Question 1

Other things the same, if the price level is lower than 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) All of the above
F) B) and C)

Question 2

Figure 33-5. 
-Refer to Figure 33-5. The appearance of the long-run aggregate-supply (LRAS)  curve

Accepted Answer

A)   is consistent with the concept of monetary neutrality.
B)   is consistent with the idea that point A represents a long-run equilibrium and a short-run equilibrium when the relevant short-run aggregate-supply curve is SRAS1.
C)   indicates that Y1 is the natural rate of output.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 3

Consider the exhibit below for the following questions.
Figure 33-4 
-Refer to Figure 33-4. The economy would be moving to long-run equilibrium if it started at

Accepted Answer

A)   A and moved to B.
B)   C and moved to B.
C)   D and moved to C.
D)   None of the above is correct.E) A) and B)
F) B) and C)

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

Question 5

Most economists believe that classical macroeconomic theory is a good description of the economy

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 run.E) C) and D)
F) None of the above

Question 6

Figure 33-6. 
-Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a recession?

Accepted Answer

A)   LRAS1
B)   LRAS2
C)   LRAS3
D)   Both LRAS1 and LRAS3E) A) and B)
F) A) and C)

Question 7

If aggregate demand shifts left, then in the short run

Accepted Answer

A)   the price level and real GDP both rise.
B)   the price level rises and real GDP falls.
C)   the price level falls and real GDP rises.
D)   the price and real GDP both fall.E) A) and B)
F) None of the above

Question 8

If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Accepted Answer

A) True 
 B)False

Question 9

Historically, as recessions have ended the unemployment rate declined

Accepted Answer

A)   gradually to near zero.
B)   rapidly to near zero.
C)   gradually to a rate of about 5%-6%.
D)   rapidly to a rate of about 5%-6%.E) A) and B)
F) None of the above

Question 10

Explain how a change in the expected price level would shift the short-run and long-run aggregate-supply curves.

Accepted Answer

Expected price level changes w...

Question 11

As the price level rises

Accepted Answer

A)   people will want to buy more bonds, so the interest rate rises.
B)   people will want to buy fewer bonds, so the interest rate falls.
C)   people will want to buy more bonds, so the interest rate falls.
D)   people will want to buy fewer bonds, so the interest rate rises.E) B) and C)
F) B) and D)

Question 12

The aggregate demand and aggregate supply graph has the

Accepted Answer

A)   quantity of output on the horizontal axis. Output is best measured by real GDP.
B)   quantity of output on the horizontal axis. Output is best measured by nominal GDP.
C)   quantity of output on the vertical axis. Output is best measured by real GDP.
D)   quantity of output on the vertical axis. Output is best measured by nominal GDP.E) A) and D)
F) All of the above

Question 13

The exchange-rate effect helps explain what feature in the aggregate demand and aggregate supply model?

Accepted Answer

why the ag...

Question 14

Sticky nominal wages can result in

Accepted Answer

A)   lower profits for firms when the price level is lower than expected.
B)   a decrease in real wages when the price level is lower than expected.
C)   a short-run aggregate-supply curve that is vertical.
D)   a long-run aggregate-supply curve that is upward-sloping.E) A) and D)
F) A) and C)

Question 15

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

Accepted Answer

A)   an increase in the money supply
B)   an increase in the price level
C)   a decrease in the expected price level
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 16

Refer to Optimism. What happens to the expected price level and what's the result for wage bargaining?

Accepted Answer

A)   The expected price level falls. Bargains are struck for higher wages.
B)   The expected price level falls. Bargains are struck for lower wages.
C)   The expected price level rises. Bargains are struck for higher wages.
D)   The expected price level rises. Bargains are struck for lower wages.E) A) and D)
F) B) and D)

Question 17

Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?

Accepted Answer

A)   as people revise their price-level expectations upward, firms and workers strike bargains for higher nominal wages.
B)   as people revise their price-level expectations upward, firms and workers strike bargains for lower nominal wages.
C)   as people revise their price-level expectations downward, firms and workers strike bargains for higher nominal wages.
D)   as people revise their price-level expectations downward, firms and workers strike bargains for lower nominal wages.E) All of the above
F) A) and C)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

When the money supply increases

Accepted Answer

A)   interest rates fall and so aggregate demand shifts right.
B)   interest rates fall and so aggregate demand shifts left.
C)   interest rates rise and so aggregate demand shifts right.
D)   interest rates rise and so aggregate demand shifts left.E) A) and B)
F) A) and C)

Question 20

Which of the following will both make people buy more?

Accepted Answer

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

Exam 33: Aggregate Demand and Aggregate Supply

When the money supply increases

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Most economists believe that classical macroeconomic theory is a good description of the economy

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The exchange-rate effect helps explain what feature in the aggregate demand and aggregate supply model?

Correct Answerverifiedwhy the ag...View AnswerShow Answer

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

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The aggregate demand and aggregate supply graph has the

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Figure 33-5. -Refer to Figure 33-5. The appearance of the long-run aggregate-supply (LRAS) curve

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Which of the following will both make people buy more?

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Refer to Optimism. What happens to the expected price level and what's the result for wage bargaining?

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Consider the exhibit below for the following questions. Figure 33-4 -Refer to Figure 33-4. The economy would be moving to long-run equilibrium if it started at

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Explain how a change in the expected price level would shift the short-run and long-run aggregate-supply curves.

Correct AnswerverifiedExpected price level changes w...View AnswerShow Answer

Sticky nominal wages can result in

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

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If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

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Figure 33-6. -Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a recession?

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Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?

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During recessions investment

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Other things the same, if the price level is lower than expected, then some firms believe that the relative price of what they produce has

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As the price level rises

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If aggregate demand shifts left, then in the short run

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Historically, as recessions have ended the unemployment rate declined

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why the ag...
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Expected price level changes w...
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