Question 1

Using an aggregate demand graph, illustrate the impact of an increase in the growth rate of U.S. GDP relative to the growth rate of foreign GDP.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The increase in the growth rate of U.S....

Question 2

The aggregate demand curve shows the relationship between the ________ and ________.

Accepted Answer

A)   inflation rate; quantity of real GDP demanded
B)   real interest rate: quantity of real GDP supplied
C)   nominal interest rate; quantity of real GDP demanded
D)   price level; quantity of real GDP demandedE) A) and B)
F) A) and C)

Question 3

Studies have shown that

Accepted Answer

A)   firms often cut nominal wages during recessions and allow inflation to gradually increase real wages.
B)   firms are reluctant to cut nominal wages during recessions but instead increase workers' nominal wages and allow inflation to gradually increase real wages.
C)   firms are reluctant to cut nominal wages during recessions but instead freeze workers' nominal wages and allow inflation to gradually reduce real wages.
D)   firms often freeze workers' nominal wages during a recession and keep the wages frozen well after the recession has ended.E) C) and D)
F) A) and D)

Question 4

After an unexpected ________ in the price of oil, the long-run adjustment decreases the price level and ________ the unemployment rate as they return to their original levels.

Accepted Answer

A)   increase; increases
B)   increase; decreases
C)   decrease; increases
D)   decrease; decreasesE) All of the above
F) A) and B)

Question 5

A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.

Accepted Answer

A)   the price level; real GDP
B)   real GDP; real GDP
C)   the price level; the price level
D)   real GDP; the price levelE) A) and D)
F) B) and C)

Question 6

Figure 24-2 
-Refer to Figure 24-2. Ceteris paribus, an increase in the expected future price level would be represented by a movement from

Accepted Answer

A)   SRAS1 to SRAS2.
B)   SRAS2 to SRAS1.
C)   point A to point B.
D)   point B to point A.E) A) and B)
F) A) and C)

Question 7

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Accepted Answer

A)   the leftward shift of the short-run aggregate supply curve that occurs after a recession
B)   the rightward shift of the short-run aggregate supply curve that occurs after a recession
C)   the leftward shift of the aggregate demand curve that occurs after a recession
D)   the rightward shift of the aggregate demand curve that occurs after a recessionE) A) and B)
F) All of the above

Question 8

New classical macroeconomic theory emphasizes the role of "sticky" prices in the economy.

Accepted Answer

A) True 
 B)False

Question 9

A rapid increase in the price of oil will tend to

Accepted Answer

A)   shift short-run aggregate supply to the left.
B)   shift long-run aggregate supply to the left.
C)   shift long-run aggregate supply to the right.
D)   shift aggregate demand to the right.E) None of the above
F) All of the above

Question 10

The level of real GDP in the long run is called

Accepted Answer

A)   potential GDP.
B)   short-run GDP.
C)   frictional GDP.
D)   low-capacity GDP.E) A) and B)
F) A) and C)

Question 11

During the recession of 2007-2009 in the United States, ________ relative to potential GDP.

Accepted Answer

A)   business fixed investment spending rose and net export spending declined
B)   consumption spending rose and residential construction spending declined
C)   federal government purchases rose and changes in business inventories declined
D)   net export spending rose and consumption spending declinedE) A) and D)
F) C) and D)

Question 12

A decrease in the price level results in a(n)  ________ in the quantity of real GDP demanded because a lower price level ________ consumption, investment, and net exports.

Accepted Answer

A)   decrease; increases
B)   increase; increases
C)   decrease; decreases
D)   increase; decreasesE) None of the above
F) B) and D)

Question 13

Stagflation occurs when inflation ________ and GDP ________.

Accepted Answer

A)   rises; rises
B)   rises; falls
C)   falls; rises
D)   falls; fallsE) All of the above
F) C) and D)

Question 14

When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.

Accepted Answer

A)   imports; exports; net exports
B)   exports; imports; net exports
C)   net exports; exports; imports
D)   net exports; imports; exportsE) A) and B)
F) A) and C)

Question 15

The short-run aggregate supply curve has a(n)  ________ slope because as prices of ________ rise, prices of ________ rise more slowly.

Accepted Answer

A)   positive; final goods and services; inputs
B)   infinite; final goods and services; inputs
C)   positive; inputs; final goods and services
D)   infinite; inputs; final goods and servicesE) All of the above
F) A) and D)

Question 16

Figure 24-2 
-Refer to Figure 24-2. Ceteris paribus, a decrease in the expected future price level would be represented by a movement from

Accepted Answer

A)   SRAS1 to SRAS2.
B)   SRAS2 to SRAS1.
C)   point A to point B.
D)   point B to point A.E) B) and C)
F) B) and D)

Question 17

If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?

Accepted Answer

A)   This will move the economy up along a stationary aggregate demand curve.
B)   This will move the economy down along a stationary aggregate demand curve.
C)   This will shift the aggregate demand curve to the left.
D)   This will shift the aggregate demand curve to the right.E) C) and D)
F) B) and D)

Question 18

Ceteris paribus, in the long run, a negative supply shock causes

Accepted Answer

A)   the long-run aggregate supply curve to shift to the left.
B)   the price level to rise initially, and then return to its lower level.
C)   unemployment to fall below its short-run level.
D)   equilibrium real GDP to fall.E) A) and D)
F) None of the above

Question 19

Which of the following best describes the "interest rate effect"?

Accepted Answer

A)   An increase in the price level raises the interest rate and chokes off government spending.
B)   An increase in the price level lowers the interest rate and chokes off government spending.
C)   An increase in the price level raises the interest rate and chokes off investment and consumption spending.
D)   An increase in the price level lowers the interest rate and chokes off investment and consumption spending.E) B) and D)
F) A) and C)

Question 20

Figure 24-2 
-Refer to Figure 24-2. Ceteris paribus, an increase in the capital stock would be represented by a movement from

Accepted Answer

A)   SRAS1 to SRAS2.
B)   SRAS2 to SRAS1.
C)   point A to point B.
D)   point B to point A.E) A) and D)
F) B) and C)

Exam 24: Aggregate Demand and Aggregate Supply Analysis

The aggregate demand curve shows the relationship between the ________ and ________.

Correct AnswerverifiedShow Answer

Studies have shown that

Correct AnswerverifiedShow Answer

A rapid increase in the price of oil will tend to

Correct AnswerverifiedShow Answer

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Correct AnswerverifiedShow Answer

Figure 24-2 -Refer to Figure 24-2. Ceteris paribus, an increase in the capital stock would be represented by a movement from

Correct AnswerverifiedShow Answer

Figure 24-2 -Refer to Figure 24-2. Ceteris paribus, a decrease in the expected future price level would be represented by a movement from

Correct AnswerverifiedShow Answer

Stagflation occurs when inflation ________ and GDP ________.

Correct AnswerverifiedShow Answer

If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?

Correct AnswerverifiedShow Answer

During the recession of 2007-2009 in the United States, ________ relative to potential GDP.

Correct AnswerverifiedShow Answer

A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.

Correct AnswerverifiedShow Answer

After an unexpected ________ in the price of oil, the long-run adjustment decreases the price level and ________ the unemployment rate as they return to their original levels.

Correct AnswerverifiedShow Answer

New classical macroeconomic theory emphasizes the role of "sticky" prices in the economy.

Correct AnswerverifiedShow Answer

The level of real GDP in the long run is called

Correct AnswerverifiedShow Answer

When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.

Correct AnswerverifiedShow Answer

Which of the following best describes the "interest rate effect"?

Correct AnswerverifiedShow Answer

Using an aggregate demand graph, illustrate the impact of an increase in the growth rate of U.S. GDP relative to the growth rate of foreign GDP.

Correct Answerverified The increase in the growth rate of U.S....View AnswerShow Answer

A decrease in the price level results in a(n) ________ in the quantity of real GDP demanded because a lower price level ________ consumption, investment, and net exports.

Correct AnswerverifiedShow Answer

Figure 24-2 -Refer to Figure 24-2. Ceteris paribus, an increase in the expected future price level would be represented by a movement from

Correct AnswerverifiedShow Answer

Ceteris paribus, in the long run, a negative supply shock causes

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly.

Correct AnswerverifiedShow Answer

The aggregate demand curve shows the relationship between the and .

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Stagflation occurs when inflation and GDP .

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A decrease in aggregate demand causes a decrease in only in the short run, but causes a decrease in in both the short run and the long run.

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After an unexpected in the price of oil, the long-run adjustment decreases the price level and the unemployment rate as they return to their original levels.

Correct Answer
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When the price level in the United States falls relative to the price level of other countries, will fall, will rise, and will rise.

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The increase in the growth rate of U.S....
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A decrease in the price level results in a(n) in the quantity of real GDP demanded because a lower price level consumption, investment, and net exports.

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The short-run aggregate supply curve has a(n) slope because as prices of rise, prices of rise more slowly.

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