Question 1

Stabilization policies have:

Accepted Answer

A)   not reduced the effects of business cycles caused by either demand shocks or supply shocks.
B)   reduced the economic fluctuations caused by demand shocks but have not been effective against supply shocks.
C)   reduced the economic costs of supply shocks but have not been so successful against demand shocks.
D)   reduced economic fluctuations by neutralizing the effects of both supply and demand shocks.E) A) and B)
F) A) and C)

Question 2

If the Fed decreases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.

Accepted Answer

A)   decrease; increases; right
B)   decrease; decreases; left
C)   increase; decreases; left
D)   increase; decreases; rightE) B) and C)
F) B) and D)

Question 3

A decrease in aggregate demand is seen as a(n)  _____ the aggregate demand curve.

Accepted Answer

A)   downward movement along
B)   upward movement along
C)   shift to the left of
D)   shift to the right ofE) None of the above
F) All of the above

Question 4

A decrease in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

Accepted Answer

A)   an increase; no change
B)   a decrease; no change
C)   a decrease; a decrease
D)   no change; an increaseE) B) and C)
F) A) and D)

Question 5

A recessionary gap will be eliminated because there is _____ pressure on wages, shifting the _____.

Accepted Answer

A)   downward; short-run aggregate supply curve rightward
B)   downward; short-run aggregate supply curve leftward
C)   downward; aggregate demand curve downward
D)   upward; aggregate demand curve leftwardE) None of the above
F) All of the above

Question 6

The long-run level of output is known as _____ output.

Accepted Answer

A)   recognized
B)   structural
C)   potential
D)   balanced budgetE) A) and B)
F) A) and C)

Question 7

Producing an aggregate output level that is higher than potential output is possible only if nominal wages:

Accepted Answer

A)   fully adjust downward..
B)   fully adjust upward.
C)   haven't yet fully adjusted upward.
D)   haven't yet fully adjusted downward.E) A) and B)
F) A) and C)

Question 8

Use the following to answer questions:
Figure: AD-AS Model II 
-(Figure: AD-AS Model II)  Refer to Figure: AD-AS Model II. If nominal wages fall, in the short run the _____ curve will shift to the _____.

Accepted Answer

A)   SRAS; left
B)   SRAS; right
C)   LRAS; right
D)   AD; rightE) A) and B)
F) C) and D)

Question 9

Between 1929 and 1933, as aggregate demand decreased, the unemployment rate increased.

Accepted Answer

A) True 
 B)False

Question 10

An increase in government spending, all other things unchanged, will cause the aggregate demand curve to:

Accepted Answer

A)   become positively sloped.
B)   remain constant.
C)   shift to the right.
D)   shift to the left.E) C) and D)
F) All of the above

Question 11

The interest rate effect of a change in the aggregate price level occurs when:

Accepted Answer

A)   a higher price level decreases the purchasing power of money, resulting in an increase in the interest rate.
B)   the Fed uses contractionary monetary policy, causing an increase in the interest rate.
C)   government borrowing in the loanable funds market raises the interest rate.
D)   the price of a bond increases, reducing the interest rate.E) B) and C)
F) A) and D)

Question 12

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps p in panel (b) : A)  is potential output. B)  indicates a decrease in aggregate demand. C)  indicates a recessionary gap. D)  is associated with considerable unemployment." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Inflationary and Recessionary Gaps)  Refer to Figure: Inflationary and Recessionary Gaps. Yp in panel (b) :

Accepted Answer

A)   is potential output.
B)   indicates a decrease in aggregate demand.
C)   indicates a recessionary gap.
D)   is associated with considerable unemployment.E) B) and D)
F) B) and C)

Question 13

When the price level increases, people want to hold more money.

Accepted Answer

A) True 
 B)False

Question 14

If the economy is in a recessionary gap, actual output will be _____ potential output.

