Econ: Ch. 9

1. Refer to the graph below. This graph best describes:

A beneficial supply shock.

An adverse supply shock.

A supply shock that could be adverse or beneficial.

A supply shock that has no long-run impact on the economy.

2. The logic of the multiplier is that as government spending increases,

Output, income and consumption remain unchanged, allowing government spending to have an indefinite ripple effect throughout the economy.

The total shift in aggregate demand is identical to the initial shift in aggregate demand.

3. In the long run, an increase in aggregate demand will:

Increase output but leave the level of prices unchanged.

Increase prices but leave the level of output unchanged.

Increase both prices and output.

Leave both output and prices unchanged.

4. The international-trade effect refers to the fact that an increase in the price level will result in:

An increase in net exports.

A decrease in net exports.

No change in net exports.

An ambiguous effect on net exports, causing net exports to increase sometimes and other times to decrease.

5. The change in the purchasing power of money will affect aggregate demand. This concepts is closely related to a key principle of economics. Which one?

The principle of opportunity cost.

The real-nominal principle.

The principle of diminishing returns.

The principle of voluntary exchange.

The marginal principle.

6. Which of the following was the key problem of the Great Depression in the 1930s according to British economist John Maynard Keynes?

Insufficient demand for goods and services.

Insufficient supply of goods and services.

Falling wages that reduced the purchasing power of households.

The lack of vision of Classical economists.

7. According to the interest rate effect, with a given money supply in the economy:

A lower price level will lead to lower interest rates and higher consumption and investment spending.

A lower price level will lead to lower interest rates and lower consumption and investment spending.

A higher price level will lead to higher interest rates, lower consumption, and higher investment spending.

A higher price level will lead to lower interest rates, higher consumption and higher investment spending.

8. Refer to the figure below. The demand curve in this graph depicts:

Market demand.

Aggregate demand.

Labor demand.

Each and every demand curve, or the sum of market demands in the economy.

9. If the price level increases, then:

The economy will move up and to the left along a stationary aggregate demand curve.

The aggregate demand curve will shift to the right.

The aggregate demand curve will shift to the left.

None of the above.

10. Refer to the figure below. An increase in the money supply moves the AD curve from the initial AD curve to the curve labeled:

Increased AD.

Decreased AD.

Neither the increased AD curve, nor decreased AD curve. The money supply does not affect the AD curve.

Either curve depending on other factors.

11. Which of the following is necessary to determine the price level and real GDP?

We need only information about aggregate supply.

We need only information about aggregate demand.

We need to combine both aggregate demand and aggregate supply.

We need information other than that provided by aggregate demand or supply curves.

12. The wealth effect refers to the fact that:

When the price level falls, the real value of household wealth rises, and so will consumption.

When income rises, consumption rises.

When the price level falls, the nominal value of assets rises, while the real value of assets remains the same.

All of the above.

13. If the marginal propensity to consume is 0.8, how much is the increase in GDP caused by an additional $10 of consumption?

$18.

$50.

$8.

None of the above.

14. In modern economies, some prices are very flexible, while others are not. Which of the following types of prices are very flexible?

Auction prices.

Wages.

Custom prices.

All of the above.

15. Consider the consumption function C = Ca + bY. Which part of this function describes the amount of consumption that is dependent on income?

Ca.

B.

BY.

Ca + bY.

16. Refer to the figure below. What causes the shifts in the aggregate supply curve?

Increases in the purchasing power of wages.

Decreases in the purchasing power of wages.

Increases in wages and prices.

Decreases in wages and prices.

17. The short run in macroeconomics refers to:

A period of time in which at least one input in production remains fixed.

A period of time lasting less than one year.

A period of time anywhere from one to five years.

A period of time in which prices don’t change or don’t change very much.

18. Refer to the figure below. The economy depicted in this graph is going through:

A recession.

A depression.

A recovery.

A boom.