Question 1

Suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage. They may infer that the reward to working is

Accepted Answer

A)   temporarily low and so supply a smaller quantity of labor.
B)   temporarily low and so supply a larger quantity of labor.
C)   temporarily high and so supply a smaller quantity of labor.
D)   temporarily high and so supply a larger quantity of labor.E) B) and C)
F) A) and B)

Question 2

When the dollar depreciates, U.S.

Accepted Answer

A)   net exports rise, which increases the aggregate quantity of goods and services demanded.
B)   net exports rise, which decreases the aggregate quantity of goods and services demanded.
C)   net exports fall, which increases the aggregate quantity of goods and services demanded.
D)   net exports fall, which decreases the aggregate quantity of goods and services demanded.E) B) and C)
F) A) and B)

Question 3

Refer to Optimism. How is the new long-run equilibrium different from the original one?

Accepted Answer

A)   both price and real GDP are higher
B)   both price and real GDP are lower.
C)   the price level is the same and GDP is higher.
D)   the price level is higher and real GDP is the same.E) C) and D)
F) None of the above

Question 4

From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made people feel less wealthy, then it would have shifted

Accepted Answer

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

Question 5

Refer to Financial Crisis. Suppose the economy reaches long-run equilibrium without the Fed responding. Now suppose the financial crisis ends and the ability of banks to lend returns to normal. In which case is the price level lower compared to its value prior to the crisis?

Accepted Answer

A)   both after the economy reaches long-run equilibrium during the crisis and in the long-run equilibrium after the crisis is over
B)   after the economy reaches long-run equilibrium during the crisis but not in the long-run equilibrium after the crisis is over
C)   in the long-run equilibrium after the crisis is over but not after the economy reaches long-run equilibrium during the crisis
D)   neither after the economy reaches long-run equilibrium during the crisis nor in the long-run equilibrium after the crisis is overE) A) and C)
F) A) and B)

Question 6

The aggregate-demand curve shows that a decrease in the price level

Accepted Answer

A)   decreases the dollar value of goods and services demanded in the economy.
B)   decreases the real value of goods and services demanded in the economy.
C)   increases the dollar value of goods and services demanded in the economy.
D)   increases the real value of goods and services demanded in the economy.E) All of the above
F) C) and D)

Question 7

Technological progress shifts the long-run aggregate supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 8

When the dollar appreciates, U.S.

Accepted Answer

A)   net exports rise, which increases the aggregate quantity of goods and services demanded.
B)   net exports rise, which decreases the aggregate quantity of goods and services demanded.
C)   net exports fall, which increases the aggregate quantity of goods and services demanded.
D)   net exports fall, which decreases the aggregate quantity of goods and services demanded.E) B) and C)
F) A) and D)

Question 9

If the dollar depreciates because of speculation or government policy, U.S.

Accepted Answer

A)   aggregate demand shifts left. U.S. aggregate demand also shifts left if other countries experience an increase in real GDP.
B)   aggregate demand shifts left. U.S. aggregate demand shifts right if other countries experience an increase in real GDP.
C)   aggregate demand shifts right. U.S. aggregate demand also shifts right if other countries experience a decrease in real GDP.
D)   aggregate demand shifts right. U.S. aggregate demand shifts left if other countries experience a decrease in real GDP.E) A) and B)
F) A) and C)

Question 10

Other things the same, a decrease in the price level makes the interest rate decrease, which leads to a depreciation of the dollar in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 11

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting

Accepted Answer

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

Question 12

In which case can we be sure that real GDP and the price level rise in the short run?

Accepted Answer

A)   foreign economies expand and taxes increase.
B)   foreign economies expand and taxes decrease.
C)   foreign economies contract and taxes decrease.
D)   foreign economies contract and taxes increase.E) All of the above
F) A) and B)

Question 13

Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift

Accepted Answer

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

Question 14

We depart from the assumptions of classical economics when we focus on the relationship between

Accepted Answer

A)   the quantity of output and the price level.
B)   the quantity of output and the unemployment rate.
C)   the price level and the inflation rate.
D)   inflation and the nominal interest rate.E) All of the above
F) B) and D)

Question 15

An economic expansion caused by a shift in aggregate demand causes prices to

Accepted Answer

A)   rise in the short run, and rise even more in the long run.
B)   rise in the short run, and fall back to their original level in the long run.
C)   fall in the short run, and fall even more in the long run.
D)   fall in the short run, and rise back to their original level in the long run.E) B) and C)
F) A) and D)

Question 16

Other things the same, when the price level falls, interest rates

Accepted Answer

A)   rise, so firms increase investment.
B)   rise, so firms decrease investment.
C)   fall, so firms increase investment.
D)   fall, so firms decrease investment.E) None of the above
F) B) and C)

Question 17

Consider the exhibit below for the following questions.
Figure 33-4 
-Refer to Figure 33-4. If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from

Accepted Answer

A)   A to B.
B)   C to D.
C)   B to A.
D)   D to C.E) B) and D)
F) None of the above

Question 18

Which of the following shifts short-run aggregate supply left?

Accepted Answer

A)   an increase in price expectations
B)   an increase in the actual price level
C)   a decrease in the money supply
D)   a decrease in the price of oilE) B) and C)
F) A) and D)

Question 19

Of the following theories, which is consistent with a vertical long-run aggregate supply curve?

Accepted Answer

A)   the sticky-wage theory
B)   misperceptions theory
C)   both the sticky-wage and misperceptions theories.
D)   neither the sticky-wage nor the misperceptions theory.E) All of the above
F) None of the above

Question 20

The aggregate supply curve is

Accepted Answer

A)   vertical in the long run and slopes upward in the short run.
B)   upward sloping in the long run and vertical in the short run.
C)   vertical in the short run and in the long run.
D)   upward sloping in the short run and in the long run.E) A) and B)
F) None of the above

Exam 33: Aggregate Demand and Aggregate Supply

Technological progress shifts the long-run aggregate supply curve to the right.

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We depart from the assumptions of classical economics when we focus on the relationship between

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Which of the following shifts short-run aggregate supply left?

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Of the following theories, which is consistent with a vertical long-run aggregate supply curve?

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The aggregate supply curve is

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Refer to Financial Crisis. Suppose the economy reaches long-run equilibrium without the Fed responding. Now suppose the financial crisis ends and the ability of banks to lend returns to normal. In which case is the price level lower compared to its value prior to the crisis?

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An economic expansion caused by a shift in aggregate demand causes prices to

Correct AnswerverifiedShow Answer

If the dollar depreciates because of speculation or government policy, U.S.

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In which case can we be sure that real GDP and the price level rise in the short run?

Correct AnswerverifiedShow Answer

Consider the exhibit below for the following questions. Figure 33-4 -Refer to Figure 33-4. If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from

Correct AnswerverifiedShow Answer

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting

Correct AnswerverifiedShow Answer

Refer to Optimism. How is the new long-run equilibrium different from the original one?

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When the dollar appreciates, U.S.

Correct AnswerverifiedShow Answer

Suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage. They may infer that the reward to working is

Correct AnswerverifiedShow Answer

From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made people feel less wealthy, then it would have shifted

Correct AnswerverifiedShow Answer

The aggregate-demand curve shows that a decrease in the price level

Correct AnswerverifiedShow Answer

When the dollar depreciates, U.S.

Correct AnswerverifiedShow Answer

Other things the same, a decrease in the price level makes the interest rate decrease, which leads to a depreciation of the dollar in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

Other things the same, when the price level falls, interest rates

Correct AnswerverifiedShow Answer

Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift

Correct AnswerverifiedShow Answer

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