Question 1

Which of the following correctly describes actions of the U.S. government during the recession of 2008-2009?

Accepted Answer

A)  It refused to provide banks funding and made no significant changes in government spending.
B)  It refused to provide banks funding but made a large increase in government spending.
C)  It became part owner of some banks but made no significant change in government spending
D)  It became part owner of some banks and made a large increase in government spending.E) A) and B)
F) A) and D)

Question 2

When looking at a graph of aggregate demand, which of the following is correct?

Accepted Answer

A)  There are nominal variables on both the vertical and the horizontal axes.
B)  There are real variables on both the vertical and horizontal axes.
C)  The variable on the vertical axis is nominal; the variable on the horizontal axis is real
D)  The variable on the vertical axis is real; the variable on the horizontal axis is nominalE) C) and D)
F) None of the above

Question 3

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

Accepted Answer

A)  increased consumption, which shifts the aggregate-demand curve right.
B)  increased consumption, which shifts the aggregate-demand curve left.
C)  decreased consumption, which shifts the aggregate-demand curve right.
D)  decreased consumption, which shifts the aggregate-demand curve left.E) B) and D)
F) A) and B)

Question 4

Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes raised. At the same time, Senator B succeeds in getting major restrictions on logging removed. In the short run

Accepted Answer

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

Question 5

Investment is a

Accepted Answer

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

Question 6

Historical evidence for the U.S. economy indicates that

Accepted Answer

A)  recessions have occurred roughly once every six years since the 1960s.
B)  the unemployment rate usually decreases during a recession and increases shortly after the recession ends.
C)  real GDP usually remains roughly constant during a recession and decreases shortly after the recession ends.
D)  changes in real GDP over the business cycle are largely attributable to changes in investment over the business cycle.E) A) and D)
F) A) and C)

Question 7

When the price level falls

Accepted Answer

A)  The interest rate falls because people will want to hold more money and so sell bonds.
B)  Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes.
C)  Both A and B are correct.
D)  None of the above are correct.E) A) and D)
F) C) and D)

Question 8

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,

Accepted Answer

A)  production is more profitable and employment rises.
B)  production is more profitable and employment falls.
C)  production is less profitable and employment rises.
D)  production is less profitable and employment falls.E) C) and D)
F) A) and D)

Question 9

The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.

Accepted Answer

A) True 
 B)False

Question 10

Make a list of expenditures whose sum equals GDP.

Accepted Answer

consumption, investm...

Question 11

At a given price level, an increase in which of the following shifts aggregate demand to the right?

Accepted Answer

A)  consumption
B)  investment
C)  government expenditures
D)  All of the above are correct.E) A) and C)
F) C) and D)

Question 12

Who said about classical economic theory: "the long run is a misleading guide to current affairs. In the long run we are all dead"?

Accepted Answer

The answer of Who said about classical economic theory: "the...

Question 13

John Maynard Keynes advocated policies that would increase aggregate demand as a way to decrease unemployment caused by recessions.

Accepted Answer

A) True 
 B)False

Question 14

Imagine two economies that are identical except that for a long time, economy A has had a money supply of $1,000 billion while economy B has had a money supply of $500 billion. It follows that

Accepted Answer

A)  real GDP and the price level are lower in country B.
B)  real GDP, but not the price level, is lower in country B.
C)  the price level, but not real GDP is lower in country B.
D)  neither the price level or real GDP is lower in country B.E) A) and B)
F) All of the above

Question 15

Suppose a country offers a new investment tax credit. Which curve(s) in the aggregate demand and aggregate supply model would be affected, and which way would it (they) shift?

Accepted Answer

The aggregate-demand...

Question 16

Compare changes in the price level for a recession resulting from a shift in aggregate demand to that of a recession resulting from a shift in short run aggregate supply.

Accepted Answer

the price level decreases when...

Question 17

If banks and speculators in the U.S. decided to exchange U.S. dollars for the foreign currencies of other countries, but foreigners do not desire to increase their holdings of U.S. dollars, then U.S. net exports would

Accepted Answer

A)  rise and aggregate demand would shift left.
B)  rise and aggregate demand would shift right.
C)  fall and aggregate demand would shift left.
D)  fall and aggregate demand would shift right.E) B) and D)
F) A) and B)

Question 18

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp rise in the stock market, an increase in government purchases, an increase in the money supply and a decline in the value of the dollar. In the short run

Accepted Answer

A)  the price level and real GDP will both rise.
B)  the price level and real GDP will both fall.
C)  neither the price leave nor real GDP will change.
D)  All of the above are possible.E) B) and C)
F) C) and D)

Question 19

Refer to Political Instability Abroad. What would happen to the dollar?

Accepted Answer

A)  It would appreciate in foreign exchange markets making U.S goods more expensive compared to foreign goods.
B)  It would appreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods.
C)  It would depreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.
D)  It would depreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods.E) A) and C)
F) C) and D)

Question 20

In 1936, John Maynard Keynes published a book, The General Theory, which attempted to explain

Accepted Answer

A)  stagflation.
B)  the classical dichotomy.
C)  short-run economic fluctuations.
D)  how changes in the money supply had created the Great Depression.E) None of the above
F) A) and B)

Exam 33: Aggregate Demand and Aggregate Supply

At a given price level, an increase in which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

Suppose a country offers a new investment tax credit. Which curve(s) in the aggregate demand and aggregate supply model would be affected, and which way would it (they) shift?

Correct AnswerverifiedThe aggregate-demand...View AnswerShow Answer

The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.

Correct AnswerverifiedShow Answer

If banks and speculators in the U.S. decided to exchange U.S. dollars for the foreign currencies of other countries, but foreigners do not desire to increase their holdings of U.S. dollars, then U.S. net exports would

Correct AnswerverifiedShow Answer

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp rise in the stock market, an increase in government purchases, an increase in the money supply and a decline in the value of the dollar. In the short run

Correct AnswerverifiedShow Answer

John Maynard Keynes advocated policies that would increase aggregate demand as a way to decrease unemployment caused by recessions.

Correct AnswerverifiedShow Answer

In 1936, John Maynard Keynes published a book, The General Theory, which attempted to explain

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes raised. At the same time, Senator B succeeds in getting major restrictions on logging removed. In the short run

Correct AnswerverifiedShow Answer

Historical evidence for the U.S. economy indicates that

Correct AnswerverifiedShow Answer

When the price level falls

Correct AnswerverifiedShow Answer

Who said about classical economic theory: "the long run is a misleading guide to current affairs. In the long run we are all dead"?

Correct AnswerverifiedShow Answer

Refer to Political Instability Abroad. What would happen to the dollar?

Correct AnswerverifiedShow Answer

Imagine two economies that are identical except that for a long time, economy A has had a money supply of $1,000 billion while economy B has had a money supply of $500 billion. It follows that

Correct AnswerverifiedShow Answer

Make a list of expenditures whose sum equals GDP.

Correct Answerverifiedconsumption, investm...View AnswerShow Answer

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,

Correct AnswerverifiedShow Answer

Compare changes in the price level for a recession resulting from a shift in aggregate demand to that of a recession resulting from a shift in short run aggregate supply.

Correct Answerverifiedthe price level decreases when...View AnswerShow Answer

Investment is a

Correct AnswerverifiedShow Answer

When looking at a graph of aggregate demand, which of the following is correct?

Correct AnswerverifiedShow Answer

Which of the following correctly describes actions of the U.S. government during the recession of 2008-2009?

Correct AnswerverifiedShow Answer

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The aggregate-demand...
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consumption, investm...
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the price level decreases when...
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