Question 1

Figure 33-6 1 and Y1 , then it must be the case that A) short-run aggregate supply has decreased. B) short-run aggregate supply has increased. C) aggregate demand has increased. D) aggregate demand has decreased." class="answers-bank-image d-inline" rel="preload" > ​
-Refer to Figure 33-6. Suppose the economy starts at A. If changes occur that move the economy to a new short-run equilibrium of P1 and Y1 , then it must be the case that

Accepted Answer

A)  short-run aggregate supply has decreased.
B)  short-run aggregate supply has increased.
C)  aggregate demand has increased.
D)  aggregate demand has decreased.E) A) and B)
F) None of the above

Question 2

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because monetary neutrality would mean that

Accepted Answer

A)  neither prices nor production should have risen.
B)  production should have risen, but prices should not have.
C)  the prices should have risen, but production should not have changed.
D)  the prices and production should both have fallen.E) A) and B)
F) B) and C)

Question 3

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will

Accepted Answer

A)  rise and the price level might rise, fall, or stay the same.In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.
B)  fall and the price level might rise, fall, or stay the same.In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.
C)  rise and the price level might rise, fall, or stay the same.In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.
D)  fall and the price level might rise, fall, or stay the same.In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.E) A) and B)
F) A) and C)

Question 5

Figure 33-13
​  ​
-Refer to Figure 33-13. Suppose the economy starts at P3 and Y2. Explain how government purchases would need to change to move the economy to P2 and Y1. What about taxes?

Accepted Answer

decrease in governme...

Question 6

Suppose a country offers a new investment tax credit. Which curve(s) in the aggregate demand and aggregate supply model would be affected, and which way would it (they) shift?

Accepted Answer

The aggregate-demand...

Question 7

Figure 33-3 
-Refer to Figure 33-3. In Figure 33-3, Point B represents a

Accepted Answer

A)  short-run equilibrium and a long-run equilibrium.
B)  short-run equilibrium, and Point A represents a long-run equilibrium.
C)  long-run equilibrium, and Point A represents a short-run equilibrium.
D)  long-run equilibrium, and Point C represents a short-run equilibrium.E) B) and C)
F) A) and D)

Question 8

According to the misperceptions theory of short-run aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had

Accepted Answer

A)  increased, so it would increase production.
B)  increased, so it would decrease production.
C)  decreased, so it would increase production.
D)  decreased, so it would decrease production.E) All of the above
F) C) and D)

Question 9

Figure 33-8
​  ​
-Refer to Figure 33-8. Explain how the aggregate demand and aggregate supply model changed during periods 1 and 2.

Accepted Answer

The aggregate-demand...

Question 10

Figure 33-8
​  ​
-Refer to Figure 33-8. Identify periods 1 and 2.

Accepted Answer

Period 1 is the Grea...

Question 11

Policymakers who influence aggregate demand can potentially mitigate the severity of economic fluctuations.

Accepted Answer

A) True 
 B)False

Question 12

Scenario 33-2
Imagine that in the current year the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.
-Refer to Scenario 33-2. In the long run, the change in price expectations created by the rise in stock prices

Accepted Answer

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

Question 13

If U.S. speculators gained greater confidence in foreign economies so that they wanted to move more of their wealth into foreign countries, the dollar would

Accepted Answer

A)  appreciate which would cause aggregate demand to shift right.
B)  appreciate which would cause aggregate demand to shift left.
C)  depreciate which would cause aggregate demand to shift right.
D)  depreciate which would cause aggregate demand to shift left.E) A) and B)
F) A) and C)

Question 14

Figure 33-4 3 B) LRAS2 C) LRAS1 D) Both LRAS3 and LRAS1" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 33-4. The short-run equilibrium is defined by the given AD and SRAS curves. Which of the long-run aggregate-supply curves is consistent with the economy being in an expansion?

Accepted Answer

A)  LRAS3
B)  LRAS2
C)  LRAS1
D)  Both LRAS3 and LRAS1E) B) and D)
F) A) and C)

Question 15

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

Accepted Answer

A)  aggregate supply to the right.
B)  aggregate supply to the left.
C)  aggregate demand to the right.
D)  aggregate demand to the left.E) A) and D)
F) A) and C)

Question 16

Suppose technology advances within a nation. Which curves in the aggregate demand and aggregate supply model would be affected, and which way would they shift?

