Question 1

Which of the following would cause prices and real GDP to rise in the short run?

Accepted Answer

A)  an increase in the expected price level
B)  an increase in the money supply
C)  a decrease in the capital stock
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 2

Which of the following shifts the long-run aggregate supply curve to the left?

Accepted Answer

A)  either an increase in the price of imported natural resources or opening up international trade
B)  neither an increase in the price of imported natural resources or opening up international trade
C)  an increase in the price of imported natural resources, but not opening up international trade
D)  opening up international trade, but not an increase in the price of imported natural resourcesE) A) and B)
F) B) and D)

Question 3

Other things the same, an increase in the price level causes the interest rate to

Accepted Answer

A)  increase, the dollar to depreciate, and net exports to increase.
B)  increase, the dollar to appreciate, and net exports to decrease.
C)  decrease, the dollar to depreciate, and net exports to increase.
D)  decrease, the dollar to appreciate, and net exports to decrease.E) B) and D)
F) None of the above

Question 4

An increase in the money supply causes output to rise in the long run.

Accepted Answer

A) True 
 B)False

Question 5

If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Accepted Answer

A) True 
 B)False

Question 6

A relatively mild period of falling incomes and rising unemployment is called a(n)

Accepted Answer

A)  depression.
B)  recession.
C)  expansion.
D)  business cycle.E) B) and C)
F) All of the above

Question 7

When production costs rise,

Accepted Answer

A)  the short-run aggregate supply curve shifts to the right.
B)  the short-run aggregate supply curve shifts to the left.
C)  the aggregate demand curve shifts to the right.
D)  the aggregate demand curve shifts to the left.E) A) and B)
F) None of the above

Question 8

The position of the long-run aggregate supply curve

Accepted Answer

A)  is determined by the things that determine output in the classical model.
B)  is at the point where the unemployment rate is zero.
C)  shifts to the right when the price level increases.
D)  is at the point where the economy would cease to grow.E) B) and C)
F) A) and D)

Question 9

According to classical macroeconomic theory, changes in the money supply affect

Accepted Answer

A)  variables measured in terms of money and variables measured in terms of quantities or relative prices
B)  variables measured in terms of money but not variables measured in terms of quantities or relative prices
C)  variables measured in terms of quantities or relative prices, but not variables measured in terms of money
D)  neither variables measured in terms of money nor variables measured in terms of quantities or relative pricesE) B) and C)
F) A) and D)

Question 10

People had been expecting the price level to be 170 but it turns out to be 165. Diamond Power Tools increases the number of workers it employs. What could explain this?

Accepted Answer

A)  both sticky price theory and sticky wage theory
B)  sticky price theory but not sticky wage theory
C)  sticky wage theory but not sticky price theory
D)  neither sticky wage theory nor sticky price theoryE) B) and C)
F) A) and C)

Question 11

The sticky-price theory implies that

Accepted Answer

A)  the short-run aggregate-supply curve is upward-sloping.
B)  an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce.
C)  menu costs influence the speed of adjustment of prices.
D)  All of the above are correct.E) B) and C)
F) A) and B)

Question 12

Which of the following would cause prices to rise and real GDP to fall in the short run?

Accepted Answer

A)  an increase in the expected price level
B)  an increase in the capital stock
C)  an increase in the quantity of labor available
D)  All of the above are correct.E) A) and C)
F) A) and B)

Question 13

When the price level falls, people want to

Accepted Answer

A)  hold more money and the quantity of aggregate goods and services demanded increases.
B)  hold more money and the quantity of aggregate goods and services demanded decreases.
C)  hold less money and the quantity of aggregate goods and services demanded increases.
D)  hold less money and the quantity of aggregate goods and services demanded decreases.E) A) and B)
F) C) and D)

Question 14

Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset of the Great Depression?

Accepted Answer

A)  aggregate demand shifted right
B)  aggregate demand shifted left
C)  aggregate supply shifted right
D)  aggregate supply shifted leftE) A) and D)
F) B) and C)

Question 15

Increased output and prices in the United States in the early 1940s were mostly the result of increased government expenditures.

