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Consider the exhibit below for the following questions. Figure 14-1 Consider the exhibit below for the following questions. Figure 14-1 -Refer to Figure 14-1. How would an adverse shift in aggregate supply move the economy? A) from A to B B) from C to D C) from B to A D) from D to C -Refer to Figure 14-1. How would an adverse shift in aggregate supply move the economy?


A) from A to B
B) from C to D
C) from B to A
D) from D to C

E) A) and B)
F) A) and C)

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


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

E) None of the above
F) A) and B)

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


A) Some firms' prices are lower than desired, which increases their sales.
B) Some firms' prices are lower than desired, which depresses their sales.
C) Some firms' prices are higher than desired, which increases their sales.
D) Some firms' prices are higher than desired, which depresses their sales.

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

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According to classical economic theory, which of the following do changes in the money supply affect?


A) nominal variables and real variables
B) nominal variables, but not real variables
C) real variables, but not nominal variables
D) neither nominal nor real variables

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

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In a recession, compared to the percentage decline in GDP, what happens to investment spending?


A) Investment spending falls by a larger percentage than GDP.
B) Investment spending falls by about the same percentage as GDP.
C) Investment spending falls by a smaller percentage than GDP.
D) Investment spending falls, but the percentage change is sometimes much larger and sometimes much smaller.

E) A) and D)
F) A) and C)

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Scenario 14-2. The economy is in long-run equilibrium. Suddenly, due to corporate scandals, international tensions, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time. -Refer to Scenario 14-2. How does the new long-run equilibrium differ from the original one?


A) Both the price level and real GDP are higher.
B) Both the price level and real GDP are lower.
C) The price level is the same and real GDP is lower.
D) The price level is lower and real GDP is the same.

E) A) and B)
F) A) and C)

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When taxes increase, consumption decreases. How is this situation represented in the aggregate demand and aggregate supply model?


A) by a movement to the left along a given aggregate demand curve
B) by shifting aggregate demand to the left
C) by shifting aggregate supply the left
D) by a movement to the right along the aggregate demand curve

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

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Suppose the economy is initially in long-run equilibrium. Which of the following best describes the state of the economy after an increase in aggregate demand?


A) Prices and output are higher.
B) Prices and output are lower.
C) Prices are higher and output is the same.
D) Prices are the same and output is lower.

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

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In the 1970s people had become accustomed to high inflation. In 1979, the Bank of Canada decided to fight inflation and decreased the money supply growth rates. Many people thought that the Bank of Canada's action would cause a recession. Is this thinking consistent with the aggregate demand and aggregate supply model? Explain. According to monetary misperceptions theory, what should have happened to output if the inflation rate fell relative to what people expected? Explain.

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The decrease in the money supply would s...

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Which of the following is included in the aggregate demand for goods and services?


A) intermediate goods
B) income taxes
C) net exports
D) government deficit

E) None of the above
F) All of the above

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What are the effects of a decrease in the price level?


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 rises.
D) People hold more money, so they lend less, and the interest rate falls.

E) B) and C)
F) None of the above

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Suppose there was an economic contraction caused by a shift in aggregate supply; suppose the central bank changes the money supply to offset the effects of that contraction. How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?


A) Aggregate supply would shift to the right
B) Aggregate supply would shift to the left
C) Aggregate demand would shift to the right.
D) Aggregate demand would shift to the left.

E) A) and C)
F) C) and D)

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In the mid-1970s the price of oil rose dramatically. What did this event cause?


A) It shifted aggregate supply left.
B) It caused Canadian prices to fall.
C) The aggregate demand increased because of an increase in the demand for gasoline.
D) Nominal GDP increased.

E) None of the above
F) B) and C)

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The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?

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There are occasional short-lived periods...

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Which of the following adjusts to bring aggregate supply and demand into balance?


A) the price level
B) the real rate of interest
C) the money supply
D) technology

E) None of the above
F) All of the above

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


A) Dollars are worth more, so people spend more.
B) Dollars are worth more, so people spend less.
C) Dollars are worth less, so people spend more.
D) Dollars are worth less, so people spend less.

E) A) and B)
F) B) and C)

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Why does a decrease in the price level induce an increase in the aggregate quantity of goods and services demanded?


A) because as wealth falls, interest rates rise, and the dollar appreciates
B) because as wealth falls, interest rates rise, and the dollar depreciates
C) because as wealth rises, interest rates rise, and the dollar appreciates
D) because as wealth rises, interest rates fall, and the dollar depreciates

E) A) and B)
F) A) and C)

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In which of the following situations does investment spending increase?


A) when the price level rises, causing interest rates to rise
B) when the price level rises, causing interest rates to fall
C) when the price level falls, causing interest rates to rise
D) when the price level falls, causing interest rates to fall

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

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


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

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Which of the following did NOT happen during the onset of the Great Depression?


A) The money supply fell as households took money out of banks.
B) The Bank of Canada decreased the bank rate.
C) The real GDP per person fell about 30 percent.
D) Bankers began holding greater reserves.

E) None of the above
F) All of the above

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