question
The long-run aggregate supply curve will shift to the right if the economy
a) net exports decrease
b) experiences technological change
c) has a decrease in population
d) experiences high levels of inflation
a) net exports decrease
b) experiences technological change
c) has a decrease in population
d) experiences high levels of inflation
answer
b) experiences technological change
question
Which of the following best describes "the wealth effect"?
a) When the price level falls, the real value of the household wealth rises
b) When the price level falls, the nominal value of household wealth rises
c) When the price level falls, the nominal value of household wealth falls
d) When the price level falls, the real value of household wealth falls
a) When the price level falls, the real value of the household wealth rises
b) When the price level falls, the nominal value of household wealth rises
c) When the price level falls, the nominal value of household wealth falls
d) When the price level falls, the real value of household wealth falls
answer
a) When the price level falls, the real value of household wealth rises
question
The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off
a) net exports
b) government spending
c) investment and consumption spending
d) government spending and unplanned investment
a) net exports
b) government spending
c) investment and consumption spending
d) government spending and unplanned investment
answer
c) investment and consumption spending
question
When the price level in the US falls relative to the price level of other countries, ____ will fall, ____ will rise, and ____ will rise.
a) net exports; exports; imports
b) exports; imports; net exports
c) net exports; imports; exports
d) imports; exports; net exports
a) net exports; exports; imports
b) exports; imports; net exports
c) net exports; imports; exports
d) imports; exports; net exports
answer
d) imports; exports; net exports
question
Deflation will
a) increase the quantity of real GDP demanded
b) decrease aggregate demand
c) decrease the quantity of real GDP demanded
d) increase aggregate demand
a) increase the quantity of real GDP demanded
b) decrease aggregate demand
c) decrease the quantity of real GDP demanded
d) increase aggregate demand
answer
a) increase the quantity of real GDP demanded
question
The recession of 2007-2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?
a) this will shift the aggregate demand curve to the right
b) this will move the economy up along a stationary aggregate demand curve
c) this will move the economy down along a stationary aggregate demand curve
d) this will shift the aggregate demand curve to the left
a) this will shift the aggregate demand curve to the right
b) this will move the economy up along a stationary aggregate demand curve
c) this will move the economy down along a stationary aggregate demand curve
d) this will shift the aggregate demand curve to the left
answer
d) this will shift the aggregate demand curve to the left
question
Which of the following will shift the aggregate demand curve to the right, ceteris paribus?
a) an increase in interest rates
b) a decrease in disposable income
c) a decrease in expected profits for firms
d) an increase in net exports
a) an increase in interest rates
b) a decrease in disposable income
c) a decrease in expected profits for firms
d) an increase in net exports
answer
d) an increase in net exports
question
The long run aggregate supply curve
a) has a negative slope
b) is horizontal
c) curve has a steep but positive slope
d) is vertical
a) has a negative slope
b) is horizontal
c) curve has a steep but positive slope
d) is vertical
answer
d) is vertical
question
Full-employment GDP is also known as
a) potential GDP
b) politico-economic GDP
c) balanced-budget GDP
d) realized GDP
a) potential GDP
b) politico-economic GDP
c) balanced-budget GDP
d) realized GDP
answer
a) potential GDP
question
Which aggregate supply curve has a positive slope?
a) short run only
b) both long run and short run
c) neither long run nor short run
d) long run only
a) short run only
b) both long run and short run
c) neither long run nor short run
d) long run only
answer
a) short run only
question
Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas, gasoline, and heating oil prices. Three years later, once the refining capacity was restored, these prices came back down. The restoration of refining capacity should
a) move the economy down along a stationary short-run aggregate supply curve
b) move the economy up along a stationary short-run aggregate supply curve
c) shift the short-run aggregate supply curve to the right
d) shift the short-run aggregate supply curve to the left
a) move the economy down along a stationary short-run aggregate supply curve
b) move the economy up along a stationary short-run aggregate supply curve
c) shift the short-run aggregate supply curve to the right
d) shift the short-run aggregate supply curve to the left
answer
c) shift the short-run aggregate supply curve to the right
question
If full-employment GDP is equal to $4.2 trillion, what does the long-run aggregate supply curve look like?
a) it is a vertical line at $4.2 trillion of GDP
b) it is a vertical line at a level of GDP below $4.2 trillion
c) it is a horizontal line at $4.2 trillion of GDP
d) it is a vertical line at a level of GDP above $4.2 trillion
a) it is a vertical line at $4.2 trillion of GDP
b) it is a vertical line at a level of GDP below $4.2 trillion
c) it is a horizontal line at $4.2 trillion of GDP
d) it is a vertical line at a level of GDP above $4.2 trillion
answer
a) it is a vertical line at $4.2 trillion of GDP
question
Long run macroeconomic equilibrium occurs when
a) aggregate demand equals short run aggregate supply and they intersect at a point on the long run supply curve
b) aggregate demand equals short run aggregate supply
c) structural and frictional unemployment equals zero
d) output is above potential GDP
a) aggregate demand equals short run aggregate supply and they intersect at a point on the long run supply curve
b) aggregate demand equals short run aggregate supply
c) structural and frictional unemployment equals zero
d) output is above potential GDP
answer
a) aggregate demand equals short run aggregate supply and they intersect at a point on the long run supply curve
question
When the aggregate demand curve and the short-run aggregate supply curve intersect,
a) the long-run aggregate supply curve must also intersect at the same point
b) inflation must be increasing
c) structural and frictional unemployment equal zero
d) the economy is in short-run macroeconomic equlibrium
a) the long-run aggregate supply curve must also intersect at the same point
b) inflation must be increasing
c) structural and frictional unemployment equal zero
d) the economy is in short-run macroeconomic equlibrium
answer
d) the economy is in short-run macroeconomic equilibrium
question
Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run?
a) Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise.
b) Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall.
c) Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall.
d) Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise.
a) Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise.
b) Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall.
c) Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall.
d) Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise.
answer
d) Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise.
question
Which of the following is considered a negative supply shock?
a) an improvement in technology
b) an unexpected decrease in the refining capacity for oil
c) increasing immigration in the economy causes the labor supply to rise
d) an increase in unemployment
a) an improvement in technology
b) an unexpected decrease in the refining capacity for oil
c) increasing immigration in the economy causes the labor supply to rise
d) an increase in unemployment
answer
b) an unexpected decrease in the refining capacity for oil
question
In the long run,
a) LRAS and SRAS lie on the same line
b) GDP > potential GDP
c) the inflation rate is zero
d) unemployment is at its natural rate
a) LRAS and SRAS lie on the same line
b) GDP > potential GDP
c) the inflation rate is zero
d) unemployment is at its natural rate
answer
d) unemployment is at its natural rate
question
When the price of oil rises unexpectedly, the equilibrium price level ____ and the unemployment rate ____ in the short run.
a) rises; falls
b) rises; rises
c) falls; rises
d) falls; falls
a) rises; falls
b) rises; rises
c) falls; rises
d) falls; falls
answer
b) rises; rises
question
Stagflation occurs when
a) inflation rises and GDP rises
b) inflation falls and GDP falls
c) inflation rises and GDP falls
d) inflation falls and GDP rises
a) inflation rises and GDP rises
b) inflation falls and GDP falls
c) inflation rises and GDP falls
d) inflation falls and GDP rises
answer
c) inflation rises and GDP falls
question
Because of the slope of the aggregate demand curve we can say that a decrease in the price level
a) leads to a lower level of real GDP demanded
b) leads to an increase in aggregate demand
c) leads to a higher level of real GDP demanded
d) leads to a decrease in aggregate demand
a) leads to a lower level of real GDP demanded
b) leads to an increase in aggregate demand
c) leads to a higher level of real GDP demanded
d) leads to a decrease in aggregate demand
answer
c) leads to a higher level of real GDP demanded
question
Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?
a) They will move the economy up along a stationary aggregate demand curve.
b) They will move the economy down along a stationary aggregate demand curve.
c) They will shift the aggregate demand curve to the right.
d) They will shift the aggregate demand curve to the left.
a) They will move the economy up along a stationary aggregate demand curve.
b) They will move the economy down along a stationary aggregate demand curve.
c) They will shift the aggregate demand curve to the right.
d) They will shift the aggregate demand curve to the left.
answer
c) They will shift the aggregate demand curve to the right.
question
Higher personal income taxes
a) increase aggregate demand
b) increase disposable income
c) decrease aggregate demand
d) both B and C
a) increase aggregate demand
b) increase disposable income
c) decrease aggregate demand
d) both B and C
answer
c) decrease aggregate demand
question
Changes in the price level
a) do not affect the level of aggregate supply in the long run
b) decrease the level of aggregate supply in the long run
c) increase the level of aggregate supply in the long run
d) increase the level of aggregate supply in the long run only at very high levels of output
a) do not affect the level of aggregate supply in the long run
b) decrease the level of aggregate supply in the long run
c) increase the level of aggregate supply in the long run
d) increase the level of aggregate supply in the long run only at very high levels of output
answer
a) do not affect the level of aggregate supply in the long run
question
If aggregate demand just increased, which of the following may have caused the increase?
a) an increase in the interest rate
b) an increase in government purchases
c) an increase in the price level
d) an increase in imports
a) an increase in the interest rate
b) an increase in government purchases
c) an increase in the price level
d) an increase in imports
answer
b) an increase in government purchases
question
How do lower taxes affect aggregate demand?
a) They increase corporate investment and aggregate demand.
b) They increase aggregate supply and thus increase aggregate demand as well.
c) They reduce disposable income, consumption, and aggregate demand.
d) They increase disposable income, consumption, and aggregate demand.
a) They increase corporate investment and aggregate demand.
b) They increase aggregate supply and thus increase aggregate demand as well.
c) They reduce disposable income, consumption, and aggregate demand.
d) They increase disposable income, consumption, and aggregate demand.
answer
d) They increase disposable income, consumption, and aggregate demand.
question
On the long-run aggregate supply curve,
a) a decrease in the price level has no effect on the aggregate quantity of GDP supplied
b) a decrease in the price level increases the aggregate quantity of GDP supplied
c) a decrease in the price level decreases the level of potential GDP
d) a decrease in the price level decreases the aggregate quantity of GDP supplied
a) a decrease in the price level has no effect on the aggregate quantity of GDP supplied
b) a decrease in the price level increases the aggregate quantity of GDP supplied
c) a decrease in the price level decreases the level of potential GDP
d) a decrease in the price level decreases the aggregate quantity of GDP supplied
answer
a) a decrease in the price level has no effect on the aggregate quantity of GDP supplied
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