D)   fiscal policy effect.

Question 16

In the long run, changes in the aggregate price level will be accompanied by _____ proportional changes in input prices.

Accepted Answer

A)   less than
B)   more than
C)   equal
D)   opposite C

Question 17

An inflationary gap will be eliminated because there is _____ pressure on wages, shifting the _____.

Accepted Answer

A)   downward; long-run aggregate supply curve to the right
B)   downward; long-run aggregate supply curve to the left
C)   downward; aggregate demand curve to the left
D)   upward; short-run aggregate supply curve to the left D

Question 18

Use the following to answer questions:
Figure: Policy Alternatives 1 in panel (a)  and the government decides to intervene, it will MOST likely: A)  increase taxes. B)  decrease the money supply. C)  increase its spending. D)  decrease its spending." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Policy Alternatives)  Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a)  and the government decides to intervene, it will MOST likely:

Accepted Answer

A)   increase taxes.
B)   decrease the money supply.
C)   increase its spending.
D)   decrease its spending.

Question 19

A change in _____ has the MOST direct effect on aggregate demand.

Accepted Answer

A)   taxes
B)   interest rates
C)   the money supply
D)   government spending

Question 20

An economic policy maker would rank a _____ shock as the MOST preferred type.

Accepted Answer

A)   positive demand
B)   negative demand
C)   positive supply
D)   negative supply

Exam 12: Aggregate Demand and Aggregate Supply

The short-run aggregate supply curve is positively sloped because:

Correct AnswerverifiedShow Answer

Suppose that the U.S. government doubles its spending on health care. The _____ curve shifts _____, output _____, and prices _____.

Correct AnswerverifiedShow Answer

Demand shocks do NOT include a(n) :

Correct AnswerverifiedShow Answer

The negative relationship between the aggregate price level and aggregate output demanded gives the aggregate demand curve a _____ slope.

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: The Multiplier -(Figure: The Multiplier) Refer to Figure: The Multiplier. If this economy is at Y1 and the price level decreases:

Correct AnswerverifiedShow Answer

Suppose that the stock market crashes, which causes a large decrease in the value of many households' financial assets. The most likely outcome is a _____ the aggregate demand curve.

Correct AnswerverifiedShow Answer

A rise in labor productivity will MOST likely result in a(n) :

Correct AnswerverifiedD

Suppose that a presidential candidate who promised large personal income tax cuts is elected. Which outcome is MOST likely?

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Aggregate Supply -(Figure: Aggregate Supply) Refer to Figure: Aggregate Supply. At point F, potential output is _____ than actual output and unemployment is _____.

Correct AnswerverifiedShow Answer

The aggregate demand curve is negatively sloped in part because of the impact of:

Correct AnswerverifiedShow Answer

Potential output:

Correct AnswerverifiedShow Answer

When short-run aggregate supply increases, it means that the short-run aggregate supply curve shifts to the right, showing that producers are willing to produce more at each price level.

Correct AnswerverifiedShow Answer

The interest rate effect leads to a downward-sloping aggregate demand curve because a higher price level causes consumption to _____ and investment to _____.

Correct AnswerverifiedShow Answer

The aggregate demand curve is negatively sloped because of the:

Correct AnswerverifiedShow Answer

In the long run, changes in the aggregate price level will be accompanied by _____ proportional changes in input prices.

Correct AnswerverifiedC

An inflationary gap will be eliminated because there is _____ pressure on wages, shifting the _____.

Correct AnswerverifiedD

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a) and the government decides to intervene, it will MOST likely:

Correct AnswerverifiedShow Answer

A change in _____ has the MOST direct effect on aggregate demand.

Correct AnswerverifiedShow Answer

An economic policy maker would rank a _____ shock as the MOST preferred type.

Correct AnswerverifiedShow Answer

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Suppose that the U.S. government doubles its spending on health care. The ___ curve shifts _, output _, and prices ___.

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The short-run aggregate supply curve slopes upward because a _ aggregate price level leads to _.

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Use the following to answer questions: Figure: The Multiplier -(Figure: The Multiplier) Refer to Figure: The Multiplier. If this economy is at Y₁ and the price level decreases:

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D

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Use the following to answer questions: Figure: Aggregate Supply -(Figure: Aggregate Supply) Refer to Figure: Aggregate Supply. At point F, potential output is _ than actual output and unemployment is _.

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The interest rate effect leads to a downward-sloping aggregate demand curve because a higher price level causes consumption to _ and investment to _.

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C

An inflationary gap will be eliminated because there is _ pressure on wages, shifting the _.

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D

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y₁ in panel (a) and the government decides to intervene, it will MOST likely:

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