Question 1

Which of the following is correct?

Accepted Answer

A)   Short run fluctuations in economic activity happen only in developing countries.
B)   During economic contractions most firms experience rising profits.
C)   Recessions come at irregular intervals and are easy to predict.
D)   When real GDP falls, the rate of unemployment rises.E) C) and D)
F) B) and D)

Question 2

Which of the following would cause prices and real GDP to rise in the short run?

Accepted Answer

A)   an increase in the expected price level
B)   an increase in the money supply
C)   a decrease in the capital stock
D)   an increase in taxes.E) B) and D)
F) A) and B)

Question 3

If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

Accepted Answer

A) True 
 B)False

Question 4

During recessions declines in investment account for about

Accepted Answer

A)   1/6 of the decline in real GDP.
B)   1/7 of the decline in real GDP.
C)   1/3 of the decline in real GDP.
D)   2/3 of the decline in real GDP.E) C) and D)
F) All of the above

Question 5

The classical model is the appropriate model for analysis of the economy in the

Accepted Answer

A)   long run, because evidence indicates that money is not neutral in the long run.
B)   long run, because real and nominal variables are essentially determined separately in the long run.
C)   short run, because money is neutral in the short run.
D)   short run, because real and nominal variables are not highly intertwined in the short run.E) C) and D)
F) A) and B)

Question 6

People will buy more if the price level

Accepted Answer

A)   rises because rising prices increase the real value of a dollar.
B)   rises because rising prices decrease the real value of a dollar.
C)   falls because falling prices increase the real value of a dollar.
D)   falls because falling prices decrease the real value of a dollar.E) B) and D)
F) B) and C)

Question 7

Using the aggregate demand and aggregate supply model, an increase in what curve is by itself consistent with the changes in prices and output that occurred during World War II?

Accepted Answer

The answer of Using the aggregate demand and aggregate supply...

Question 8

The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change

Accepted Answer

A)   in the price level and output.
B)   in the price level, but not output.
C)   in output, but not the price level.
D)   in neither the price level nor output.E) B) and C)
F) A) and C)

Question 9

Other things the same, as the price level decreases it induces greater spending on

Accepted Answer

A)   both net exports and investment.
B)   net exports but not investment.
C)   investment but not net exports.
D)   neither net exports nor investment.E) A) and B)
F) None of the above

Question 10

Figure 33-7. 
-Refer to Pessimism. What happens to the expected price level and what's the result for wage bargaining?

Accepted Answer

A)   The expected price level rises. Bargains are struck for higher wages.
B)   The expected price level rises. Bargains are struck for lower wages.
C)   The expected price level falls. Bargains are struck for higher wages.
D)   The expected price level falls. Bargains are struck for lower wages.E) A) and B)
F) A) and C)

Question 11

Figure 33-7. 
-Refer to Figure 33-7. Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy moves to

Accepted Answer

A)   V in the long run.
B)   W in the long run.
C)   X in the long run.
D)   Z in the long run.E) B) and C)
F) A) and D)

Question 12

The curve that shows the quantity of goods and services that firms produce and sell

Accepted Answer

A)   as it relates to the quantity of goods and services that buyers want to buy is called the aggregate-demand curve.
B)   as it relates to the quantity of goods and services that buyers want to buy is called the aggregate-supply curve.
C)   as it relates to the overall price level is called the aggregate-demand curve.
D)   as it relates to the overall price level is called the aggregate-supply curve.E) B) and C)
F) C) and D)

Question 13

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) A) and B)
F) B) and C)

Question 14

Suppose the economy is in long-run equilibrium. In a short span of time, there is an increase in the money supply, a tax decrease, a pessimistic revision of expectations about future business conditions, and a rise in the value of the dollar. In the short run, we would expect

Accepted Answer

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

Question 15

Real GDP

Accepted Answer

A)   is the current dollar value of all goods produced by the citizens of an economy within a given time.
B)   measures economic activity and income.
C)   is used primarily to measure long-run changes rather than short-run fluctuations.
D)   All of the above are correct.E) B) and C)
F) C) and D)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The effect of an increase in the price level on the aggregate-demand curve is represented by a

Accepted Answer

A)   shift to the right of the aggregate-demand curve.
B)   shift to the left of the aggregate-demand curve.
C)   movement to the left along a given aggregate-demand curve.
D)   movement to the right along a given aggregate-demand curve.E) C) and D)
F) None of the above

Question 18

Aggregate demand shifts right when the government

Accepted Answer

A)   decreases taxes.
B)   cuts military expenditures.
C)   repeals an investment tax credit.
D)   None of the above is correct.E) C) and D)
F) A) and C)

Question 19

The model of short-run economic fluctuations focuses on

Accepted Answer

A)   the price level and real GDP.
B)   productivity and economic growth.
C)   the neutrality of money and inflation.
D)   None of the above is correct.E) A) and C)
F) B) and D)

Question 20

The quantity of aggregate goods and services demanded rises when the

Accepted Answer

A)   price level rises, because the interest rate rises.
B)   price level rises, because the interest rate falls.
C)   price level falls, because the interest rate rises.
D)   price level falls, because the interest rate falls.E) A) and B)
F) A) and C)

Exam 20: Aggregate Demand and Aggregate Supply

The effect of an increase in the price level on the aggregate-demand curve is represented by a

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The classical model is the appropriate model for analysis of the economy in the

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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

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People will buy more if the price level

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The curve that shows the quantity of goods and services that firms produce and sell

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

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Figure 33-7. -Refer to Figure 33-7. Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy moves to

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If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

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During recessions declines in investment account for about

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Which of the following is correct?

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Suppose the economy is in long-run equilibrium. In a short span of time, there is an increase in the money supply, a tax decrease, a pessimistic revision of expectations about future business conditions, and a rise in the value of the dollar. In the short run, we would expect

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Other things the same, as the price level decreases it induces greater spending on

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Aggregate demand shifts right when the government

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The quantity of aggregate goods and services demanded rises when the

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The model of short-run economic fluctuations focuses on

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Figure 33-7. -Refer to Pessimism. What happens to the expected price level and what's the result for wage bargaining?

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The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change

Correct AnswerverifiedShow Answer

Using the aggregate demand and aggregate supply model, an increase in what curve is by itself consistent with the changes in prices and output that occurred during World War II?

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Which of the following would cause prices and real GDP to rise in the short run?

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Real GDP

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