Accepted Answer

The short run and lo...

Question 17

Scenario 33-2
Imagine that in the current year the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.
-Refer to Scenario 33-2. 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) B) and C)
F) A) and B)

Question 18

Use sticky-wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

Accepted Answer

When people expect the price l...

Question 19

People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company 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) A) and C)
F) C) and D)

Question 20

Name two macroeconomic variables that decline when an economy goes into recession, and name one macroeconomic variable that rises.

Accepted Answer

Real GDP and investm...

Exam 33: Aggregate Demand and Aggregate Supply

Figure 33-6 ​ -Refer to Figure 33-6. Suppose the economy starts at A. If changes occur that move the economy to a new short-run equilibrium of P1 and Y1 , then it must be the case that

Correct AnswerverifiedShow Answer

Use sticky-wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

Correct AnswerverifiedWhen people expect the price l...View AnswerShow Answer

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will

Correct AnswerverifiedShow Answer

Suppose technology advances within a nation. Which curves in the aggregate demand and aggregate supply model would be affected, and which way would they shift?

Correct AnswerverifiedThe short run and lo...View AnswerShow Answer

Name two macroeconomic variables that decline when an economy goes into recession, and name one macroeconomic variable that rises.

Correct AnswerverifiedReal GDP and investm...View AnswerShow Answer

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Correct AnswerverifiedShow Answer

Figure 33-8 ​ ​ -Refer to Figure 33-8. Explain how the aggregate demand and aggregate supply model changed during periods 1 and 2.

Correct AnswerverifiedThe aggregate-demand...View AnswerShow Answer

Scenario 33-2 Imagine that in the current year the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. -Refer to Scenario 33-2. In the short run what happens to the price level and real GDP?

Correct AnswerverifiedShow Answer

According to the misperceptions theory of short-run aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had

Correct AnswerverifiedShow Answer

Figure 33-4 -Refer to Figure 33-4. The short-run equilibrium is defined by the given AD and SRAS curves. Which of the long-run aggregate-supply curves is consistent with the economy being in an expansion?

Correct AnswerverifiedShow Answer

Figure 33-8 ​ ​ -Refer to Figure 33-8. Identify periods 1 and 2.

Correct AnswerverifiedPeriod 1 is the Grea...View AnswerShow Answer

If U.S. speculators gained greater confidence in foreign economies so that they wanted to move more of their wealth into foreign countries, the dollar would

Correct AnswerverifiedShow Answer

Scenario 33-2 Imagine that in the current year the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. -Refer to Scenario 33-2. In the long run, the change in price expectations created by the rise in stock prices

Correct AnswerverifiedShow Answer

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because monetary neutrality would mean that

Correct AnswerverifiedShow Answer

Suppose a country offers a new investment tax credit. Which curve(s) in the aggregate demand and aggregate supply model would be affected, and which way would it (they) shift?

Correct AnswerverifiedThe aggregate-demand...View AnswerShow Answer

People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this?

Correct AnswerverifiedShow Answer

Figure 33-3 -Refer to Figure 33-3. In Figure 33-3, Point B represents a

Correct AnswerverifiedShow Answer

Policymakers who influence aggregate demand can potentially mitigate the severity of economic fluctuations.

Correct AnswerverifiedShow Answer

Figure 33-13 ​ ​ -Refer to Figure 33-13. Suppose the economy starts at P3 and Y2. Explain how government purchases would need to change to move the economy to P2 and Y1. What about taxes?

Correct Answerverifieddecrease in governme...View AnswerShow Answer

Figure 33-6 -Refer to Figure 33-6. Suppose the economy starts at A. If changes occur that move the economy to a new short-run equilibrium of P₁ and Y₁ , then it must be the case that

Correct Answer
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When people expect the price l...
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The short run and lo...
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Real GDP and investm...
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Figure 33-8 -Refer to Figure 33-8. Explain how the aggregate demand and aggregate supply model changed during periods 1 and 2.

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The aggregate-demand...
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Figure 33-8 -Refer to Figure 33-8. Identify periods 1 and 2.

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Period 1 is the Grea...
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The aggregate-demand...
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Figure 33-13 -Refer to Figure 33-13. Suppose the economy starts at P₃ and Y₂. Explain how government purchases would need to change to move the economy to P₂ and Y₁. What about taxes?

Correct Answer
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decrease in governme...
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