Accepted Answer

A)   below
B)   the same as
C)   above
D)   in equilibrium withE) A) and C)
F) B) and C)

Question 15

A recessionary gap occurs if:

Accepted Answer

A)   actual real GDP is less than potential output.
B)   actual real GDP is greater than potential output.
C)   actual real GDP is equal to potential output.
D)   unemployment is less than the natural rate.E) All of the above
F) B) and D)

Question 16

The long run in macroeconomic analysis is a period:

Accepted Answer

A)   in which nominal wages and other prices are flexible.
B)   in which wages are sticky.
C)   of less than one year.
D)   of one to two years.E) B) and C)
F) All of the above

Question 17

Use the following to answer questions:
Figure: Policy Alternatives 1 and price level P2. At real GDP level Y1 there is: A)  an inflationary gap. B)  a recessionary gap. C)  no gap. D)  long-run equilibrium." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Policy Alternatives)  Refer to Figure: Policy Alternatives. The economy in panel (b)  is initially in short-run equilibrium at real GDP level Y1 and price level P2. At real GDP level Y1 there is:

Accepted Answer

A)   an inflationary gap.
B)   a recessionary gap.
C)   no gap.
D)   long-run equilibrium.E) B) and C)
F) All of the above

Question 18

An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

Accepted Answer

A)   an increase; an increase
B)   an increase; no change
C)   a decrease; no change
D)   no change; an increaseE) A) and D)
F) A) and C)

Question 19

When the price level decreases, firms in imperfectly competitive markets will:

Accepted Answer

A)   decrease output and increase the price.
B)   decrease output.
C)   decrease output and decrease the price.
D)   increase output.E) B) and C)
F) A) and D)

Question 20

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps 1 to Yp would attempt to shift the: A)  aggregate demand curve to the left by increasing aggregate demand. B)  aggregate demand curve to the right by increasing aggregate demand. C)  SRAS curve to the left. D)  LRAS curve to the left." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Inflationary and Recessionary Gaps)  Refer to Figure: Inflationary and Recessionary Gaps. In panel (a) , an expansionary policy designed to move the economy from Y1 to Yp would attempt to shift the:

Accepted Answer

A)   aggregate demand curve to the left by increasing aggregate demand.
B)   aggregate demand curve to the right by increasing aggregate demand.
C)   SRAS curve to the left.
D)   LRAS curve to the left.E) A) and B)
F) A) and C)

Exam 12: Aggregate Demand and Aggregate Supply

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Yp in panel (b) :

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Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. In panel (a) , an expansionary policy designed to move the economy from Y1 to Yp would attempt to shift the:

Correct AnswerverifiedShow Answer

An increase in government spending, all other things unchanged, will cause the aggregate demand curve to:

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Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. The economy in panel (b) is initially in short-run equilibrium at real GDP level Y1 and price level P2. At real GDP level Y1 there is:

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Stabilization policies have:

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The interest rate effect of a change in the aggregate price level occurs when:

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When the price level decreases, firms in imperfectly competitive markets will:

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A recessionary gap will be eliminated because there is _____ pressure on wages, shifting the _____.

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A decrease in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

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The long-run level of output is known as _____ output.

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If the Fed decreases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.

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Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If nominal wages fall, in the short run the _____ curve will shift to the _____.

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Between 1929 and 1933, as aggregate demand decreased, the unemployment rate increased.

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If the economy is in a recessionary gap, actual output will be _____ potential output.

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Producing an aggregate output level that is higher than potential output is possible only if nominal wages:

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When the price level increases, people want to hold more money.

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An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

Correct AnswerverifiedShow Answer

The long run in macroeconomic analysis is a period:

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A recessionary gap occurs if:

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A decrease in aggregate demand is seen as a(n) _____ the aggregate demand curve.

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Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Y_p in panel (b) :

Correct Answer
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Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. In panel (a) , an expansionary policy designed to move the economy from Y₁ to Y_p would attempt to shift the:

Correct Answer
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Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. The economy in panel (b) is initially in short-run equilibrium at real GDP level Y₁ and price level P₂. At real GDP level Y₁ there is:

Correct Answer
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A recessionary gap will be eliminated because there is _ pressure on wages, shifting the _.

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A decrease in aggregate demand will generate _ in real GDP and _ in the price level in the short run.

Correct Answer
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If the Fed decreases the quantity of money in circulation, interest rates ___, investment spending _, and the aggregate demand curve shifts to the ___.

Correct Answer
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Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If nominal wages fall, in the short run the _ curve will shift to the _.

Correct Answer
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An increase in aggregate demand will generate _ in real GDP and _ in the price level in the short run.

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