Question 1

Which of the following would make the price level decrease and real GDP increase?

Accepted Answer

A)  Long-run aggregate supply shifts right.
B)  Long-run aggregate supply shifts left.
C)  Aggregate demand shifts right.
D)  Aggregate demand shifts left.E) B) and C)
F) A) and B)

Question 2

What did Keynes believe caused recessions and depressions?

Accepted Answer

A)  excess aggregate demand
B)  inadequate aggregate demand
C)  excess aggregate supply
D)  inadequate aggregate supplyE) B) and C)
F) C) and D)

Question 3

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

Accepted Answer

A)  The price level and real GDP will both rise.
B)  The price level and real GDP will both fall.
C)  The price level and real GDP will both stay the same.
D)  The price level will increase, and the real GDP will fall.E) B) and C)
F) A) and B)

Question 4

Consider the exhibit below for the following questions.
Figure 14-1 
-Refer to Figure 14-1. How would an increase in the money supply move the economy in the long run?

Accepted Answer

A)  from C to A
B)  from C to B
C)  from C to A to C again
D)  from C to DE) A) and D)
F) C) and D)

Question 5

How do changes in the price of oil affect economies?

Accepted Answer

A)  They lead to recession and deflation
B)  They do not contribute much to output fluctuations.
C)  They change the economy principally by changing aggregate demand.
D)  They may create both inflation and recession.E) All of the above
F) None of the above

Question 6

Which of the following does NOT determine the long-run level of real GDP?

Accepted Answer

A)  the price level
B)  the supply of labour
C)  available natural resources
D)  available technologyE) All of the above
F) B) and C)

Question 7

Suppose a stock market crash makes people feel poorer. What are the effects of this decrease in wealth?

Accepted Answer

A)  a decrease in consumption, which shifts aggregate supply left
B)  a decrease in consumption, which shifts aggregate demand left
C)  a increase in consumption, which shifts aggregate supply right
D)  a increase in consumption, which shifts aggregate demand rightE) None of the above
F) B) and C)

Question 8

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

Accepted Answer

A)  when real wealth rises
B)  when the interest rate rises
C)  when the dollar appreciates
D)  when the expected price level risesE) All of the above
F) C) and D)

Question 9

Why does an increase in the price level cause a decrease in the aggregate quantity of goods and services demanded?

Accepted Answer

A)  because as wealth rises, interest rates rise, and the dollar appreciates
B)  because as wealth rises, interest rates fall, and the dollar depreciates
C)  because as wealth falls, interest rates rise, and the dollar appreciates
D)  because as wealth falls, interest rates fall, and the dollar depreciatesE) B) and D)
F) A) and D)

Question 10

Use the sticky wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

Accepted Answer

When people expect the price l...

Question 11

Most economists believe that classical economic theory is a good description of the world over which of the following time periods?

Accepted Answer

A)  in neither the short nor long run
B)  in the short run and in the long run
C)  in the short run, but not in the long run
D)  in the long run, but not in the short runE) A) and C)
F) A) and D)

Question 12

Most economists believe that classical theory explains the world in the short run, but not the long run.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  Real wages rise, so firms will hire more workers.
B)  Real wages rise, so firms will hire fewer workers.
C)  Real wages fall, so firms will hire more workers.
D)  Real wages fall, so firms will hire fewer workers.E) None of the above
F) All of the above

Question 14

Scenario 14-2. The economy is in long-run equilibrium. Suddenly, due to corporate scandals, international tensions, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time.
-Refer to Scenario 14-2. In the long-run, the change in price expectations caused by pessimism leads to which of the following shifts?

Accepted Answer

A)  Long-run AS shifts left.
B)  Long-run AS shifts right.
C)  Short-run AS shifts right.
D)  Short-run AS shifts left.E) A) and C)
F) A) and B)

Question 15

An increase in the money supply raises output in the long run.

Accepted Answer

A) True 
 B)False

Question 16

Changes in the price level affect which of the following components of aggregate demand?

Accepted Answer

A)  only consumption and investment
B)  only consumption and net exports
C)  only consumption
D)  consumption, investment, and net exportsE) A) and B)
F) A) and C)

Question 17

What is the effect of technological progress and increases in the money supply on prices in the long run?

