Question 1

Figure 15-2.
 
-Refer to Optimism. In the short run what happens to the price level and real GDP?

Accepted Answer

A)   both the price level and real GDP rise.
B)   both the price level and real GDP fall.
C)   the price level rises and real GDP falls.
D)   the price level falls and real GDP rises.E) All of the above
F) A) and B)

Question 2

The price level rises in the short run if

Accepted Answer

A)   aggregate demand or aggregate supply shifts right
B)   aggregate demand shifts right or aggregate supply shifts left.
C)   aggregate demand shifts left or aggregate supply shifts right.
D)   aggregate demand or aggregate supply shifts right.E) C) and D)
F) A) and C)

Question 3

Which of the following shifts both the short-run and long-run aggregate supply right?

Accepted Answer

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

Question 4

When output rises, unemployment falls.

Accepted Answer

A) True 
 B)False

Question 5

Imagine the U.S. economy is in long-run equilibrium. Then suppose the value of the U.S. dollar increases. At the same time, people in the U.S. revise their expectations so that the expected price level falls. We would expect that in the short-run

Accepted Answer

A)   real GDP will rise and the price level might rise, fall, or stay the same.
B)   real GDP will fall and the price level might rise, fall, or stay the same.
C)   the price level will rise, and real GDP might rise, fall, or stay the same.
D)   the price level will fall, and real GDP might rise, fall, or stay the same.E) A) and B)
F) A) and C)

Question 6

The aggregate demand and aggregate supply model helps us to understand both short-run economic fluctuations and how the economy moves from the short to the long run.

Accepted Answer

A) True 
 B)False

Question 7

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) C) and D)
F) A) and B)

Question 8

Other things the same, continued increases in the money supply lead to

Accepted Answer

A)   continued increases in the price level and real GDP.
B)   continued increases in the price level but not continued increases in real GDP.
C)   continued increases in real GDP but not continued increases in the price level.
D)   a one-time permanent increase in both prices and real GDP.E) C) and D)
F) B) and C)

Question 9

Figure 15-2.
 
-Refer to Financial Crisis. In the long run, if the Fed does not respond, the change in price expectations created by the crisis shifts

Accepted Answer

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

Question 10

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

Accepted Answer

A)   rise. This rise in price expectations shifts the short-run aggregate supply curve to the right.
B)   rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.
C)   fall. This fall in price expectations shifts the short-run aggregate supply curve to the right.
D)   fall. This fall in price expectations shifts the short-run aggregate supply curve to the left.E) A) and B)
F) A) and C)

Question 11

Other things the same, as the price level falls,

Accepted Answer

A)   the dollar depreciates.
B)   the interest rate rises.
C)   people feel less wealthy.
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 12

When looking at a graph of aggregate demand, which of the following is correct?

Accepted Answer

A)   There are nominal variables on both the vertical and the horizontal axes.
B)   There are real variables on both the vertical and horizontal axes.
C)   The variable on the vertical axis is nominal; the variable on the horizontal axis is real
D)   The variable on the vertical axis is real; the variable on the horizontal axis is nominalE) B) and D)
F) B) and C)

Question 13

Figure 15-2.
 
-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) B) and C)

Question 14

When the price level falls

Accepted Answer

A)   households want to lend more, so the interest rate rises making the quantity of goods and services demanded rise.
B)   households want to lend more, so the interest rate falls, making the quantity of goods and services demanded rise.
C)   households want to lend more, so the interest rate rises, making the quantity of goods and services demanded fall.
D)   None of the above are correct.E) B) and D)
F) A) and D)

Question 15

According to classical macroeconomic theory, changes in the money supply change nominal but not real variables.

Accepted Answer

A) True 
 B)False

Question 16

If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports

Accepted Answer

A)   increase which shifts aggregate demand right.
B)   increase which shifts aggregate demand left.
C)   decrease which shifts aggregate demand right.
D)   decrease which shifts aggregate demand left.E) B) and D)
F) A) and B)

Question 17

When taxes increase, consumption

Accepted Answer

A)   increases, so aggregate demand shifts right.
B)   increases, so aggregate supply shifts right.
C)   decreases, so aggregate demand shifts left.
D)   decreases, so aggregate supply shifts left.E) A) and B)
F) A) and C)

Question 18

Other things the same, continued technological progress and continued increases in the money supply would unambiguously lead to

Accepted Answer

A)   rising prices only.
B)   rising real GDP only.
C)   rising prices and rising real GDP.
D)   neither rising prices nor rising real GDP.E) A) and D)
F) C) and D)

Question 19

During recessions which type of spending falls?

Accepted Answer

A)   consumption and investment
B)   investment but not consumption
C)   consumption but not investment
D)   neither consumption nor investmentE) A) and D)
F) A) and C)

Question 20

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) None of the above
F) A) and B)

Exam 15: Aggregate Demand and Aggregate Supply

The price level rises in the short run if

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Other things the same, continued increases in the money supply lead to

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The sticky-price theory implies that

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During recessions which type of spending falls?

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When taxes increase, consumption

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Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

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When the price level falls

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Imagine the U.S. economy is in long-run equilibrium. Then suppose the value of the U.S. dollar increases. At the same time, people in the U.S. revise their expectations so that the expected price level falls. We would expect that in the short-run

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When output rises, unemployment falls.

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Figure 15-2. -Refer to Financial Crisis. In the long run, if the Fed does not respond, the change in price expectations created by the crisis shifts

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Other things the same, continued technological progress and continued increases in the money supply would unambiguously lead to

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If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports

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

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The aggregate demand and aggregate supply model helps us to understand both short-run economic fluctuations and how the economy moves from the short to the long run.

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Figure 15-2. -Refer to Optimism. What happens to the expected price level and what's the result for wage bargaining?

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Figure 15-2. -Refer to Optimism. In the short run what happens to the price level and real GDP?

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According to classical macroeconomic theory, changes in the money supply change nominal but not real variables.

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Other things the same, as the price level falls,

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Which of the following shifts both the short-run and long-run aggregate supply right?

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When looking at a graph of aggregate demand, which of the following is correct?

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