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Which statement best describes the aggregate demand and aggregate supply model?


A) Aggregate supply adjusts to equate aggregate demand at the prevailing market prices.
B) The price level adjusts to equate aggregate demand to aggregate supply.
C) Aggregate demand adjusts to equate aggregate supply at the prevailing market prices.
D) Both aggregate demand and supply adjust to become equal at the prevailing market prices.

E) All of the above
F) A) and D)

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What changes are likely to happen in an economy when production costs rise?


A) Output and prices rise.
B) Output rises and prices fall.
C) Output falls and prices rise.
D) Output and prices fall.

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

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A change in the money supply changes only nominal variables in the long run.

A) True
B) False

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What are the variables on the vertical and horizontal axes of the aggregate supply and demand curve?


A) the price level and real output
B) real output and employment
C) unemployment and the inflation rate
D) inflation rate and the price level

E) All of the above
F) B) and C)

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Suppose the economy is initially in long-run equilibrium. Which statement best describes the state of the economy after an increase in aggregate demand?


A) Prices and output are higher.
B) Prices and output are lower.
C) Prices are higher and output is the same.
D) Prices are the same and output is lower.

E) None of the above
F) A) and B)

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Which statement best explains the downward slope of the aggregate-demand curve?


A) As the Canadian price level increases, the dollar depreciates and people buy more imports.
B) As the Canadian price level increases, the interest rate falls and firms invest less.
C) As the Canadian price level increases, people feel less wealthy and buy less goods and services.
D) As the Canadian price level increases, people buy more substitute goods.

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

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Suppose there was an economic contraction caused by a shift in aggregate supply. Further, suppose the central bank changes the money supply to offset the effects of that contraction. How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?


A) aggregate supply would shift to the right.
B) Aggregate supply would shift to the left.
C) Aggregate demand would shift to the right.
D) Aggregate demand would shift to the left.

E) B) and D)
F) None of the above

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Make a list of expenditures whose sum equals GDP.

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consumption, investm...

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Pessimism about the future leads to falling prices and rising unemployment.

A) True
B) False

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Illustrate the classical analysis of growth and inflation with aggregate-demand and long-run aggregate-supply curves.

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See graph.
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Over time, technological ad...

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Consider the short-run aggregate-supply curve in the following graph. Consider the short-run aggregate-supply curve in the following graph. ā€‹ a. Calculate approximately the elasticities of the curve at two price levels, P = 20 and P = 100. (Hint: The price elasticity formula is EP = percentage change in Y / percentage change in P.) b. Explain the meaning of the elasticity in the context of the AS curve.ā€‹ c. Compare the two elasticities found in (a) and discuss the results. Consider the short-run aggregate-supply curve in the following graph. ā€‹ a. Calculate approximately the elasticities of the curve at two price levels, P = 20 and P = 100. (Hint: The price elasticity formula is EP = percentage change in Y / percentage change in P.) b. Explain the meaning of the elasticity in the context of the AS curve.ā€‹ c. Compare the two elasticities found in (a) and discuss the results. ā€‹ a. Calculate approximately the elasticities of the curve at two price levels, P = 20 and P = 100. (Hint: The price elasticity formula is EP = percentage change in Y / percentage change in P.) b. Explain the meaning of the elasticity in the context of the AS curve.ā€‹ c. Compare the two elasticities found in (a) and discuss the results.

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a. An easier way of calculating the elas...

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In which situation would the long-run aggregate-supply curve shift right?


A) if the government were to increase the minimum-wage
B) if the government were to make unemployment benefits more generous
C) if the government were to raise taxes on investment spending
D) if the government were to increase immigration

E) None of the above
F) A) and B)

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


A) a decrease in consumption, which shifts aggregate supply left
B) a decrease in consumption, which shifts aggregate demand left
C) an increase in consumption, which shifts aggregate supply right
D) an increase in consumption, which shifts aggregate demand right

E) All of the above
F) B) and D)

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Scenario 14-2 The economy is in long-run equilibrium. Suddenly, due to corporate scandals, a recession experienced by a major trading partner, 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 the Scenario 14-2. Which statement is consistent with the aggregate demand and aggregate supply theory?


A) The expected price level rises. Bargains are struck for higher increases in wages.
B) The expected price level rises. Bargains are struck for lower increases in wages.
C) The expected price level falls. Bargains are struck for higher increases in wages.
D) The expected price level falls. Bargains are struck for lower increases in wages.

E) B) and D)
F) All of the above

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What has been suggested as a cause of the Great Depression?


A) a decline in output
B) a decrease in prices
C) strong bank regulations
D) a fall in net exports

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

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After a major flood destroyed a large residential area in Calgary, what might have happened?


A) Aggregate demand shifted to the right and prices increased.
B) Aggregate demand shifted to the left and prices increased.
C) Aggregate demand shifted to the right and prices decreased.
D) Aggregate demand shifted to the left and prices decreased.

E) A) and C)
F) C) and D)

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What does the downward slope of the aggregate-demand curve show?


A) that an increase in the money supply causes the aggregate quantity of goods and services demanded to increase
B) that an increase in the money supply causes the aggregate quantity of goods and services demanded to decrease
C) that an increase in the price level causes the aggregate quantity of goods and services demanded to increase
D) that an increase in the price level causes the aggregate quantity of goods and services demanded to decrease

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

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An increase in the price level makes consumers feel less wealthy. How is this situation represented?


A) Aggregate demand shifts right.
B) Aggregate demand shifts left.
C) There is a movement to right along a given aggregate-demand curve.
D) There is a movement to the left along a given aggregate-demand curve.

E) A) and B)
F) B) and D)

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What has NOT been suggested as a cause of the Great Depression?


A) rapidly rising asset prices
B) a decline in Canadian exports
C) a decrease in stock prices
D) the collapse of the banking system

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

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What typically rises during a recession?


A) the price level
B) unemployment
C) corporate profits
D) automobile sales

E) A) and D)
F) B) and C)

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