Accepted Answer

A) True 
 B)False

Question 16

The aggregate-demand curve

Accepted Answer

A)  has a slope that is explained in the same way as the slope of the demand curve for a particular product.
B)  is vertical in the long run.
C)  shows an inverse relation between the price level and the quantity of all goods and services demanded.
D)  All of the above are correct.E) A) and C)
F) None of the above

Question 17

Other things the same, as the price level falls, the real value of a dollar

Accepted Answer

A)  rises, and interest rates rise.
B)  rises, and interest rates fall.
C)  falls, and interest rates rise.
D)  falls, and interest rates fall.E) B) and C)
F) A) and D)

Question 18

According to classical macroeconomic theory, changes in the money supply affect

Accepted Answer

A)  real GDP and the price level.
B)  real GDP but not the price level.
C)  the price level, but not real GDP.
D)  neither the price level nor real GDP.E) A) and B)
F) A) and C)

Question 19

Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
-Refer to Optimism. What happens to the expected price level and what's the result for wage bargaining?

Accepted Answer

A)  The expected price level falls. Bargains are struck for higher wages.
B)  The expected price level falls. Bargains are struck for lower wages.
C)  The expected price level rises. Bargains are struck for higher wages.
D)  The expected price level rises. Bargains are struck for lower wages.E) A) and B)
F) None of the above

Question 20

As the price level rises

Accepted Answer

A)  people are more willing to lend, so interest rates rise.
B)  people are more willing to lend, so interest rates fall.
C)  people are less willing to lend, so interest rates fall.
D)  people are less willing to lend, so interest rates rise.E) None of the above
F) A) and D)

Exam 20: Aggregate Demand and Aggregate Supply

When production costs rise,

Correct Answer
verified

An increase in the money supply causes output to rise in the long run.

Correct Answer
verified

The position of the long-run aggregate supply curve

Correct Answer
verified

Which of the following would cause prices and real GDP to rise in the short run?

Correct Answer
verified

Other things the same, as the price level falls, the real value of a dollar

Correct Answer
verified

People had been expecting the price level to be 170 but it turns out to be 165. Diamond Power Tools increases the number of workers it employs. What could explain this?

Correct Answer
verified

Which of the following would cause prices to rise and real GDP to fall in the short run?

Correct Answer
verified

Increased output and prices in the United States in the early 1940s were mostly the result of increased government expenditures.

Correct Answer
verified

If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Correct Answer
verified

Which of the following shifts the long-run aggregate supply curve to the left?

Correct Answer
verified

As the price level rises

Correct Answer
verified

According to classical macroeconomic theory, changes in the money supply affect

Correct Answer
verified

The sticky-price theory implies that

Correct Answer
verified

Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset of the Great Depression?

Correct Answer
verified

Correct Answer
verified

The aggregate-demand curve

Correct Answer
verified

A relatively mild period of falling incomes and rising unemployment is called a(n)

Correct Answer
verified

When the price level falls, people want to

Correct Answer
verified

According to classical macroeconomic theory, changes in the money supply affect

Correct Answer
verified

Other things the same, an increase in the price level causes the interest rate to

Correct Answer
verified

Exam 20: Aggregate Demand and Aggregate Supply

When production costs rise,

Correct AnswerverifiedShow Answer

An increase in the money supply causes output to rise in the long run.

Correct AnswerverifiedShow Answer

The position of the long-run aggregate supply curve

Correct AnswerverifiedShow Answer

Which of the following would cause prices and real GDP to rise in the short run?

Correct AnswerverifiedShow Answer

Other things the same, as the price level falls, the real value of a dollar

Correct AnswerverifiedShow Answer

People had been expecting the price level to be 170 but it turns out to be 165. Diamond Power Tools increases the number of workers it employs. What could explain this?

Correct AnswerverifiedShow Answer

Which of the following would cause prices to rise and real GDP to fall in the short run?

Correct AnswerverifiedShow Answer

Increased output and prices in the United States in the early 1940s were mostly the result of increased government expenditures.

Correct AnswerverifiedShow Answer

If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Correct AnswerverifiedShow Answer

Which of the following shifts the long-run aggregate supply curve to the left?

Correct AnswerverifiedShow Answer

As the price level rises

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory, changes in the money supply affect

Correct AnswerverifiedShow Answer

The sticky-price theory implies that

Correct AnswerverifiedShow Answer

Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset of the Great Depression?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The aggregate-demand curve

Correct AnswerverifiedShow Answer

A relatively mild period of falling incomes and rising unemployment is called a(n)

Correct AnswerverifiedShow Answer

When the price level falls, people want to

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory, changes in the money supply affect

Correct AnswerverifiedShow Answer

Other things the same, an increase in the price level causes the interest rate to

Correct AnswerverifiedShow Answer

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