Question 1

Which of the following best defines the classical dichotomy?

Accepted Answer

A)  It is the separation of variables that move with the business cycle and variables that do not.
B)  It is the separation of changes in money and changes in government expenditures.
C)  It is the separation of endogenous and exogenous variables.
D)  It is the separation of real and nominal variables.E) A) and B)
F) A) and C)

Question 2

What was the main reason for the economic boom of the early 1940s?

Accepted Answer

A)  increased government expenditures
B)  falling prices of oil and other natural resources
C)  an increase in the growth rate of the money supply
D)  rapid developments in transportation, electronics, and communicationE) All of the above
F) A) and B)

Question 3

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

Accepted Answer

A)  an increase in the expected price level
B)  an increase in the capital stock
C)  an increase in the quantity of labour available
D)  an increase in money supplyE) None of the above
F) B) and D)

Question 4

On average over the past 130 years, at about what rate has the Canadian economy grown?

Accepted Answer

A)  1 percent per year
B)  2 percent per year
C)  4 percent per year
D)  6 percent per yearE) None of the above
F) A) and B)

Question 5

When is the aggregate supply curve upward sloping rather than vertical?

Accepted Answer

A)  in the short and the long run
B)  in neither the short run nor long run
C)  in the long run, but not in the short run
D)  in the short run, but not in the long runE) A) and C)
F) None of the above

Question 6

Which of the following best describes the effects of an increase in the price level?

Accepted Answer

A)  Real exchange rates and interest rates rise.
B)  Real exchange rates and interest rates fall.
C)  Real exchange rates fall, and interest rates rise.
D)  Real exchange rates rise, and interest rates fall.E) All of the above
F) A) and D)

Question 7

How do prices change due to an economic contraction that is caused by a shift in aggregate demand?

Accepted Answer

A)  They rise in the short run, and rise even more in the long run.
B)  They rise in the short run, and fall back to their original level in the long run.
C)  They fall in the short run, and fall even more in the long run.
D)  They fall in the short run, and rise back to their original level in the long run.E) A) and B)
F) B) and D)

Question 8

According to the aggregate demand and aggregate supply model, in the long run what is the impact of an increase in the money supply?

Accepted Answer

A)  It leads to increased price level and real GDP.
B)  It leads to increased GDP, but there is no change in the price level.
C)  It leads to increased price level, but there is no change in real GDP.
D)  It does not cause a change in either the price level or real GDP.E) A) and B)
F) B) and D)

Question 9

Which of the following best describes the effects of a fall in the price level?

Accepted Answer

A)  Dollars become more valuable, and interest rates rise.
B)  Dollars become more valuable, and interest rates fall.
C)  Dollars become less valuable, and interest rates rise.
D)  Dollars become less valuable, and interest rates fall.E) All of the above
F) A) and B)

Question 10

Which of the following expenditure items is responsible for the decrease in real GDP during a recession?

Accepted Answer

A)  mostly investment spending
B)  mostly consumption spending
C)  both consumption and investment spending, equally
D)  sometimes mostly consumption and sometimes mostly investmentE) C) and D)
F) A) and C) A

Question 11

Which of the following variables or policies can influence economic growth in the long run?

Accepted Answer

A)  an increase in capital stock
B)  an increase in money supply
C)  an increase in unemployment benefits
D)  a decrease in nominal interest ratesE) A) and B)
F) B) and D) A

Question 12

In which of the following situations are people most likely to spend more?

Accepted Answer

A)  when their real wealth and interest rates rise
B)  when their real wealth rises and interest rates fall
C)  when their real wealth falls and interest rates rise
D)  when their real wealth and interest rates fallE) B) and D)
F) None of the above B

Question 13

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

Question 14

Suppose that there has been bad weather, a decrease in the availability of oil, or some other temporary increase in firms' costs and the economy has reached its new short-run equilibrium. What happens as the economy moves from this short-run equilibrium to long-run equilibrium?

Accepted Answer

A)  Prices and output rise.
B)  Prices and output fall.
C)  Prices rise and output falls.
D)  Prices fall and output rises.E) C) and D)
F) B) and C)

Question 15

Make a list of things that would shift the aggregate demand curve to the right.

Accepted Answer

Examples (and variations on examples) in...

Question 16

According to misperceptions theory, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, how the firm may be affected?

Accepted Answer

A)  It may believe that the relative price has increased, so it would increase production.
B)  It may believe that the relative price has increased, so it would decrease production.
C)  It may believe that the relative price has decreased, so it would increase production.
D)  It may believe that the relative price has increased, so it would decrease productionE) B) and C)
F) A) and B)

Question 17

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

Accepted Answer

A)  an increase in price expectations
B)  an increase in the price level
C)  a decrease in the money supply
D)  a decrease in the price of oilE) C) and D)
F) All of the above

Question 18

Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?

Accepted Answer

When the price level increases, the purc...

Question 19

Which of the following characterizes the long-run aggregate supply curve?

Accepted Answer

A)  It is determined by the things that determine output in the classical model.
B)  It is located at the point where unemployment is zero.
C)  It shifts to the right when the price level increases.
D)  It is positioned at the point where the economy would cease to grow.E) A) and C)
F) A) and D)

Question 20

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

Accepted Answer

A)  a decrease in the price level
B)  a decrease in the expected price level
C)  a decrease in the capital stock
D)  a decrease in the money supplyE) B) and D)
F) None of the above

Exam 14: Aggregate Demand and Aggregate Supply

Which of the following best defines the classical dichotomy?

Correct AnswerverifiedShow Answer

What was the main reason for the economic boom of the early 1940s?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

On average over the past 130 years, at about what rate has the Canadian economy grown?

Correct AnswerverifiedShow Answer

When is the aggregate supply curve upward sloping rather than vertical?

Correct AnswerverifiedShow Answer

Which of the following best describes the effects of an increase in the price level?

Correct AnswerverifiedShow Answer

How do prices change due to an economic contraction that is caused by a shift in aggregate demand?

Correct AnswerverifiedShow Answer

According to the aggregate demand and aggregate supply model, in the long run what is the impact of an increase in the money supply?

Correct AnswerverifiedShow Answer

Which of the following best describes the effects of a fall in the price level?

Correct AnswerverifiedShow Answer

Which of the following expenditure items is responsible for the decrease in real GDP during a recession?

Correct AnswerverifiedA

Which of the following variables or policies can influence economic growth in the long run?

Correct AnswerverifiedA

In which of the following situations are people most likely to spend more?

Correct AnswerverifiedB

What happens when the dollar depreciates?

Correct AnswerverifiedShow Answer

Suppose that there has been bad weather, a decrease in the availability of oil, or some other temporary increase in firms' costs and the economy has reached its new short-run equilibrium. What happens as the economy moves from this short-run equilibrium to long-run equilibrium?

Correct AnswerverifiedShow Answer

Make a list of things that would shift the aggregate demand curve to the right.

Correct AnswerverifiedExamples (and variations on examples) in...View AnswerShow Answer

According to misperceptions theory, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, how the firm may be affected?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?

Correct AnswerverifiedWhen the price level increases, the purc...View AnswerShow Answer

Which of the following characterizes the long-run aggregate supply curve?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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A

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Examples (and variations on examples) in...
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When the price level increases, the purc...
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