Question 1

When the price level falls

Accepted Answer

A)   The interest rate falls because people will want to hold more money and so sell bonds.
B)   Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes.
C)   Both A and B are correct.
D)   None of the above are correct.E) A) and B)
F) B) and C)

Question 2

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 3

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then in the short run,

Accepted Answer

A)   real GDP will rise and the price level might rise,fall,or stay the same.In the long-run,real GDP will rise and the price level might rise,fall,or stay the same.
B)   the price level will fall,and real GDP might rise,fall,or stay the same.In the long-run,real GDP and the price level will be unaffected.
C)   the price level will rise,and real GDP might rise,fall,or stay the same.In the long run,real GDP will rise and the price level will fall.
D)   the price level will fall,and real GDP might rise,fall,or stay the same.In the long run,real GDP will rise and the price level will fall.E) A) and B)
F) A) and C)

Question 4

A decrease in the price level makes consumers feel wealthier,so they purchase more.This logic helps explain why the aggregate demand curve slopes downward.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following shifts both short-run and long-run aggregate supply left?

Accepted Answer

A)   a decrease in the actual price level
B)   a decrease in the expected price level
C)   a decrease in the capital stock
D)   a decrease in the money supplyE) A) and B)
F) None of the above

Question 6

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 7

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are

Accepted Answer

A)   the price level and real output.
B)   real output and employment.
C)   employment and the inflation rate.
D)   the value of money and the price level.E) A) and C)
F) B) and C)

Question 8

When taxes increase,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) C) and D)
F) All of the above

Question 9

When the actual change in the price level differs from its expected change,which of the following can explain why firms might change their production?

Accepted Answer

A)   both menu costs and mistaking a price level change for a change in relative prices
B)   menu costs but not mistaking a price level change for a change in relative prices
C)   mistaking a price level change for a change in relative price but not menu costs
D)   neither menu costs nor mistaking a price level change for a change in relative pricesE) A) and B)
F) A) and C)

Question 10

In the long-run,an increase in aggregate demand increases the price level,but not real GDP.

Accepted Answer

A) True 
 B)False

Question 11

An increase in the expected price level shifts the short-run aggregate supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following would cause stagflation?

Accepted Answer

A)   rising government expenditures
B)   rising oil prices
C)   a falling money supply
D)   technical progressE) C) and D)
F) B) and C)

Question 13

Which of the following is correct?

Accepted Answer

A)   Over the business cycle consumption fluctuates more than investment.
B)   Economic fluctuations are easy to predict.
C)   During recessions sales and profits tend to fall.
D)   Because of government policy the U.S.has suffered no recessions in the last 25 years.E) A) and B)
F) A) and C)

Question 14

Most economists believe that in the short run

Accepted Answer

A)   real and nominal variables are determined independently and that money cannot move real GDP away from its long-run trend.
B)   real and nominal variables are determined independently but that money can temporarily move real GDP away from its long-run trend.
C)   real and nominal variables are highly intertwined but that money cannot move real GDP away from its long-run trend.
D)   real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend.E) All of the above
F) A) and D)

Question 15

The Stock Market Boom of 2015
Imagine that in 2015 the economy is in long-run equilibrium.Then stock prices rise more than expected and stay high for some time.
-Refer to Stock Market Boom 2015.How is the new long-run equilibrium different from the original one?

Accepted Answer

A)   the price level and real GDP are higher
B)   the price level and real GDP are lower.
C)   the price level is higher and real GDP is the same.
D)   the price level is the same and real GDP is higher.E) A) and D)
F) A) and C)

Question 16

Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases.Their reaction would initially shift

Accepted Answer

A)   aggregate demand right.
B)   aggregate demand left.
C)   aggregate supply right.
D)   aggregate supply left.E) A) and B)
F) A) and C)

Question 17

Since the end of World War II,the U.S.has almost always had rising prices and an upward trend in real GDP.This can be explained

Accepted Answer

A)   only by technological progress.
B)   only by money supply growth.
C)   by technological progress and money supply growth.
D)   None of the above is correct.E) A) and D)
F) None of the above

Question 18

The Stock Market Boom of 2015
Imagine that in 2015 the economy is in long-run equilibrium.Then stock prices rise more than expected and stay high for some time.
-Refer to Stock Market Boom 2015.In the long run,the change in price expectations created by the stock market boom shifts

Accepted Answer

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

Question 19

When the price level rises more than expected,a firm with a sticky price will sell its output at a price that is

Accepted Answer

A)   less than it desires and increase its production.
B)   less than it desires and decrease its production.
C)   more than it desires and increase its production.
D)   less than it desires and decrease its productionE) A) and B)
F) A) and C)

Question 20

Other things the same,as the price level falls,a country's exchange rate

Accepted Answer

A)   and interest rates rise.
B)   and interest rates fall.
C)   falls and interest rates rise.
D)   rises and interest rates fall.E) A) and B)
F) All of the above

Exam 23: Aggregate Demand and Aggregate Supply

Most economists believe that in the short run

Correct AnswerverifiedShow Answer

An increase in the expected price level shifts the short-run aggregate supply curve to the right.

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Which of the following would cause stagflation?

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The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium.Then stock prices rise more than expected and stay high for some time. -Refer to Stock Market Boom 2015.How is the new long-run equilibrium different from the original one?

Correct AnswerverifiedShow Answer

A decrease in the price level makes consumers feel wealthier,so they purchase more.This logic helps explain why the aggregate demand curve slopes downward.

Correct AnswerverifiedShow Answer

Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases.Their reaction would initially shift

Correct AnswerverifiedShow Answer

Which of the following is correct?

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When the price level falls

Correct AnswerverifiedShow Answer

The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium.Then stock prices rise more than expected and stay high for some time. -Refer to Stock Market Boom 2015.In the long run,the change in price expectations created by the stock market boom shifts

Correct AnswerverifiedShow Answer

Since the end of World War II,the U.S.has almost always had rising prices and an upward trend in real GDP.This can be explained

Correct AnswerverifiedShow Answer

When taxes increase,consumption

Correct AnswerverifiedShow Answer

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are

Correct AnswerverifiedShow Answer

When the actual change in the price level differs from its expected change,which of the following can explain why firms might change their production?

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

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

Which of the following shifts both short-run and long-run aggregate supply left?

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then in the short run,

Correct AnswerverifiedShow Answer

When the price level rises more than expected,a firm with a sticky price will sell its output at a price that is

Correct AnswerverifiedShow Answer

In the long-run,an increase in aggregate demand increases the price level,but not real GDP.

Correct AnswerverifiedShow Answer

Other things the same,as the price level falls,a country's exchange rate

Correct AnswerverifiedShow Answer

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There are occasional short-lived periods...
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