Question 1

An increase in the price level

Accepted Answer

A)   increases investment spending,thereby shifting the AD curve to the left
B)   does not shift the AD curve
C)   causes the government's budget deficit to fall
D)   increases investment spending,thereby shifting the AD curve to the right
E)   shifts the AS curve outward

Question 2

-Refer to Figure 15-3.Which of the following most likely caused the shifts from AE₁ to AE₂,and from AD₁ to AD₂?

Accepted Answer

A)   A decrease in the money supply
B)   An increase in government purchases
C)   An increase in investment spending
D)   A decrease in autonomous consumption
E)   A decrease in taxes.

Question 3

Which of the following would shift the AS curve downward?

Accepted Answer

A)   A decrease in the price level
B)   A decrease in world oil prices.
C)   An increase in world oil prices.
D)   A natural disaster that raises unit costs for all firms.
E)   A loss of technological capability.

Question 4

A negative demand shock decreases the price level in the short run.

Accepted Answer

A) True 
 B)False

Question 5

If the Fed had not changed the money supply after the recession in the early 1990s,then the long run effects would have been

Accepted Answer

A)   a return to the original output and price level
B)   increased long run GDP equilibrium and price level
C)   unchanged long run output,but an increased price level
D)   a decreased long run output and price level
E)   a return to the original long run output,but a decreased price level

Question 6

Supply and demand shocks are two different categories of

Accepted Answer

A)   fiscal shocks.
B)   monetary shocks.
C)   tax shocks.
D)   spending shocks.
E)   commodity shocks.

Question 7

A positive supply shock causes stagflation in the short run.

Accepted Answer

A) True 
 B)False

Question 8

If the government announces a new increase in spending with no change in taxes,which of the following would most likely occur?

Accepted Answer

A)   No change in the aggregate demand curve as well as no movement along it
B)   A leftward shift of the aggregate demand curve
C)   An upward movement along the aggregate demand curve
D)   A rightward shift of the aggregate demand curve
E)   A downward movement along the aggregate demand curve.

Question 9

If investment spending increases due to increased optimism in the business sector,which of the following would occur?

Accepted Answer

A)   an increase in GDP,an increase in the price level,an increase in money demand,and an increase in the interest rate
B)   an increase in GDP,a decrease in the price level,an increase in money demand,and a decrease in the interest rate
C)   a decrease in GDP,a decrease in the price level,a decrease in money demand,and a decrease in the interest rate
D)   a decrease in GDP,a decrease in the price level,an increase in money demand,and an increase in the interest rate
E)   an increase in GDP,an increase in the price level,a decrease in money demand,and a decrease in the interest rate

Question 10

-Refer to Figure 15-3.Which of the following most likely caused the shifts from AE₁ to AE₂,and from AD₁ to AD₂?

Accepted Answer

A)   A decrease in the money supply
B)   An increase in government purchases
C)   An increase in investment spending
D)   An increase in autonomous consumption
E)   An increase in taxes.

Question 11

The economy's self-correcting mechanism is such that demand shocks are offset in the long run by shifts of aggregate supply and supply shocks are offset by shifts of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following sequences results from an increase in the price level?

Accepted Answer

A)   the money demand curve shifts leftward,the interest rate decreases,investment spending and autonomous consumption increase,the aggregate expenditure line shifts downward and there is a leftward movement along the aggregate demand curve.
B)   the money demand curve shifts rightward,the interest rate increases,investment spending and autonomous consumption decrease,the aggregate expenditure line shifts downward and there is a leftward movement along the aggregate demand curve.
C)   the money demand curve shifts leftward,the interest rate increases,investment spending and autonomous consumption increase,the aggregate expenditure line shifts downward and there is a leftward movement along the aggregate demand curve.
D)   the money demand curve shifts leftward,the interest rate drops,investment spending and autonomous consumption decrease,the aggregate expenditure line shifts downward and there is a leftward movement along the aggregate demand curve.
E)   the money demand curve shifts rightward,the interest rate increases,investment spending and autonomous consumption increase,the aggregate expenditure line shifts downward and there is a rightward movement along the aggregate demand curve.

Question 13

-Refer to Figure 15-13.Starting from point A,suppose a supply shock shifts the aggregate supply curve to AS₂.In the short run,this will

Accepted Answer

A)   decrease real GDP,increase the price level,lower wages,and return the aggregate supply curve to AS1
B)   increase real GDP,decrease the price level,increase wages,and return the aggregate supply curve to AS1
C)   decrease real GDP and increase the price level
D)   increase real GDP and decrease the price level
E)   lower the full employment level of real GDP to Y2.

