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Which of the following does the economy experience during a recession?


A) rising employment and income
B) rising employment and falling income
C) rising income and falling employment
D) falling employment and income

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The explanations for the slopes of the aggregate demand and aggregate supply curves are the same as the explanations for the slope of demand and supply curves for specific goods and services.

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During World War II, output increased by a larger percentage than government expenditures.

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Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

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Suppose there is a decrease in the availability of an important major resource, such as oil. Which of the following shifts would most likely occur?


A) The aggregate supply would shift right.
B) The aggregate supply would shift left.
C) The aggregate demand would shift right.
D) The aggregate demand would shift left.

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Suppose the economy is in long-run equilibrium. Concerns about pollution cause the government to significantly restrict the production of electricity. At the same time, the value of the dollar falls. What would we expect to happen in the short run?


A) Real GDP will rise, and the price level might rise, fall, or stay the same.
B) Real GDP will fall, and the price level might rise, fall, or stay the same.
C) The price level will rise, and real GDP might rise, fall, or stay the same.
D) The price level will fall, and real GDP might rise, fall, or stay the same.

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In addition to the price level, which of the following does the aggregate demand and aggregate supply model focus on?


A) real GDP
B) nominal GDP
C) the neutrality of money
D) stock prices

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An increase in the money supply shifts the long-run aggregate supply curve to the right.

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


A) an increase in the price level
B) an increase in the expected price level
C) an increase in the capital stock
D) a decrease in taxes

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Scenario 14-1. The economy is in long-run equilibrium. Suddenly, due to improved international relations and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time. -Refer to Scenario 14-1. In the short run, which of the following describes the changes that take place in the economy?


A) Both the price level and real GDP rise.
B) Both the price level and real GDP fall.
C) The price level rises and real GDP falls.
D) The price level falls and real GDP rises.

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When would the long-run aggregate supply curve shift right?


A) When immigration increases or the government makes a substantial increase in the minimum wage.
B) When immigration decreases or the government abolishes the minimum wage.
C) When immigration increases or the government abolishes the minimum wage.
D) When immigration decreases or the government makes a substantial increase in the minimum wage.

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Which of the following is consistent with the theory of aggregate supply?


A) An increase in the expected price level shifts the short-run aggregate supply curve to the right, and an increase in the actual price level shifts the short-run aggregate supply to the right.
B) An increase in the expected price level shifts the short-run aggregate supply curve to the right, and an increase in the actual price level does not shift the short-run aggregate supply.
C) An increase in the expected price level shifts the short-run aggregate supply curve to the left, and an increase in the actual price level shifts the short-run aggregate supply to the left.
D) An increase in the expected price level shifts the short-run aggregate supply curve to the left, and an increase in the actual price level does not shift the short-run aggregate supply.

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According to the sticky wage theory, which of the following is consistent with an unexpected fall in the price level?


A) The real wage rises and employment rises.
B) The real wage rises and employment falls.
C) The real wage falls and employment rises.
D) The real wage falls and employment falls.

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What are the effects of an increase in the price level?


A) The interest rate increases, the dollar depreciates, and net exports increase.
B) The interest rate increases, the dollar appreciates, and net exports decrease.
C) The interest rate decreases, the dollar depreciates, and net exports increase.
D) The interest rate decreases, the dollar appreciates, and net exports decrease.

Correct Answer

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How does the aggregate demand and supply model reflect a decrease in taxes?


A) Consumption increases, so aggregate demand shifts right.
B) Consumption increases, so aggregate supply shifts right.
C) Consumption decreases, so aggregate demand shifts left.
D) Consumption decreases, so aggregate supply shifts left.

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In 1982, Canada was in recession. Which of the following things would you expect NOT to have happened?


A) layoffs and firings
B) a higher rate of bankruptcy
C) increased claims for unemployment insurance
D) increased investment spending

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Which of the following shifts aggregate demand to the right?


A) a decrease in the money supply
B) a decrease in net exports at every exchange rate
C) an investment tax
D) a decrease in taxes

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In which of the following situations would the long-run aggregate supply curve shift right?


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

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What is the effect of bad weather for farming or some other temporary decrease in the availability of raw materials?


A) Aggregate supply shifts right.
B) Output falls in the short run.
C) Prices fall in the short run.
D) Long-run aggregate supply shifts to the left.

Correct Answer

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Which of the following 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 decrease in the money supply

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