Accepted Answer

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

Question 18

Suppose a fall in stock prices makes people feel poorer. What are the effects of this decrease in wealth?

Accepted Answer

A)  a decrease in consumption, shown as a movement to the left along a given aggregate demand curve
B)  an increase in consumption, shown as a movement to the right along a given aggregate demand curve
C)  a decrease in consumption, which shifts the aggregate demand curve to the left
D)  an increase in consumption, which shifts the aggregate demand curve to the rightE) All of the above
F) C) and D)

Question 19

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 CanadaE) A) and D)
F) C) and D)

Question 20

Because not all prices adjust instantly to changing conditions, 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

Exam 14: Aggregate Demand and Aggregate Supply

Suppose a fall in stock prices makes people feel poorer. What are the effects of this decrease in wealth?

Correct Answer
verified

An increase in the money supply raises output in the long run.

Correct Answer
verified

Correct Answer
verified

Use the sticky wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

Correct Answer
verified
When people expect the price l...
View Answer

What did Keynes believe caused recessions and depressions?

Correct Answer
verified

Consider the exhibit below for the following questions. Figure 14-1 -Refer to Figure 14-1. How would an increase in the money supply move the economy in the long run?

Correct Answer
verified

What is the effect of technological progress and increases in the money supply on prices in the long run?

Correct Answer
verified

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

Correct Answer
verified

Which of the following does NOT determine the long-run level of real GDP?

Correct Answer
verified

Most economists believe that classical theory explains the world in the short run, but not the long run.

Correct Answer
verified

Which of the following is NOT included in aggregate demand?

Correct Answer
verified

Changes in the price level affect which of the following components of aggregate demand?

Correct Answer
verified

Most economists believe that classical economic theory is a good description of the world over which of the following time periods?

Correct Answer
verified

Why does an increase in the price level cause a decrease in the aggregate quantity of goods and services demanded?

Correct Answer
verified

Suppose a stock market crash makes people feel poorer. What are the effects of this decrease in wealth?

Correct Answer
verified

How do changes in the price of oil affect economies?

Correct Answer
verified

Because not all prices adjust instantly to changing conditions, 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.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which of the following would make the price level decrease and real GDP increase?

Correct Answer
verified

Exam 14: Aggregate Demand and Aggregate Supply

Suppose a fall in stock prices makes people feel poorer. What are the effects of this decrease in wealth?

Correct AnswerverifiedShow Answer

An increase in the money supply raises output in the long run.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Use the sticky wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

Correct AnswerverifiedWhen people expect the price l...View AnswerShow Answer

What did Keynes believe caused recessions and depressions?

Correct AnswerverifiedShow Answer

Consider the exhibit below for the following questions. Figure 14-1 -Refer to Figure 14-1. How would an increase in the money supply move the economy in the long run?

Correct AnswerverifiedShow Answer

What is the effect of technological progress and increases in the money supply on prices in the long run?

Correct AnswerverifiedShow Answer

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

Correct AnswerverifiedShow Answer

Which of the following does NOT determine the long-run level of real GDP?

Correct AnswerverifiedShow Answer

Most economists believe that classical theory explains the world in the short run, but not the long run.

Correct AnswerverifiedShow Answer

Which of the following is NOT included in aggregate demand?

Correct AnswerverifiedShow Answer

Changes in the price level affect which of the following components of aggregate demand?

Correct AnswerverifiedShow Answer

Most economists believe that classical economic theory is a good description of the world over which of the following time periods?

Correct AnswerverifiedShow Answer

Why does an increase in the price level cause a decrease in the aggregate quantity of goods and services demanded?

Correct AnswerverifiedShow Answer

Suppose a stock market crash makes people feel poorer. What are the effects of this decrease in wealth?

Correct AnswerverifiedShow Answer

How do changes in the price of oil affect economies?

Correct AnswerverifiedShow Answer

Because not all prices adjust instantly to changing conditions, 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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would make the price level decrease and real GDP increase?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When people expect the price l...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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