Question 1

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 2

An increase in the expected price level shifts the

Accepted Answer

A)   short-run and long-run aggregate supply curves left.
B)   the short-run but not the long-run aggregate supply curve left.
C)   the long-run but not the short-run aggregate supply curve left.
D)   neither the long-run nor the short-run aggregate supply curve left.E) A) and B)
F) A) and C)

Question 3

Figure 33-5. 
-Refer to Figure 33-5. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2

Accepted Answer

A)   could be caused by an outbreak of war in the Middle East.
B)   could be caused by a decrease in the expected price level.
C)   causes the economy to experience an increase in the unemployment rate.
D)   causes the economy to experience stagflation.E) A) and B)
F) B) and C)

Question 4

Figure 33-7. 
-Refer to Figure 33-7. If the economy starts at Y, then a recession occurs at

Accepted Answer

A)   V.
B)   W.
C)   X.
D)   Z.E) A) and B)
F) A) and C)

Question 5

The sticky-price theory implies that

Accepted Answer

A)   the short-run aggregate-supply curve is upward-sloping.
B)   an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce.
C)   menu costs influence the speed of adjustment of prices.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 6

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 D)
F) All of the above

Question 7

Menu costs help explain

Accepted Answer

A)   sticky-price theory.
B)   misperceptions theory.
C)   sticky-wage theory.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 8

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people 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) B) and D)
F) A) and D)

Question 9

The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,

Accepted Answer

A)   production is more profitable and employment rises.
B)   production is more profitable and employment falls.
C)   production is less profitable and employment rises.
D)   production is less profitable and employment falls.E) All of the above
F) C) and D)

Question 10

Other things the same, as the price level rises, exchange rates

Accepted Answer

A)   and interest rates rise.
B)   and interest rates fall.
C)   fall and interest rates rise.
D)   rise and interest rates fall.E) A) and D)
F) A) and C)

Question 11

Other things the same, an increase in the expected price level shifts

Accepted Answer

A)   short-run aggregate supply right.
B)   short-run aggregate supply left.
C)   aggregate-demand right.
D)   aggregated-demand left.E) A) and B)
F) A) and C)

Question 12

An increase in the interest rate causes investment to

Accepted Answer

A)   rise and the exchange rate to appreciate.
B)   fall and the exchange rate to depreciate.
C)   rise and the exchange rate to depreciate.
D)   fall and the exchange rate to appreciate.E) A) and D)
F) B) and C)

Question 13

The short-run effects of an increase in the expected price level include

Accepted Answer

A)   a lower level of output and a lower price level.
B)   a lower level of output and a higher price level.
C)   a higher level of output and a lower price level.
D)   a higher level of output and a higher price level.E) None of the above
F) A) and D)

Question 14

Most economists believe that classical theory describes the world

Accepted Answer

A)   in the short run.
B)   in the long run.
C)   in both the short run and the long run.
D)   in neither the short run nor the long run.E) C) and D)
F) A) and C)

Question 15

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 C)
F) B) and D)

Question 16

Other things the same, an increase in the price level causes the interest rate to

Accepted Answer

A)   increase, the dollar to depreciate, and net exports to increase.
B)   increase, the dollar to appreciate, and net exports to decrease.
C)   decrease, the dollar to depreciate, and net exports to increase.
D)   decrease, the dollar to appreciate, and net exports to decrease.E) All of the above
F) B) and D)

Question 17

Which of the following shifts the short-run aggregate supply curve right?

Accepted Answer

A)   both an increase in the price level that is greater than expected and an increase in the expected price level.
B)   an increase in the price level that is greater than expected, but not an increase in the expected price level.
C)   an increase in the expected price level, but not an increase in the price level that is greater than expected.
D)   neither an increase in the price level that is greater than expected nor an increase in the expected price level.E) C) and D)
F) A) and B)

Question 18

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 19

When taxes decrease, consumption

Accepted Answer

A)   decreases as shown by a movement to the left along a given aggregate-demand curve.
B)   decreases as shown by a shift of the aggregate demand curve to the left.
C)   increases as shown by a movement to the right along a given aggregate-demand curve.
D)   increases as shown by a shift of the aggregate demand curve to the right.E) B) and C)
F) A) and C)

Question 20

Most economist agree that money changes real GDP in both the short and long run.

Accepted Answer

A) True 
 B)False

Exam 33: Aggregate Demand and Aggregate Supply

When taxes decrease, consumption

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The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,

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Most economists believe that classical theory describes the world

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The sticky-price theory implies that

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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Other things the same, an increase in the price level causes the interest rate to

Correct AnswerverifiedShow 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

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

Correct AnswerverifiedShow Answer

Figure 33-5. -Refer to Figure 33-5. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2

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Menu costs help explain

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Most economist agree that money changes real GDP in both the short and long run.

Correct AnswerverifiedShow Answer

An increase in the expected price level shifts the

Correct AnswerverifiedShow Answer

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has

Correct AnswerverifiedShow Answer

The short-run effects of an increase in the expected price level include

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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

Correct AnswerverifiedShow Answer

Which of the following shifts the short-run aggregate supply curve right?

Correct AnswerverifiedShow Answer

An increase in the interest rate causes investment to

Correct AnswerverifiedShow Answer

Figure 33-7. -Refer to Figure 33-7. If the economy starts at Y, then a recession occurs at

Correct AnswerverifiedShow Answer

Other things the same, an increase in the expected price level shifts

Correct AnswerverifiedShow Answer

Other things the same, as the price level rises, exchange rates

Correct AnswerverifiedShow Answer

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