Question 1

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.?Figure 8.3
 
-Refer to Figure 8.3. Potential GDP is greater than real GDP at all output levels:

Accepted Answer

A)   above $300 billion.
B)   between $300 billion and $400 billion.
C)   above $400 billion.
D)   below $300 billion.
E)   above $500 billion.F) A) and E)
G) B) and D)

Question 2

Other things equal, a decrease in government spending:

Accepted Answer

A)   increases the slope of the aggregate demand curve.
B)   increases the domestic interest rate.
C)   decreases aggregate expenditures.
D)   shifts the aggregate demand curve to the right.
E)   increases the equilibrium level of GDP.F) None of the above
G) All of the above

Question 3

The fact that the aggregate demand curve slopes downward means that aggregate expenditures increase when the price level decreases.

Accepted Answer

A) True 
 B)False

Question 4

The table given below reports the average hourly wage received by laborers and the price index for two years.?
 
-Refer to Table 8.2. The data in the table suggests that in year 2:

Accepted Answer

A)   aggregate supply remains constant.
B)   aggregate demand decreases.
C)   aggregate supply decreases.
D)   aggregate demand increases.
E)   aggregate supply increasesF) D) and E)
G) B) and D)

Question 5

The main reason why the short-run aggregate supply curve slopes upward is that as the average price level increases, larger scales of production become more profitable.

Accepted Answer

A) True 
 B)False

Question 6

A lower domestic price level raises aggregate expenditures and, therefore, shifts the aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 7

The table given below reports the inflation rate in the U.S. and Canada for two years.
 
-Refer to Table 8.1. Assume that the exchange rate is fixed at 1.4 CAD = 1 USD and that price changes for lumber are identical to the inflation rate for each country. If Canadian lumber is sold in year 1 for 5,500 CAD, what is the price of that lumber in year 2, given that exchange rates do not change?

Accepted Answer

A)   5,500 CAD
B)   7,977 CAD
C)   5,698 CAD
D)   7,700 CAD
E)   9,700 CADF) A) and B)
G) A) and C)

Question 8

If the aggregate supply curve is vertical, then shifts in aggregate demand will not change aggregate output.

Accepted Answer

A) True 
 B)False

Question 9

The intersection of the aggregate demand and the aggregate supply curve defines the equilibrium level of _____ and the price level.

Accepted Answer

A)   real interest rate
B)   nominal interest rate
C)   nominal GDP
D)   real GDP
E)   unemploymentF) A) and D)
G) A) and B)

Question 10

The short-run aggregate supply curve will shift to the left if:

Accepted Answer

A)   there is a significant increase in worker productivity.
B)   workers on fixed-wage contracts expect higher inflation.
C)   the price of raw materials decreases.
D)   the price of capital goods rises.
E)   wages fall in anticipation of higher prices.F) D) and E)
G) A) and B)

Question 11

The wealth effect and the interest rate effect are changes in the price level that:

Accepted Answer

A)   bring about a movement along the aggregate demand curve.
B)   lead to a shift of the demand curve for a particular good.
C)   result in a shift of the aggregate supply curve.
D)   help explain the vertical shape of the long-run aggregate supply curve.
E)   cause a movement along the aggregate supply curve.F) All of the above
G) B) and C)

Question 12

Lower interest rates on business loans usually result in a(n) :

Accepted Answer

A)   decrease in aggregate demand.
B)   decrease in aggregate supply.
C)   decrease in investment spending.
D)   increase in government spending.
E)   increase in aggregate expenditures.F) None of the above
G) A) and E)

Question 13

Other things equal, an increase in aggregate demand will result in:

Accepted Answer

A)   an economic expansion.
B)   higher unemployment and a lower equilibrium price level.
C)   an economic recession.
D)   a decrease in equilibrium real GDP and an increase in the equilibrium price level.
E)   a decrease in the overall economic welfare.F) D) and E)
G) A) and B)

Question 14

In the long run, increased consumption spending raises only the price level.

Accepted Answer

A) True 
 B)False

Question 15

The aggregate quantity of goods and services produced will decrease at every price level when resource price rises.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following accounts for a movement along a given AD curve?

Accepted Answer

A)   The substitution effect
B)   The tax rate effect
C)   The real-balance effect
D)   The foreign aid effect
E)   The government spending effectF) A) and C)
G) A) and B)

Question 17

Which of the following is an incorrect statement?

Accepted Answer

A)   Macroeconomic equilibrium occurs at the intersection of the aggregate demand and aggregate supply curves.
B)   The aggregate supply curve indicates a positive relationship between the price level and GDP.
C)   Other things equal, a downward shift of the aggregate demand curve implies that the economy is entering a contractionary phase.
D)   Aggregate demand and aggregate supply determine the equilibrium price and quantity of any given good.
E)   The aggregate demand curve indicates a negative relationship between the price level and GDP.F) C) and D)
G) A) and B)

Question 18

Pessimistic consumer expectations and decreased government spending are both associated with:

Accepted Answer

A)   a downward movement along the aggregate demand curve.
B)   an upward movement along the aggregate demand curve.
C)   a leftward shift of the aggregate demand curve.
D)   a rightward shift of the aggregate demand curve.
E)   a steeper slope of the aggregate demand curve.F) None of the above
G) B) and D)

Question 19

Which of the following explains the effect of prices on profits in the short-run?

