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Figure 14-1 Figure 14-1 -Refer to the Figure 14-1.If the economy is at A and there is a fall in aggregate demand,what happens to the economy in the short run? A) It stays at A. B) It moves to B. C) It moves to C. D) It moves to D. Figure 14-1 -Refer to the Figure 14-1.If the economy is at A and there is a fall in aggregate demand,what happens to the economy in the short run? A) It stays at A. B) It moves to B. C) It moves to C. D) It moves to D. -Refer to the Figure 14-1.If the economy is at A and there is a fall in aggregate demand,what happens to the economy in the short run?


A) It stays at A.
B) It moves to B.
C) It moves to C.
D) It moves to D.

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

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Figure 14-1 Figure 14-1 -Refer to the Figure 14-1.If the economy starts at A and moves to D,what happens to the economy in the long run? A) It moves to C and then to A. B) It moves to B and then to A. C) It moves to C. D) It moves to A. Figure 14-1 -Refer to the Figure 14-1.If the economy starts at A and moves to D,what happens to the economy in the long run? A) It moves to C and then to A. B) It moves to B and then to A. C) It moves to C. D) It moves to A. -Refer to the Figure 14-1.If the economy starts at A and moves to D,what happens to the economy in the long run?


A) It moves to C and then to A.
B) It moves to B and then to A.
C) It moves to C.
D) It moves to A.

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

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Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

A) True
B) False

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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) a decrease in prices
D) a decrease in imports

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

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Illustrate the classical analysis of growth and inflation with aggregate-demand and long-run aggregate-supply curves.

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See graph. blured image blured image Over time,technological adv...

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How does the size of investment as a fraction of GDP compare to its importance in creating economic fluctuations?


A) Investment is a small part of real GDP,and it accounts for a small share of the fluctuation in real GDP.
B) Investment is a small part of real GDP,yet it accounts for a large share of the fluctuation in real GDP.
C) Investment is a large part of real GDP,and it accounts for a large share of the fluctuation in real GDP.
D) Investment is a large part of real GDP,yet it accounts for a small share of the fluctuation in real GDP.

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

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When output rises,unemployment falls.

A) True
B) False

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An aggregate-supply (AS)curve is described by the equation Y = YLR + a × (P - PEXP),where Y is current output,YLR is the long run level of output,a is a positive constant,P is the current price level,and PEXP is the expected price level.Suppose YLR = 50,a = 1,and PEXP = 40. ? a.Draw the long-run aggregate-supply curve in an AD - AS (aggregate demand - aggregate supply)diagram. ? b.Using the AS equation,find the output corresponding to price levels P = 40 and P = 80 and place the 2 points on your diagram.Draw the short-run AS curve that passes through the two points. ? c.Identify the expected price level on your graph. ? d.Suppose the expected price level decreases to PEXP = 30.For current price levels P = 40 and P = 60,recalculate the output levels using the AS formula.Draw the new AS curve and identify the new expected price level.

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a.The long-run aggregate-supply curve is...

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What 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 fall in net exports

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

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In which situation would stagflation exist?


A) when prices and output rise
B) when prices rise and output falls
C) when prices fall and output rises
D) when prices and output fall

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

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Increased output and prices in Canada in the early 1940s was mostly the result of increased government expenditures.

A) True
B) False

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What happens to sales and profit during recessions?


A) sales and profits fall
B) sales and profits rise
C) sales rise and profits fall
D) profits fall and sales rise

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

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What does an increase in the interest rate cause?


A) It causes investment to rise and the exchange rate to appreciate.
B) It causes investment to fall and the exchange rate to depreciate.
C) It causes investment to rise and the exchange rate to depreciate.
D) It causes investment to fall and the exchange rate to appreciate.

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

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Suppose the Canadian economy is in long-run equilibrium.Then suppose the value of the Canadian dollar increases.At the same time,people in Canada revise their expectations so that the expected price level falls.What would we expect will 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.

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

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Scenario 14-2 The economy is in long-run equilibrium.Suddenly,due to corporate scandals,a recession experienced by a major trading partner,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 the Scenario 14-2.In the short-run,which statement is consistent with the aggregate demand and aggregate supply theory?


A) The price level and real GDP both increase.
B) The price level and real GDP both decrease.
C) The price level rises,and real GDP falls
D) The price level falls,and real GDP rises.

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

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In which situation would the long-run aggregate-supply curve shift right?


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

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

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What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

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Variables that fall along with real GDP ...

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What happens when the price level rises?


A) Interest rates rise,so firms increase investment.
B) Interest rates rise,so firms decrease investment.
C) Interest rates fall,so firms increase investment.
D) Interest rates fall,so firms decrease investment.

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

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Which government action will shift the aggregate demand right?


A) a rise in personal income taxes
B) increases in military expenditures
C) a repeal of an investment tax credit
D) closing up a military facility to reduce costs

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

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Which statement best characterizes the long-run aggregate-supply curve?


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) All of the above
F) B) and D)

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