Question 1

A rise in the overall price level means that:

Accepted Answer

A)   a given number of dollars won't buy as much real goods and services.
B)   dollar-denominated assets have lost their value.
C)   the cost of living has gone down.
D)   None of these is true.E) A) and D)
F) B) and C)

Question 2

When prices rise, the interest rate:

Accepted Answer

A)   tends to rise.
B)   tends to fall.
C)   is usually not affected.
D)   will rise if the wealth effect outweighs the price effect.E) A) and C)
F) All of the above

Question 3

The wealth effect explains the:

Accepted Answer

A)   negative relationship that exists between consumer spending and overall price level.
B)   positive relationship that exists between consumer spending and overall price level.
C)   negative relationship that exists between consumer spending and overall asset valuation.
D)   positive relationship that exists between consumer spending and overall asset valuation.E) All of the above
F) C) and D)

Question 4

If the government does not react to a recession:

Accepted Answer

A)   the economy will remain out of its long-run equilibrium indefinitely.
B)   the economy will recover, but much more slowly.
C)   voters and consumers are likely to be happy with less government interference.
D)   the government generally doesn't engage in any policy during a recession.E) A) and D)
F) B) and C)

Question 5

One way the government can boost the economy out of a recession is:

Accepted Answer

A)   by increasing government spending.
B)   with public announcements telling the public to save their money.
C)   by setting price ceilings on most goods so people can afford them.
D)   None of these will help an economy in recession.E) A) and B)
F) A) and C)

Question 6

If the government were to decrease corporate income tax, we would predict a:

Accepted Answer

A)   downward movement along the aggregate demand curve.
B)   shift in aggregate demand to the right.
C)   shift in aggregate demand to the left.
D)   shift straight down of aggregate demand.E) B) and C)
F) All of the above

Question 7

When a nonprice change affects any of the four components of GDP the:

Accepted Answer

A)   aggregate demand curve will shift left or right.
B)   economy will move up or down along the aggregate demand curve.
C)   aggregate demand curve will remain unaffected.
D)   aggregate supply with shift left or right.E) A) and D)
F) A) and B)

Question 8

A decrease in the price level will cause:

Accepted Answer

A)   the short-run aggregate supply curve to shift to the right.
B)   the aggregate demand curve to shift to the right.
C)   a movement rightward along the short-run aggregate supply curve.
D)   the long-run aggregate supply curve to shift to the right.E) B) and D)
F) A) and B)

Question 9

An economy in which output has decreased and prices have increased would suggest that there has been a:

Accepted Answer

A)   positive supply side shock.
B)   negative supply side shock.
C)   positive demand side shock.
D)   negative demand side shock.E) A) and B)
F) C) and D)

Question 10

When the economy is creating less output than its potential, it means:

Accepted Answer

A)   there are some resources that are unemployed.
B)   the economy is in an economic boom.
C)   contractionary policy needs to be enacted.
D)   governments are likely to reduce their spending.E) B) and C)
F) A) and D)

Question 11

If consumption increases in general the aggregate demand curve will:

Accepted Answer

A)   shift straight down.
B)   shift to the right.
C)   remain unchanged but the economy will move down along the curve to a higher quantity.
D)   remain unchanged but the economy will move down along the curve to a lower quantity.E) All of the above
F) B) and D)

Question 12

Using Figure 1 above, if the aggregate demand curve shifts from AD2 to AD1 the result in the short run would be:

Accepted Answer

A)   P1 and Y1.
B)   P3 and Y1.
C)   P4 and Y1.
D)   P4 and Y2.E) A) and D)
F) A) and C)

Question 13

Using Figure 1 above, if the aggregate demand curve shifts from AD2 to AD3 the result in the short run would be:

Accepted Answer

A)   P1 and Y2.
B)   P3 and Y1.
C)   P2 and Y3.
D)   P2 and Y2.E) A) and B)
F) None of the above

Question 14

If the economy is in a recession, it means that:

Accepted Answer

A)   the economy is not in long-run equilibrium.
B)   total output is less than potential output.
C)   the short-run equilibrium is to the left of the long-run aggregate supply curve.
D)   All of these are true.E) A) and B)
F) B) and C)

Question 15

Using Figure 1 above, if the aggregate demand curve shifts from AD1 to AD2 the result in the long run would be:

Accepted Answer

A)   P1 and Y2.
B)   P3 and Y1.
C)   P2 and Y3.
D)   P2 and Y2.E) All of the above
F) B) and D)

Question 16

If the government were to increase income taxes, we would predict:

Accepted Answer

A)   a downward movement along the aggregate demand curve.
B)   a shift in aggregate demand to the right.
C)   a shift in aggregate demand to the left.
D)   an upward movement along the aggregate demand.E) A) and B)
F) A) and C)

Question 17

When the price level increases people:

Accepted Answer

A)   demand a smaller quantity of goods and services in the aggregate.
B)   feel more wealthy.
C)   have the same real value of assets, regardless of the change in the price level.
D)   want to spend more, but can't due to the prices of all goods and services going up.E) C) and D)
F) B) and D)

Question 18

An aggregate supply curve that is a vertical line must be:

Accepted Answer

A)   a short-run curve.
B)   a long-run curve.
C)   an individual firm's supply curve.
D)   an individual industry's supply curve.E) None of the above
F) B) and C)

Question 19

Which of the following is a component of aggregate demand?

Accepted Answer

A)   Net exports
B)   Income
C)   Government revenues
D)   TaxesE) None of the above
F) A) and B)

Question 20

We define net exports to be:

Accepted Answer

A)   exports minus imports.
B)   imports minus exports.
C)   imports divided by exports.
D)   imports plus exports.E) B) and D)
F) B) and C)

Exam 12: Aggregate Demand and Aggregate Supply

When the price level increases people:

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A rise in the overall price level means that:

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Using Figure 1 above, if the aggregate demand curve shifts from AD2 to AD3 the result in the short run would be:

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If consumption increases in general the aggregate demand curve will:

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If the government does not react to a recession:

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When a nonprice change affects any of the four components of GDP the:

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A decrease in the price level will cause:

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An aggregate supply curve that is a vertical line must be:

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One way the government can boost the economy out of a recession is:

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Which of the following is a component of aggregate demand?

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The wealth effect explains the:

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Using Figure 1 above, if the aggregate demand curve shifts from AD1 to AD2 the result in the long run would be:

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We define net exports to be:

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When prices rise, the interest rate:

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If the economy is in a recession, it means that:

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Using Figure 1 above, if the aggregate demand curve shifts from AD2 to AD1 the result in the short run would be:

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An economy in which output has decreased and prices have increased would suggest that there has been a:

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If the government were to increase income taxes, we would predict:

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When the economy is creating less output than its potential, it means:

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If the government were to decrease corporate income tax, we would predict a:

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