Question 1

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces 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.E) A) and B)
F) A) and C)

Question 2

During periods of stagflation, what happens to output and prices in the economy?

Accepted Answer

Output fal...

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp increase in the supply of labor, a major new discovery of oil, and new environmental regulations that raise the cost of electricity production. In the short run

Accepted Answer

A)  the price level will rise and real GDP will fall.
B)  the price level will fall and real GDP will rise.
C)  the price level and real GDP will both stay the same.
D)  All of the above are possible.E) B) and D)
F) All of the above

Question 5

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) B) and D)

Question 6

When the dollar depreciates, U.S.

Accepted Answer

A)  net exports rise, which increases the aggregate quantity of goods and services demanded.
B)  net exports rise, which decreases the aggregate quantity of goods and services demanded.
C)  net exports fall, which increases the aggregate quantity of goods and services demanded.
D)  net exports fall, which decreases the aggregate quantity of goods and services demanded.E) A) and B)
F) A) and C)

Question 7

Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand?

Accepted Answer

A)  It would have to have shifted left by less than aggregate supply.
B)  It would have to have shifted left by more than aggregate supply.
C)  It would have to have shifted right by less than aggregate supply.
D)  It would have to have shifted right by more than aggregate supply.E) All of the above
F) A) and D)

Question 8

Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. To explain this

Accepted Answer

A)  it is only necessary that long-run aggregate supply shifts right over time.
B)  it is only necessary that aggregate demand shifts right over time.
C)  both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must be shifting farther.
D)  None of the above cases would produce rising prices and growing real GDP over time.E) B) and C)
F) C) and D)

Question 9

Other things the same, if the long-run aggregate supply curve shifts right, prices

Accepted Answer

A)  and output both increase.
B)  and output both decrease.
C)  increase and output decreases.
D)  decrease and output increases.E) C) and D)
F) A) and D)

Question 10

During recessions declines in investment account for about

Accepted Answer

A)  1/6 of the decline in real GDP.
B)  1/7 of the decline in real GDP.
C)  1/3 of the decline in real GDP.
D)  2/3 of the decline in real GDP.E) All of the above
F) C) and D)

Question 11

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)  an increase in the price level.
B)  households decide to save a larger fraction of their income.
C)  an increase in net exports.
D)  Congress passes a new investment tax credit.E) None of the above
F) All of the above

Question 12

As the price level falls

Accepted Answer

A)  people will want to hold more money, so the interest rate rises.
B)  people will want to hold more money, so the interest rate falls.
C)  people will want to hold less money, so the interest rate falls.
D)  people will want to hold less money, so the interest rate rises.E) A) and B)
F) None of the above

Question 13

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) None of the above
F) A) and D)

Question 14

Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left.

Accepted Answer

A) True 
 B)False

Question 15

Refer to Stock Market Boom 2015. In the short run what happens to the price level and real GDP?

Accepted Answer

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

Question 16

"Money is a veil" best describes the

Accepted Answer

A)  new-Keynesian view.
B)  Keynesian view.
C)  classical view.
D)  economy in the short run but not the long run.E) A) and D)
F) All of the above

Question 17

Which of the following would cause prices and real GDP to rise in the short run?

Accepted Answer

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

Question 18

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, taxes fall. In the short-run

Accepted Answer

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

Question 19

Which of the following, other things the same, would make the price level decrease and real GDP increase?

Accepted Answer

A)  long-run aggregate supply shifts right
B)  long-run aggregate supply shifts left
C)  aggregate demand shifts right
D)  aggregate demand shifts leftE) A) and B)
F) B) and C)

Question 20

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

Exam 33: Aggregate Demand and Aggregate Supply

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp increase in the supply of labor, a major new discovery of oil, and new environmental regulations that raise the cost of electricity production. In the short run

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During periods of stagflation, what happens to output and prices in the economy?

Correct AnswerverifiedOutput fal...View AnswerShow Answer

Historically, as recessions have ended the unemployment rate declined

Correct AnswerverifiedShow Answer

During recessions declines in investment account for about

Correct AnswerverifiedShow Answer

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, taxes fall. In the short-run

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. To explain this

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

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had

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

Refer to Stock Market Boom 2015. In the short run what happens to the price level and real GDP?

Correct AnswerverifiedShow Answer

Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left.

Correct AnswerverifiedShow Answer

Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand?

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the left?

Correct AnswerverifiedShow Answer

Which of the following would cause prices and real GDP to rise in the short run?

Correct AnswerverifiedShow Answer

"Money is a veil" best describes the

Correct AnswerverifiedShow Answer

As the price level falls

Correct AnswerverifiedShow Answer

Other things the same, if the long-run aggregate supply curve shifts right, prices

Correct AnswerverifiedShow Answer

When the dollar depreciates, U.S.

Correct AnswerverifiedShow Answer

Which of the following, other things the same, would make the price level decrease and real GDP increase?

Correct AnswerverifiedShow Answer

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