Question 14

-Refer to Figure 15-6.Short-run macroeconomic equilibrium occurs at a price level of

Accepted Answer

A)   120 and real GDP of $5.5 trillion
B)   140 and real GDP of $5.5 trillion
C)   120 and real GDP of $6.5 trillion
D)   120 and real GDP of $7.5 trillion
E)   140 and real GDP of $7.5 trillion.

Question 15

Which of the following would lead to an upward movement along the aggregate demand curve?

Accepted Answer

A)   An increase in government purchases
B)   An increase in the money supply
C)   An increase in the price level
D)   A decrease in the money supply
E)   An increase in taxes.

Question 16

The economy's long-run aggregate supply curve

Accepted Answer

A)   never shifts
B)   indicates that in the long run,the price level is constant
C)   is shifted by demand shocks
D)   is a vertical line at the full-employment level of output
E)   is perfectly elastic

Question 17

Wages often respond slowly to changes in output.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following sequences results from a decrease in the price level?

Accepted Answer

A)   the money demand curve shifts leftward,the interest rate decreases,investment spending and autonomous consumption increase,the aggregate expenditure line shifts upward,and there is a rightward movement along the aggregate demand curve.
B)   the money demand curve shifts rightward,the interest rate increases,investment spending and autonomous consumption increase,the aggregate expenditure line shifts downward,and there is a rightward movement along the aggregate demand curve.
C)   the money demand curve shifts leftward,the interest rate decreases,investment spending and autonomous consumption increase,the aggregate expenditure line shifts upward,and there is a leftward movement along the aggregate demand curve.
D)   the money demand curve shifts rightward,the interest rate decreases,investment spending and autonomous consumption increase,the aggregate expenditure line shifts upward,and there is a movement upward along the aggregate demand curve.
E)   the money demand curve shifts leftward,the interest rate increases,investment spending and autonomous consumption increase,the aggregate expenditure line shifts upward,and there is a leftward movement along the aggregate demand curve.

Question 19

Because the Fed increased the money supply after the recession in the early 1990s,the

Accepted Answer

A)   AD curve shifted to the left
B)   economy returned to equilibrium GDP at a price level that was lower than the original price level
C)   price level continued to increase after the recession ended
D)   price level fell back to its original level
E)   long-run equilibrium GDP decreased

Question 20

The discovery and dissemination of a new cost-saving technology

Accepted Answer

A)   is an example of a positive demand shock
B)   would cause the long-run AS curve to shift leftward,thereby increasing both output and the price level
C)   would increase firms' unit costs
D)   would lead to an increase in output and a decrease in the price level
E)   is an example of a negative supply shock

Exam 15: Aggregate Demand and Aggregate Supply

A negative demand shock decreases the price level in the short run.

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Which of the following would lead to an upward movement along the aggregate demand curve?

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Which of the following sequences results from a decrease in the price level?

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If investment spending increases due to increased optimism in the business sector,which of the following would occur?

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-Refer to Figure 15-3.Which of the following most likely caused the shifts from AE₁ to AE₂,and from AD₁ to AD₂?

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Which of the following sequences results from an increase in the price level?

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The economy's self-correcting mechanism is such that demand shocks are offset in the long run by shifts of aggregate supply and supply shocks are offset by shifts of aggregate demand.

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An increase in the price level

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If the government announces a new increase in spending with no change in taxes,which of the following would most likely occur?

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Because the Fed increased the money supply after the recession in the early 1990s,the

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-Refer to Figure 15-6.Short-run macroeconomic equilibrium occurs at a price level of

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Wages often respond slowly to changes in output.

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The economy's long-run aggregate supply curve

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Supply and demand shocks are two different categories of

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The discovery and dissemination of a new cost-saving technology

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Which of the following would shift the AS curve downward?

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-Refer to Figure 15-13.Starting from point A,suppose a supply shock shifts the aggregate supply curve to AS₂.In the short run,this will

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If the Fed had not changed the money supply after the recession in the early 1990s,then the long run effects would have been

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A positive supply shock causes stagflation in the short run.

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-Refer to Figure 15-3.Which of the following most likely caused the shifts from AE₁ to AE₂,and from AD₁ to AD₂?

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