Question 1

If both the price level and nominal incomes change by the same percentage:

Accepted Answer

A)   real GDP will remain constant.
B)   the aggregate supply curve will be upward-sloping.
C)   profit margins will change in real terms.
D)   the long-run aggregate supply curve will be horizontal.
E)   both a and d.

Question 2

In the self-correcting AD-AS model, a point where the economy's long-run AS curve, short-run AS curve, and AD curve all intersect at a single point represents a point where:

Accepted Answer

A)   real GDP is equal to its full-employment level.
B)   the conditions of short-run equilibrium are fulfilled.
C)   the conditions of long-run equilibrium are fulfilled.
D)   all of the above.
E)   a and c, but not b.

Question 3

Exhibit 14A-6  Aggregate demand and supply model 1, the economy's position of long-run equilibrium corresponds to point: A)  E1. B)  E2. C)  E3. D)  E1 or E2." class="answers-bank-image d-inline" rel="preload" > Based on Exhibit 14A-6, when the aggregate demand curve is in the position AD1, the economy's position of long-run equilibrium corresponds to point:

Accepted Answer

A)   E1.
B)   E2.
C)   E3.
D)   E1 or E2.

Question 4

Suppose that the economy is in a position of short-run equilibrium at a point where real GDP is below the full-employment level. Assuming no further change in aggregate demand and self-correction, the movement to a new long-run equilibrium includes a decrease in which of the following?

Accepted Answer

A)   The unemployment rate.
B)   The price level (CPI) .
C)   The level of nominal wages and salaries.
D)   All of the above.

Question 5

Exhibit 14A-4  Macro AD-AS Model  In Exhibit 14A-4, the self-correction argument is that in the long run competition:

Accepted Answer

A)   from unemployed workers causes an increase in nominal wages and a leftward shift in SRAS.
B)   from unemployed workers causes a rightward shift in SRAS.
C)   among firms for workers increases nominal wages and this causes a leftward shift in SRAS.
D)   among consumers causes an increase in the CPI and a rightward shift in SRAS.

Question 6

Exhibit 14A-1  Aggregate demand and supply model 2 in Exhibit 14A-1, the economy's movement to a new position of long-run equilibrium would best be described as: A)  a movement along the AD2 curve with a shift in the SRAS1 curve. B)  a movement along the SRAS2 curve with a shift in the AD2 curve. C)  a shift in the LRAS curve to an intersection at E1. D)  no shift of any kind." class="answers-bank-image d-inline" rel="preload" > Beginning from short-run equilibrium at point E2 in Exhibit 14A-1, the economy's movement to a new position of long-run equilibrium would best be described as:

Accepted Answer

A)   a movement along the AD2 curve with a shift in the SRAS1 curve.
B)   a movement along the SRAS2 curve with a shift in the AD2 curve.
C)   a shift in the LRAS curve to an intersection at E1.
D)   no shift of any kind.

Question 7

Exhibit 14A-3  Macro AD-AS Model  In Exhibit 14A-3, the intersection of AD with SRAS indicates:

Accepted Answer

A)   a short-run equilibrium.
B)   a long-run equilibrium.
C)   that the economy needs policies to reduce unemployment.
D)   that the economy is at full employment.

Question 8

Which of the following explains why higher prices in the goods and services market measured by the CPI leads to an upward-sloping aggregate supply curve?

Accepted Answer

A)   The higher prices will temporarily improve profit margins because the cost of wages and salaries are fixed in the short run.
B)   The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output.
C)   The higher prices will expand the economy's resource base and, thereby, stimulate additional output.
D)   The higher prices will improve technology and, thereby, stimulate additional output.

Question 9

Exhibit 14A-6  Aggregate demand and supply model 1 to AD2, the full-employment level of real GDP is: A)  $10 billion. B)  $4 billion. C)  $100 billion. D)  unable to be determined." class="answers-bank-image d-inline" rel="preload" > As shown in Exhibit 14A-6, and assuming the aggregate demand curve shifts from AD1 to AD2, the full-employment level of real GDP is:

Accepted Answer

A)   $10 billion.
B)   $4 billion.
C)   $100 billion.
D)   unable to be determined.

Question 10

Exhibit 14A-1  Aggregate demand and supply model 1, the aggregate demand curve shifts to AD2 . The economy's path to a new long-run equilibrium is represented by a movement from: A)  E3 to E1 to E2. B)  E1 to E3 to E2. C)  E2 to E1 to E2. D)  E1 to E2 to E3." class="answers-bank-image d-inline" rel="preload" > Beginning in Exhibit 14A-1 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2 . The economy's path to a new long-run equilibrium is represented by a movement from:

Accepted Answer

A)   E3 to E1 to E2.
B)   E1 to E3 to E2.
C)   E2 to E1 to E2.
D)   E1 to E2 to E3.

Question 11

In an economy where nominal incomes adjust equally to changes in the price level, we would expect the long-run aggregate supply curve to be:

Accepted Answer

A)   vertical.
B)   horizontal.
C)   unit elastic.
D)   negatively sloped.
E)   positively sloped.

Question 12

The long-run aggregate supply curve is:

Accepted Answer

A)   upward sloping.
B)   downward sloping.
C)   vertical at full-employment real GDP.
D)   horizontal at full-employment real GDP.

Question 13

Exhibit 14A-6  Aggregate demand and supply model 1, the aggregate demand curve shifts to AD2. The economy's path to a new long-run equilibrium is represented by a movement from: A)  E3 to E1 to E2. B)  E1 to E3 to E2. C)  E2 to E1 to E2. D)  E1 to E2 to E3." class="answers-bank-image d-inline" rel="preload" > Beginning in Exhibit 14A-6 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2. The economy's path to a new long-run equilibrium is represented by a movement from:

Accepted Answer

A)   E3 to E1 to E2.
B)   E1 to E3 to E2.
C)   E2 to E1 to E2.
D)   E1 to E2 to E3.

