Question 1

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.

Question 2

According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had

Accepted Answer

A)  increased, so it would increase production.
B)  increased, so it would decrease production.
C)  decreased, so it would increase production.
D)  decreased, so it would decrease production.

Question 3

During recessions which type of spending falls?

Accepted Answer

A)  consumption and investment
B)  investment but not consumption
C)  consumption but not investment
D)  neither consumption nor investment

Question 4

Other things the same, as the price level falls, which of the following increases?

Accepted Answer

A)  lending and investment spending
B)  lending, but not investment spending
C)  investment spending, but not lending
D)  neither investment spending nor lending

Question 5

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if

Accepted Answer

A)  the price level is higher than expected making production more profitable.
B)  The price level is higher than expected making production less profitable
C)  the price level is lower than expected making production more profitable
D)  The price level is higher than expected making production less profitable.

Question 6

Other things the same, when the price level falls, interest rates

Accepted Answer

A)  rise, so firms increase investment.
B)  rise, so firms decrease investment.
C)  fall, so firms increase investment.
D)  fall, so firms decrease investment.

Question 7

Aggregate demand includes

Accepted Answer

A)  only the quantity of goods and services households want to buy.
B)  only the quantity of goods and services households and firms want to buy.
C)  only the quantity of goods and services households, firms, and the government want to buy.
D)  the quantity of goods and services households, firms, the government, and customer abroad want to buy.

Question 8

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

Accepted Answer

A)  an increase in the minimum wage
B)  an increase in immigration from abroad
C)  an increase in the price of oil
D)  an increase in the actual price level

Question 9

Keynes explained that recessions and depressions occur because of

Accepted Answer

A)  excess aggregate demand.
B)  inadequate aggregate demand.
C)  excess aggregate supply.
D)  inadequate aggregate supply.

Question 10

Other things the same, a decrease in the price level causes the interest rate to

Accepted Answer

A)  increase, the dollar to appreciate, and net exports to increase.
B)  increase, the dollar to depreciate, and net exports to decrease.
C)  decrease, the dollar to depreciate, and net exports to increase.
D)  decrease, the dollar to appreciate, and net exports to decrease.

Question 11

The price level rises in the short run if

Accepted Answer

A)  aggregate demand or aggregate supply shifts right.
B)  Aggregate demand shifts right or aggregate supply shifts left.
C)  aggregate demand shifts left or aggregate supply shifts right.
D)  Aggregate demand or aggregate supply shifts right

Question 12

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

Accepted Answer

A)  the long-run aggregate-supply curve to the right.
B)  the long-run aggregate-supply curve to the left.
C)  the aggregate-demand curve to the left.
D)  None of the above is correct.

Question 13

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

Accepted Answer

A)  the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports.
B)  the real value of money decreases; in turn, interest rates increase, which decreases net exports.
C)  households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods.
D)  households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.

Question 14

People will buy more if the price level

Accepted Answer

A)  rises because rising prices increase the real value of a dollar.
B)  rises because rising prices decrease the real value of a dollar.
C)  falls because falling prices increase the real value of a dollar.
D)  falls because falling prices decrease the real value of a dollar.

Question 15

Other things the same, when the price level rises, interest rates

Accepted Answer

A)  rise, so firms increase investment.
B)  rise, so firms decrease investment.
C)  fall, so firms increase investment.
D)  fall, so firms decrease investment.

Question 16

As the price level rises,

Accepted Answer

A)  the exchange rate falls, so net exports fall.
B)  the exchange rate falls, so net exports rise.
C)  the exchange rate rises, so net exports fall.
D)  the exchange rate rises, so net exports rise.

Question 17

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. What happens to the expected price level and what impact does this have on 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.

Question 18

During World War II, the economy's production increased about

Accepted Answer

A)  25 percent and prices rose about 5 percent.
B)  50 percent and prices rose about 10 percent.
C)  75 percent and prices rose about 15 percent.
D)  100 percent and prices rose about 20 percent.

Question 19

The long-run aggregate supply curve shifts right if

Accepted Answer

A)  either immigration from abroad increases or technology improves.
B)  immigration from abroad increases, but not if technology improves.
C)  technology improves, but not if immigration from abroad increases.
D)  None of the above are correct.

Question 20

If the dollar appreciates because of speculation or government policy U.S.

Accepted Answer

A)  aggregate demand shifts left. U.S. aggregate demand also shifts left if other countries experience recessions.
B)  aggregate demand shifts left. U.S. aggregate demand shifts right if other countries experience recessions.
C)  aggregate demand shifts right. U.S. aggregate demand also shifts right if other countries experience recessions.
D)  aggregate demand shifts right. U.S. aggregate demand shifts left if other countries experience recessions.

Exam 20: Aggregate Demand and Aggregate Supply

According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had

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During World War II, the economy's production increased about

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The price level rises in the short run if

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Other things the same, a decrease in the price level causes the interest rate to

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Other things the same, when the price level falls, interest rates

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During recessions which type of spending falls?

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Other things the same, as the price level falls, which of the following increases?

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Aggregate demand includes

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Other things the same, when the price level rises, interest rates

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

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If the dollar appreciates because of speculation or government policy U.S.

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People will buy more if the price level

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The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if

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As the price level rises,

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The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

Correct AnswerverifiedShow Answer

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve shifts right if

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. What happens to the expected price level and what impact does this have on wage bargaining?

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When taxes increase, consumption

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Keynes explained that recessions and depressions occur because of

Correct AnswerverifiedShow Answer

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