Question 1

What are the implications of a depreciation of the dollar?

Accepted Answer

A)  The dollar buys more foreign currency, and so it buys more foreign goods.
B)  The dollar buys more foreign currency, and so it buys fewer foreign goods.
C)  The dollar buys less foreign currency, and so it buys more foreign goods.
D)  The dollar buys less foreign currency, and so it buys fewer foreign goods.E) A) and B)
F) A) and C)

Question 2

According to the sticky price theory, which of the following is consistent with a more-than-expected rise in the price level?

Accepted Answer

A)  Some firms' prices are higher than desired, which increases their sales.
B)  Some firms' prices are higher than desired, which depresses their sales.
C)  Some firms' prices are lower than desired, which increases their sales.
D)  Some firms' prices are lower than desired, which depresses their sales.E) B) and D)
F) C) and D)

Question 3

Which of the following explains the downward slope of the aggregate demand curve?

Accepted Answer

A)  As the Canadian price level increases, the dollar depreciates and people buy more imports.
B)  As the Canadian price level increases, the interest rate falls and firms invest less.
C)  As the Canadian price level increases, people feel less wealthy and buy less goods and services.
D)  As the Canadian price level increases, people buy more substitute goods.E) B) and C)
F) A) and D)

Question 4

According to the sticky wage theory, which of the following is consistent with an unexpected increase in the price level?

Accepted Answer

A)  The real wage rises, and employment rises.
B)  The real wage rises, and employment falls.
C)  The real wage falls, and employment rises.
D)  The real wage falls, and employment falls.E) B) and C)
F) A) and B)

Question 5

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil are discovered in the country, what would we expect will happen 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

In which of the following situations would the long-run aggregate supply curve shift right?

Accepted Answer

A)  if immigration from abroad decreases
B)  if the capital stock decreases
C)  if the money supply increases
D)  if technology advancesE) A) and B)
F) B) and C)

Question 7

Suppose a stock market boom makes people feel wealthier. What are the effects of this increase in wealth?

Accepted Answer

A)  increased consumption, which shifts the aggregate demand curve right
B)  increased consumption, which shifts the aggregate demand curve left
C)  decreased consumption, which shifts the aggregate demand curve right
D)  decreased consumption, which shifts the aggregate demand curve leftE) All of the above
F) A) and C)

Question 8

Which of the following terms refers to a short period of falling incomes and rising unemployment?

Accepted Answer

A)  depression
B)  recession
C)  expansion
D)  business cycleE) C) and D)
F) A) and B)

Question 9

Which of the following best explains the slope of the aggregate demand curve?

Accepted Answer

A)  The aggregate demand curve slopes downward for the same reasons that market demand curves slope downward.
B)  The aggregate demand curve is vertical in the long run because people can only consume a certain maximum quantity.
C)  The aggregate demand curve is downward sloping because it shows an inverse relation between the price level and the quantity of all goods and services demanded.
D)  The aggregate demand curve is downward sloping because the more people wish to consume, the lower is the price.E) A) and B)
F) A) and D)

Question 10

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in aggregate supply.

Accepted Answer

A) True 
 B)False

Question 11

Increased uncertainty and pessimism about the future of the economy decreases investment spending shifting aggregate demand to the left.

Accepted Answer

A) True 
 B)False

Question 12

The explanations for the downward slope of the aggregate demand curve say that as the price level rises, consumption, investment, and net exports all fall.

Accepted Answer

A) True 
 B)False

Question 13

What is the effect of a change in taxes on aggregate demand?

Accepted Answer

A)  Aggregate demand would shift right if taxes increased.
B)  Aggregate demand would shift right if taxes decreased.
C)  Aggregate demand would shift left if taxes increased.
D)  Aggregate demand would shift left if taxes decreased.E) C) and D)
F) B) and C)

Question 14

Which of the following government actions will shift the aggregate demand right?

Accepted Answer

A)  a rise in personal income taxes
B)  an increase in the money supply
C)  a repeal of an investment tax credit
D)  closing up a military facility to reduce costsE) B) and C)
F) B) and D)

Question 15

Because we understand what things change GDP, we can predict recessions with a fair amount of accuracy.

Accepted Answer

A) True 
 B)False

Question 16

Suppose the economy is in long-run equilibrium. In a short span of time, there is a large influx of skilled immigrants, a major new discovery of oil, and a major new technological advance in electricity production. In the short run, what would we expect to happen?

Accepted Answer

A)  The price level will rise, and real GDP will fall.
B)  The price level will fall, and real GDP to rise.
C)  The price level and real GDP will both stay the same.
D)  The price level and real GDP will both fall.E) None of the above
F) All of the above

Question 17

What changes are likely to happen in an economy when production costs rise?

Accepted Answer

A)  Output and prices rise.
B)  Output rises and prices fall.
C)  Output falls and prices rise.
D)  Output and prices fall.E) C) and D)
F) All of the above

Question 18

Aggregate demand shifts to the left if the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 19

Scenario 14-1. The economy is in long-run equilibrium. Suddenly, due to improved international relations and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time.
-Refer to Scenario 14-1. Which of the following are predicted by the aggregate demand and aggregate supply theory?