Question 14

Beginning from a position of long-run equilibrium at the full-employment level of real GDP, the economy's short-run response to a decrease in the aggregate demand curve would be a:

Accepted Answer

A)   movement upward along the short-run aggregate supply curve.
B)   movement upward along the long-run aggregate supply curve.
C)   downward shift in the short-run aggregate supply curve.
D)   movement downward along the short-run aggregate supply curve.

Question 15

Beginning from the full-employment level of real GDP, an increase in one of the components of the aggregate demand curve will increase the:

Accepted Answer

A)   average level of prices (CPI) .
B)   unemployment rate.
C)   natural level of real GDP.
D)   level of investment spending.
E)   level of government spending.

Question 16

The short-run aggregate supply curve (SRAS) is based on the theory that wages are flexible.

Accepted Answer

A) True 
 B)False

Question 17

One reason for the short-run aggregate supply curve (SRAS)  is:

Accepted Answer

A)   a fixed CPI market basket.
B)   perfect knowledge of workers.
C)   fixed-wage contracts.
D)   the upward-sloping production function.

Question 18

In the short run, an increase in the price level causes which of the following:

Accepted Answer

A)   A rightward shift in the aggregate demand curve.
B)   A leftward shift in the short-run aggregate supply curve.
C)   A rightward shift in the short-run aggregate supply curve.
D)   A movement upward along the short-run aggregate supply curve.

Question 19

A decrease in nominal incomes causes a leftward shift in the short-run aggregate supply curve (SRAS).

Accepted Answer

A) True 
 B)False

Question 20

Which of the following causes a leftward shift in the short-run aggregate supply curve?

Accepted Answer

A)   An increase of goods prices while nominal incomes are unchanged.
B)   An increase in nominal incomes.
C)   An increase of full-employment real GDP.
D)   An increase of personal consumption expenditures while the price level is unchanged.
E)   An increase of personal consumption expenditures while full-employment real GDP is unchanged.

Exam 14: Aggregate Demand and Supply

In the self-correcting AD-AS model, a point where the economy's long-run AS curve, short-run AS curve, and AD curve all intersect at a single point represents a point where:

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A decrease in nominal incomes causes a leftward shift in the short-run aggregate supply curve (SRAS).

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Which of the following explains why higher prices in the goods and services market measured by the CPI leads to an upward-sloping aggregate supply curve?

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Exhibit 14A-4 Macro AD-AS Model In Exhibit 14A-4, the self-correction argument is that in the long run competition:

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The long-run aggregate supply curve is:

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If both the price level and nominal incomes change by the same percentage:

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Beginning from the full-employment level of real GDP, an increase in one of the components of the aggregate demand curve will increase the:

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One reason for the short-run aggregate supply curve (SRAS) is:

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Exhibit 14A-6 Aggregate demand and supply model Beginning in Exhibit 14A-6 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2. The economy's path to a new long-run equilibrium is represented by a movement from:

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Exhibit 14A-3 Macro AD-AS Model In Exhibit 14A-3, the intersection of AD with SRAS indicates:

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Suppose that the economy is in a position of short-run equilibrium at a point where real GDP is below the full-employment level. Assuming no further change in aggregate demand and self-correction, the movement to a new long-run equilibrium includes a decrease in which of the following?

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Exhibit 14A-6 Aggregate demand and supply model Based on Exhibit 14A-6, when the aggregate demand curve is in the position AD1, the economy's position of long-run equilibrium corresponds to point:

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Exhibit 14A-1 Aggregate demand and supply model Beginning in Exhibit 14A-1 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2 . The economy's path to a new long-run equilibrium is represented by a movement from:

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Beginning from a position of long-run equilibrium at the full-employment level of real GDP, the economy's short-run response to a decrease in the aggregate demand curve would be a:

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Exhibit 14A-1 Aggregate demand and supply model Beginning from short-run equilibrium at point E2 in Exhibit 14A-1, the economy's movement to a new position of long-run equilibrium would best be described as:

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In an economy where nominal incomes adjust equally to changes in the price level, we would expect the long-run aggregate supply curve to be:

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Exhibit 14A-6 Aggregate demand and supply model As shown in Exhibit 14A-6, and assuming the aggregate demand curve shifts from AD1 to AD2, the full-employment level of real GDP is:

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The short-run aggregate supply curve (SRAS) is based on the theory that wages are flexible.

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Which of the following causes a leftward shift in the short-run aggregate supply curve?

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In the short run, an increase in the price level causes which of the following:

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Exhibit 14A-6 Aggregate demand and supply model Beginning in Exhibit 14A-6 from long-run equilibrium at point E₁, the aggregate demand curve shifts to AD₂. The economy's path to a new long-run equilibrium is represented by a movement from:

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Exhibit 14A-6 Aggregate demand and supply model Based on Exhibit 14A-6, when the aggregate demand curve is in the position AD₁, the economy's position of long-run equilibrium corresponds to point:

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Exhibit 14A-1 Aggregate demand and supply model Beginning in Exhibit 14A-1 from long-run equilibrium at point E₁, the aggregate demand curve shifts to AD₂ . The economy's path to a new long-run equilibrium is represented by a movement from:

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Exhibit 14A-1 Aggregate demand and supply model Beginning from short-run equilibrium at point E₂ in Exhibit 14A-1, the economy's movement to a new position of long-run equilibrium would best be described as:

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Exhibit 14A-6 Aggregate demand and supply model As shown in Exhibit 14A-6, and assuming the aggregate demand curve shifts from AD₁ to AD₂, the full-employment level of real GDP is:

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