Question 1

What happens when the dollar depreciates?

Accepted Answer

A)   Canadian exports and imports increase.
B)   Canadian exports increase, while imports decrease.
C)   Canadian exports decrease, while imports increase.
D)   Canadian exports and imports decrease.E) All of the above
F) B) and C)

Question 2

Which relationship does the model of aggregate demand and aggregate supply explain?

Accepted Answer

A)   the relationship between the price and quantity of a particular good
B)   the relationship between the interest rate and output
C)   the relationship between wages and employment
D)   the relationship between real GDP and the price levelE) All of the above
F) A) and B)

Question 3

What does a fall in the economy's overall level of prices tend to do?

Accepted Answer

A)   It tends to raise both the quantity demanded and supplied of goods and services.
B)   It tends to raise the quantity demanded of goods and services, but lower the quantity supplied.
C)   It tends to lower the quantity demanded of goods and services, but raise the quantity supplied.
D)   It tends to lower both the quantity demanded and the quantity supplied of goods and services.E) C) and D)
F) B) and D)

Question 4

What happened during World War II?

Accepted Answer

A)   Government purchases of goods and services increased.
B)   The real GDP per person decreased by 60 percent.
C)   The unemployment rate increased to 15 percent.
D)   More resources were devoted to the production of consumer goods.E) B) and C)
F) A) and C)

Question 5

Other things the same, a decrease in the price level makes the interest rate increase, which leads to an appreciation of the dollar in the foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 6

Which statement best characterizes the aggregate-demand curve?

Accepted Answer

A)   It slopes downward because higher prices cause the exchange rate to depreciate.
B)   It slopes downward because higher prices cause real wealth to decrease and interest rates to increase.
C)   It slopes upward because higher prices cause people to increase their production.
D)   It slopes upward because higher prices cause real wealth to increase and interest rates to decrease.E) All of the above
F) B) and D)

Question 7

What does a rise in the economy's overall level of prices tend to do?

Accepted Answer

A)   It tends to raise both the quantity demanded and supplied of goods and services.
B)   It tends to raise the quantity demanded of goods and services but lower the quantity supplied.
C)   It tends to lower the quantity demanded of goods and services but raise the quantity supplied.
D)   It tends to lower both the quantity demanded and the quantity supplied of goods and services.E) A) and D)
F) B) and C)

Question 8

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 9

What does real GDP measure?

Accepted Answer

A)   the dollar value of all goods
B)   economic activity and income
C)   primarily long-run trends
D)   profitability of all companies in the economyE) A) and C)
F) None of the above

Question 10

Which statement characterizes business cycles?

Accepted Answer

A)   They are predictable fluctuations in consumption.
B)   They are no longer very important due to government policy.
C)   They are fluctuations in real GDP and related variables over time.
D)   They are easily predicted by competent economists.E) None of the above
F) A) and D)

Question 11

Figure 14-1

-Refer to the Figure 14-1. In the short run, what would result from a favourable shift in aggregate supply?

Accepted Answer

A)   It would move the economy from A to B.
B)   It would move the economy from B to C.
C)   It would move the economy from C to D.
D)   It would move the economy from D to A.E) A) and C)
F) B) and C)

Question 12

Which expenditure item is responsible for the decrease in real GDP during a recession?

Accepted Answer

A)   mostly investment spending
B)   mostly consumption spending
C)   mostly government spending
D)   mostly exportsE) A) and B)
F) None of the above

Question 13

Economists mostly agree that the Great Depression was the result of a very large adverse supply shock.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

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

Question 15

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil are discovered in the country, what would we expect will happen 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) None of the above

Question 16

How does Canadian aggregate demand change if the dollar appreciates or other countries experience recessions?

Accepted Answer

A)   Aggregate demand shifts right.
B)   Aggregate demand shifts left.
C)   If the dollar appreciates, aggregate demand shifts right; if other countries experience recessions, aggregate demand shifts left.
D)   If the dollar appreciates, aggregate demand shifts left; if other countries experience recessions, aggregate demand shifts right.E) B) and D)
F) None of the above

Question 17

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

Accepted Answer

A)   real GDP
B)   nominal GDP
C)   the real interest rate
D)   stock pricesE) A) and B)
F) B) and D)

Question 18

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

Accepted Answer

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 wageE) A) and B)
F) A) and C)

Question 19

All explanations for the upward slope of the short-run aggregate-supply curve suppose that output supplied increases when the price level increases more than expected.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)   People hold less money, so they lend less, and the interest rate rises.
B)   People hold less money, so they lend more, and the interest rate falls.
C)   People hold more money, so they lend more, and the interest rate falls.
D)   People hold more money, so they lend less, and the interest rate rises.E) A) and D)
F) None of the above

Exam 14: Aggregate Demand and Aggregate Supply

What does a fall in the economy's overall level of prices tend to do?

Correct AnswerverifiedShow Answer

All explanations for the upward slope of the short-run aggregate-supply curve suppose that output supplied increases when the price level increases more than expected.

Correct AnswerverifiedShow Answer

What does a rise in the economy's overall level of prices tend to do?

Correct AnswerverifiedShow Answer

What happens when the dollar depreciates?

Correct AnswerverifiedShow Answer

How does Canadian aggregate demand change if the dollar appreciates or other countries experience recessions?

Correct AnswerverifiedShow Answer

Economists mostly agree that the Great Depression was the result of a very large adverse supply shock.

Correct AnswerverifiedShow Answer

Which statement characterizes business cycles?

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil are discovered in the country, what would we expect will happen in the short run?

Correct AnswerverifiedShow Answer

Which relationship does the model of aggregate demand and aggregate supply explain?

Correct AnswerverifiedShow Answer

Which statement best characterizes the aggregate-demand curve?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which expenditure item is responsible for the decrease in real GDP during a recession?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 14-1 -Refer to the Figure 14-1. In the short run, what would result from a favourable shift in aggregate supply?

Correct AnswerverifiedShow Answer

Other things the same, a decrease in the price level makes the interest rate increase, which leads to an appreciation of the dollar in the foreign-currency exchange.

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

What happened during World War II?

Correct AnswerverifiedShow Answer

What does real GDP measure?

Correct AnswerverifiedShow Answer

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There are occasional short-lived periods...
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