Question 1

The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?

Accepted Answer

There are occasional short-lived periods...

Question 2

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)   both an investment tax credit and a decrease in income tax rates
B)   an investment tax credit but not a decrease in income tax rates
C)   a decrease in income tax rates but not an investment tax credit
D)   neither an investment tax credit nor a decrease in income tax ratesE) All of the above
F) A) and B)

Question 3

Make a list of things that would shift the long-run aggregate supply curve to the right.

Accepted Answer

Examples in the text or variations) incl...

Question 4

During recessions investment

Accepted Answer

A)   falls by a larger percentage than GDP.
B)   falls by about the same percentage as GDP.
C)   falls by a smaller percentage than GDP.
D)   falls but the percentage change is sometimes much larger and sometimes much smaller.E) None of the above
F) A) and B)

Question 5

Other things the same, when the government spends more, the initial effect is that

Accepted Answer

A)   aggregate demand shifts right.
B)   aggregate demand shifts left.
C)   aggregate supply shifts right.
D)   aggregate supply shifts left.E) B) and C)
F) None of the above

Question 6

Which of the following would increase output in the short run?

Accepted Answer

A)   an increase in stock prices makes people feel wealthier
B)   government spending increases
C)   firms chose to purchase more investment goods
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 7

Which of the following would both shift aggregate demand right?

Accepted Answer

A)   the price level decreases and government expenditures increase.
B)   the price level decreases and the government repeals an investment tax credit.
C)   taxes decrease and government expenditures increase.
D)   None of the above are correct.E) B) and D)
F) A) and B)

Question 8

When the price level falls the quantity of

Accepted Answer

A)   consumption goods demanded rises, while the quantity of net exports demanded falls.
B)   consumption goods demanded and the quantity of net exports demanded both rise.
C)   consumption goods demanded and the quantity of net exports demanded both fall.
D)   consumption goods demanded falls, while the quantity of net exports demand rises.E) A) and B)
F) A) and C)

Question 9

Investment is a

Accepted Answer

A)   small part of real GDP, so it accounts for a small share of the fluctuation in real GDP.
B)   small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
C)   large part of real GDP, so it accounts for a large share of the fluctuation in real GDP.
D)   large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP.E) B) and D)
F) A) and D)

Question 10

Other things the same, what happens to the price level and quantity of output when an adverse shift in the short run aggregate supply curve occurs?

Accepted Answer

Price leve...

Question 11

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

Accepted Answer

A)   aggregate supply to the right.
B)   aggregate supply to the left.
C)   aggregate demand to the right.
D)   aggregate demand to the left.E) A) and B)
F) None of the above

Question 12

Other things the same, an increase in the price level makes consumers feel

Accepted Answer

A)   less wealthy, so the quantity of goods and services demanded falls.
B)   less wealthy, so the quantity of goods and services demanded rises.
C)   more wealthy, so the quantity of goods and services demanded rises.
D)   more wealthy, so the quantity of goods and services demanded falls.E) B) and D)
F) B) and C)

Question 13

A recession with inflation is known by what term?

Accepted Answer

The answer of A recession with inflation is known by...

Question 14

If aggregate demand shifts right, then eventually price level expectations rise. The increase in price level expectations causes the short-run aggregate-supply curve to shift to the left.

Accepted Answer

A) True 
 B)False

Question 15

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) A) and B)
F) All of the above

Question 16

Historical evidence for the U.S. economy indicates that

Accepted Answer

A)   recessions have occurred roughly once every six years since the 1960s.
B)   the unemployment rate usually decreases during a recession and increases shortly after the recession ends.
C)   real GDP usually remains roughly constant during a recession and decreases shortly after the recession ends.
D)   changes in real GDP over the business cycle are largely attributable to changes in investment over the business cycle.E) C) and D)
F) All of the above

Question 17

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 C)
F) A) and B)

Question 18

Suppose that during World War II the long-run aggregate supply curve shifted right. In order for price and output to have changed in the direction they did, what would have to have happened to aggregate demand?

Accepted Answer

A)   It would have to have shifted left by less than aggregate supply shifted
B)   It would have to have to shifted left by more than aggregate supply shifted.
C)   It would have to have shifted right by less than aggregate supply shifted
D)   It would have to have to shifted right by more than aggregate supply shifted.E) A) and D)
F) None of the above

Question 19

Which of the following is correct?

Accepted Answer

A)   Real GDP is the variable most commonly used to measure short-run economic fluctuations. These fluctuations can be predicted with some accuracy.
B)   Real GDP is the variable most commonly used to measure short-run economic fluctuations. It is almost impossible to predict these fluctuations with much accuracy.
C)   Nominal GDP is the variable most commonly used to measure short-run economic fluctuations. These fluctuations can be predicted with some accuracy.
D)   Nominal GDP is the variable most commonly used to measure short-run economic fluctuations. It is almost impossible to predict these fluctuations with much accuracy.E) A) and B)
F) A) and C)

Question 20

An increase in the money supply causes the interest rate to fall, investment spending to rise, and aggregate demand to shift right.

Accepted Answer

A) True 
 B)False

Exam 23: Aggregate Demand and Aggregate Supply

Investment is a

Correct AnswerverifiedShow Answer

The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?

Correct AnswerverifiedThere are occasional short-lived periods...View AnswerShow Answer

During recessions investment

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Make a list of things that would shift the long-run aggregate supply curve to the right.

Correct AnswerverifiedExamples in the text or variations) incl...View AnswerShow Answer

When the price level falls the quantity of

Correct AnswerverifiedShow Answer

Other things the same, an increase in the price level makes consumers feel

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in the money supply causes the interest rate to fall, investment spending to rise, and aggregate demand to shift right.

Correct AnswerverifiedShow Answer

Suppose that during World War II the long-run aggregate supply curve shifted right. In order for price and output to have changed in the direction they did, what would have to have happened to aggregate demand?

Correct AnswerverifiedShow Answer

Which of the following would both shift aggregate demand right?

Correct AnswerverifiedShow Answer

Other things the same, when the government spends more, the initial effect is that

Correct AnswerverifiedShow Answer

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If aggregate demand shifts right, then eventually price level expectations rise. The increase in price level expectations causes the short-run aggregate-supply curve to shift to the left.

Correct AnswerverifiedShow Answer

Historical evidence for the U.S. economy indicates that

Correct AnswerverifiedShow Answer

A recession with inflation is known by what term?

Correct AnswerverifiedShow Answer

Which of the following would increase output in the short run?

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

Other things the same, what happens to the price level and quantity of output when an adverse shift in the short run aggregate supply curve occurs?

Correct AnswerverifiedPrice leve...View AnswerShow Answer

Correct Answer
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There are occasional short-lived periods...
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Examples in the text or variations) incl...
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Price leve...
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