Question 1

Other things the same, if the money supply rises by 2% and people were expecting it to rise by 5%, then some firms have

Accepted Answer

A)  higher than desired prices which increases their sales.
B)  higher than desired prices which depresses their sales.
C)  lower than desired prices which increases their sales.
D)  lower than desired prices which depresses their sales.E) A) and D)
F) C) and D)

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

Accepted Answer

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

Question 3

Other things the same, if the price level is lower than expected, then some firms believe that the relative price of what they produce has

Accepted Answer

A)  decreased, so they increase production.
B)  decreased, so they decrease production.
C)  increased, so they increase production.
D)  increased, so they decrease production.E) A) and B)
F) A) and C)

Question 4

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

Accepted Answer

A)  nominal variables and real variables.
B)  nominal variables, but not real variables.
C)  real variables, but not nominal variables.
D)  neither nominal nor real variables.E) A) and B)
F) A) and D)

Question 5

In the last half of 1999, the U.S. unemployment rate was about 4 percent. Historical experience suggests that this is

Accepted Answer

A)  above the natural rate, so real GDP growth was likely low.
B)  above the natural rate, so real GDP growth was likely high.
C)  below the natural rate, so real GDP growth was likely low.
D)  below the natural rate, so real GDP growth was likely high.E) A) and B)
F) B) and C)

Question 6

The Central Bank of Wiknam increases the money supply at the same time the Parliament of Wiknam passes a new investment tax credit. Which of these policies shift aggregate demand to the right?

Accepted Answer

A)  both the money supply increase and the investment tax credit
B)  the money supply increase but not the investment tax credit
C)  the investment tax credit but not the money supply increase
D)  neither the investment tax credit nor the money supply increaseE) A) and D)
F) All of the above

Question 7

The Stock Market Boom of 2015
Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.
-Refer to Stock Market Boom 2015. Which curve shifts and in which direction?

Accepted Answer

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

Question 8

In the long run, technological progress

Accepted Answer

A)  and increases in the money supply both make the price level rise.
B)  and increases in the money supply both make the price level fall.
C)  makes the price level rise, while increases in the money supply make prices fall.
D)  makes the price level fall, while increases in the money supply make prices rise.E) B) and D)
F) C) and D)

Question 9

Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP growth and inflation can be explained by

Accepted Answer

A)  continuing technological progress alone.
B)  continuing increases in the money supply alone.
C)  continued technological progress and continuing increases in the money supply.
D)  None of the above can explain continuing real GDP growth and inflation.E) A) and D)
F) C) and D)

Question 10

When the price level increases, the real value of people's money holdings

Accepted Answer

A)  falls, so they buy more.
B)  falls, so they buy less.
C)  rises, so they buy more.
D)  rises, so they buy less.E) C) and D)
F) A) and D)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

When the actual change in the price level differs from its expected change, which of the following can explain why firms might change their production?

Accepted Answer

A)  both menu costs and mistaking a price level change for a change in relative prices
B)  menu costs but not mistaking a price level change for a change in relative prices
C)  mistaking a price level change for a change in relative price but not menu costs
D)  neither menu costs nor mistaking a price level change for a change in relative pricesE) B) and C)
F) A) and C)

Question 13

When the price level falls

Accepted Answer

A)  people want to hold more money.
B)  the interest rate rises.
C)  investment spending rises.
D)  All of the above are correct.E) A) and C)
F) A) and B)

Question 14

In which case can we be sure real GDP rises in the short run?

Accepted Answer

A)  the money supply increases and taxes rise
B)  the money supply increases and taxes fall
C)  the money supply decreases and taxes rise
D)  None of the above are correct.E) None of the above
F) A) and C)

Question 15

Which of the following is not included in aggregate demand?

Accepted Answer

A)  purchases of stock and bonds
B)  purchases of services such as visits to the doctor
C)  purchases of capital goods such as equipment in a factory
D)  purchases by foreigners of consumer goods produced in the United StatesE) B) and D)
F) B) and C)

Question 16

During a recession the economy experiences

Accepted Answer

A)  rising employment and income.
B)  rising employment and falling income.
C)  rising income and falling employment.
D)  falling employment and income.E) A) and B)
F) A) and C)

Question 17

The average price level is measured by

Accepted Answer

A)  any real variable.
B)  the rate of inflation.
C)  the level of the money supply.
D)  the CPI or the GDP deflator.E) None of the above
F) All of the above

Question 18

If there are floods or droughts or a decrease in the availability of raw materials

Accepted Answer

A)  aggregate supply shifts right.
B)  output falls in the short run.
C)  prices fall in the short run.
D)  None of the above is correct.E) B) and C)
F) C) and D)

Question 19

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

Accepted Answer

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

Question 20

Other things the same, the aggregate quantity of goods demanded decreases if

Accepted Answer

A)  real wealth falls.
B)  the interest rate rises.
C)  the dollar appreciates.
D)  All of the above are correct.E) C) and D)
F) A) and B)

Exam 20: Aggregate Demand and Aggregate Supply

When the price level falls

Correct AnswerverifiedShow Answer

In the long run, technological progress

Correct AnswerverifiedShow Answer

When the actual change in the price level differs from its expected change, which of the following can explain why firms might change their production?

Correct AnswerverifiedShow Answer

In which case can we be sure real GDP rises in the short run?

Correct AnswerverifiedShow Answer

The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. -Refer to Stock Market Boom 2015. Which curve shifts and in which direction?

Correct AnswerverifiedShow Answer

Other things the same, the aggregate quantity of goods demanded decreases if

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the last half of 1999, the U.S. unemployment rate was about 4 percent. Historical experience suggests that this is

Correct AnswerverifiedShow Answer

If there are floods or droughts or a decrease in the availability of raw materials

Correct AnswerverifiedShow Answer

The average price level is measured by

Correct AnswerverifiedShow Answer

Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP growth and inflation can be explained by

Correct AnswerverifiedShow Answer

Other things the same, if the money supply rises by 2% and people were expecting it to rise by 5%, then some firms have

Correct AnswerverifiedShow Answer

When the price level increases, the real value of people's money holdings

Correct AnswerverifiedShow Answer

The Central Bank of Wiknam increases the money supply at the same time the Parliament of Wiknam passes a new investment tax credit. Which of these policies shift aggregate demand to the right?

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

Correct AnswerverifiedShow Answer

During a recession the economy experiences

Correct AnswerverifiedShow Answer

Which of the following is not included in aggregate demand?

Correct AnswerverifiedShow Answer

Other things the same, if the price level is lower than expected, then some firms believe that the relative price of what they produce has

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

Correct AnswerverifiedShow Answer

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