Accepted Answer

A)   The direct relationship between aggregate quantity demanded and national output.
B)   The direct relationship between aggregate quantity supplied and the price level.
C)   The inverse relationship between aggregate quantity demanded and national output.
D)   The inverse relationship between aggregate quantity supplied and profits.
E)   The inverse relationship between aggregate quantity supplied and national output.F) A) and C)
G) C) and E)

Question 20

Identify the correct statement about the aggregate supply curve.

Accepted Answer

A)   The aggregate supply curve is irrelevant for determining macroeconomic equilibrium.
B)   The aggregate supply curve shows the various quantities of a particular good that is produced in the economy.
C)   The aggregate supply curve shows an inverse relationship between price level and employment.
D)   The aggregate supply curve shifts inward with an increase in consumer spending, investment, government spending, and net exports.
E)   The aggregate supply curve relates total output in the economy to alternative price levels.F) B) and C)
G) B) and E)

Exam 8: Macroeconomic Equilibrium: Aggregate Demand and Supply

Other things equal, a decrease in government spending:

Correct Answer
verified

The short-run aggregate supply curve will shift to the left if:

Correct Answer
verified

Lower interest rates on business loans usually result in a(n) :

Correct Answer
verified

In the long run, increased consumption spending raises only the price level.

Correct Answer
verified

The main reason why the short-run aggregate supply curve slopes upward is that as the average price level increases, larger scales of production become more profitable.

Correct Answer
verified

Which of the following explains the effect of prices on profits in the short-run?

Correct Answer
verified

Which of the following accounts for a movement along a given AD curve?

Correct Answer
verified

Correct Answer
verified

A lower domestic price level raises aggregate expenditures and, therefore, shifts the aggregate demand curve to the right.

Correct Answer
verified

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.?Figure 8.3 -Refer to Figure 8.3. Potential GDP is greater than real GDP at all output levels:

Correct Answer
verified

The intersection of the aggregate demand and the aggregate supply curve defines the equilibrium level of _____ and the price level.

Correct Answer
verified

If the aggregate supply curve is vertical, then shifts in aggregate demand will not change aggregate output.

Correct Answer
verified

Pessimistic consumer expectations and decreased government spending are both associated with:

Correct Answer
verified

The aggregate quantity of goods and services produced will decrease at every price level when resource price rises.

Correct Answer
verified

Which of the following is an incorrect statement?

Correct Answer
verified

The table given below reports the average hourly wage received by laborers and the price index for two years.? -Refer to Table 8.2. The data in the table suggests that in year 2:

Correct Answer
verified

The wealth effect and the interest rate effect are changes in the price level that:

Correct Answer
verified

The fact that the aggregate demand curve slopes downward means that aggregate expenditures increase when the price level decreases.

Correct Answer
verified

Identify the correct statement about the aggregate supply curve.

Correct Answer
verified

Other things equal, an increase in aggregate demand will result in:

Correct Answer
verified

Exam 8: Macroeconomic Equilibrium: Aggregate Demand and Supply

Other things equal, a decrease in government spending:

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve will shift to the left if:

Correct AnswerverifiedShow Answer

Lower interest rates on business loans usually result in a(n) :

Correct AnswerverifiedShow Answer

In the long run, increased consumption spending raises only the price level.

Correct AnswerverifiedShow Answer

The main reason why the short-run aggregate supply curve slopes upward is that as the average price level increases, larger scales of production become more profitable.

Correct AnswerverifiedShow Answer

Which of the following explains the effect of prices on profits in the short-run?

Correct AnswerverifiedShow Answer

Which of the following accounts for a movement along a given AD curve?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A lower domestic price level raises aggregate expenditures and, therefore, shifts the aggregate demand curve to the right.

Correct AnswerverifiedShow Answer

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.?Figure 8.3 -Refer to Figure 8.3. Potential GDP is greater than real GDP at all output levels:

Correct AnswerverifiedShow Answer

The intersection of the aggregate demand and the aggregate supply curve defines the equilibrium level of _____ and the price level.

Correct AnswerverifiedShow Answer

If the aggregate supply curve is vertical, then shifts in aggregate demand will not change aggregate output.

Correct AnswerverifiedShow Answer

Pessimistic consumer expectations and decreased government spending are both associated with:

Correct AnswerverifiedShow Answer

The aggregate quantity of goods and services produced will decrease at every price level when resource price rises.

Correct AnswerverifiedShow Answer

Which of the following is an incorrect statement?

Correct AnswerverifiedShow Answer

The table given below reports the average hourly wage received by laborers and the price index for two years.? -Refer to Table 8.2. The data in the table suggests that in year 2:

Correct AnswerverifiedShow Answer

The wealth effect and the interest rate effect are changes in the price level that:

Correct AnswerverifiedShow Answer

The fact that the aggregate demand curve slopes downward means that aggregate expenditures increase when the price level decreases.

Correct AnswerverifiedShow Answer

Identify the correct statement about the aggregate supply curve.

Correct AnswerverifiedShow Answer

Other things equal, an increase in aggregate demand will result in:

Correct AnswerverifiedShow Answer

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