Accepted Answer

A)  The expected inflation falls. Workers bargain for higher increases in wages.
B)  The expected inflation falls. Workers bargain for lower increases in wages.
C)  The expected inflation rises. Workers bargain for higher increases in wages.
D)  The expected inflation rises. Workers bargain for lower increases in wages.E) A) and B)
F) All of the above

Question 20

How does the size of investment as a fraction of GDP compare to its importance in creating economic fluctuations?

Accepted Answer

A)  Investment is a small part of real GDP and it accounts for a small share of the fluctuation in real GDP.
B)  Investment is a small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
C)  Investment is a large part of real GDP and it accounts for a large share of the fluctuation in real GDP.
D)  Investment is a large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP.E) All of the above
F) B) and C)

Exam 14: Aggregate Demand and Aggregate Supply

The explanations for the downward slope of the aggregate demand curve say that as the price level rises, consumption, investment, and net exports all fall.

Correct Answer
verified

Which of the following government actions will shift the aggregate demand right?

Correct Answer
verified

Which of the following terms refers to a short period of falling incomes and rising unemployment?

Correct Answer
verified

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in aggregate supply.

Correct Answer
verified

Increased uncertainty and pessimism about the future of the economy decreases investment spending shifting aggregate demand to the left.

Correct Answer
verified

What are the implications of a depreciation of the dollar?

Correct Answer
verified

What changes are likely to happen in an economy when production costs rise?

Correct Answer
verified

Suppose the economy is in long-run equilibrium. In a short span of time, there is a large influx of skilled immigrants, a major new discovery of oil, and a major new technological advance in electricity production. In the short run, what would we expect to happen?

Correct Answer
verified

Correct Answer
verified

Because we understand what things change GDP, we can predict recessions with a fair amount of accuracy.

Correct Answer
verified

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil are discovered in the country, what would we expect will happen in the short run?

Correct Answer
verified

Aggregate demand shifts to the left if the money supply decreases.

Correct Answer
verified

According to the sticky price theory, which of the following is consistent with a more-than-expected rise in the price level?

Correct Answer
verified

Which of the following best explains the slope of the aggregate demand curve?

Correct Answer
verified

How does the size of investment as a fraction of GDP compare to its importance in creating economic fluctuations?

Correct Answer
verified

Which of the following explains the downward slope of the aggregate demand curve?

Correct Answer
verified

In which of the following situations would the long-run aggregate supply curve shift right?

Correct Answer
verified

Suppose a stock market boom makes people feel wealthier. What are the effects of this increase in wealth?

Correct Answer
verified

What is the effect of a change in taxes on aggregate demand?

Correct Answer
verified

According to the sticky wage theory, which of the following is consistent with an unexpected increase in the price level?

Correct Answer
verified

Exam 14: Aggregate Demand and Aggregate Supply

The explanations for the downward slope of the aggregate demand curve say that as the price level rises, consumption, investment, and net exports all fall.

Correct AnswerverifiedShow Answer

Which of the following government actions will shift the aggregate demand right?

Correct AnswerverifiedShow Answer

Which of the following terms refers to a short period of falling incomes and rising unemployment?

Correct AnswerverifiedShow Answer

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in aggregate supply.

Correct AnswerverifiedShow Answer

Increased uncertainty and pessimism about the future of the economy decreases investment spending shifting aggregate demand to the left.

Correct AnswerverifiedShow Answer

What are the implications of a depreciation of the dollar?

Correct AnswerverifiedShow Answer

What changes are likely to happen in an economy when production costs rise?

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium. In a short span of time, there is a large influx of skilled immigrants, a major new discovery of oil, and a major new technological advance in electricity production. In the short run, what would we expect to happen?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Because we understand what things change GDP, we can predict recessions with a fair amount of accuracy.

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil are discovered in the country, what would we expect will happen in the short run?

Correct AnswerverifiedShow Answer

Aggregate demand shifts to the left if the money supply decreases.

Correct AnswerverifiedShow Answer

According to the sticky price theory, which of the following is consistent with a more-than-expected rise in the price level?

Correct AnswerverifiedShow Answer

Which of the following best explains the slope of the aggregate demand curve?

Correct AnswerverifiedShow Answer

How does the size of investment as a fraction of GDP compare to its importance in creating economic fluctuations?

Correct AnswerverifiedShow Answer

Which of the following explains the downward slope of the aggregate demand curve?

Correct AnswerverifiedShow Answer

In which of the following situations would the long-run aggregate supply curve shift right?

Correct AnswerverifiedShow Answer

Suppose a stock market boom makes people feel wealthier. What are the effects of this increase in wealth?

Correct AnswerverifiedShow Answer

What is the effect of a change in taxes on aggregate demand?

Correct AnswerverifiedShow Answer

According to the sticky wage theory, which of the following is consistent with an unexpected increase in the price level?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified