Macroeconomics [ch. 20]

35 Questions | Total Attempts: 1406

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Macroeconomics [ch. 20]

Aggregate Demand & Aggregate Supply


Questions and Answers
  • 1. 
    Over the last 50 years, U.S. real GDP has grown at about 5 percent per year
    • A. 

      True

    • B. 

      False

  • 2. 
    Investment is a particularly volatile component of spending across the business cycle
    • A. 

      True

    • B. 

      False

  • 3. 
    An increase in price expectations shifts the long-run aggregate-supply curve to the left
    • A. 

      True

    • B. 

      False

  • 4. 
    If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate-supply curve should be vertical
    • A. 

      True

    • B. 

      False

  • 5. 
    Economists refer to fluctuations in output as the "business cycle" because movements in output are regular and predictable
    • A. 

      True

    • B. 

      False

  • 6. 
    One reason aggregate demand slopes downward is the wealth effect: A decrease in the price level increases the value of money holdings and consumer spending rises. 
    • A. 

      True

    • B. 

      False

  • 7. 
    If the Federal Reserve increases the money supply, the aggregate-demand curve shifts to left
    • A. 

      True

    • B. 

      False

  • 8. 
    The misperceptions theory explains why the long-run aggregate-supply curve is downward sloping
    • A. 

      True

    • B. 

      False

  • 9. 
    A rise in price expectations that causes wages to rise causes the short-run aggregate-supply curve to shift left
    • A. 

      True

    • B. 

      False

  • 10. 
    If the economy is in a recession, the economy will adjust to long-run equilibrium on its own as wages and price expectations rise
    • A. 

      True

    • B. 

      False

  • 11. 
    In the short-run, if the government cuts back spending to balance its budget, it will likely cause a recession
    • A. 

      True

    • B. 

      False

  • 12. 
    The short-run effect of an increase in aggregate demand is an increase in output and an increase in the price level
    • A. 

      True

    • B. 

      False

  • 13. 
    A rise in the price of oil tends to cause stagflation
    • A. 

      True

    • B. 

      False

  • 14. 
    In the long-run, an increase in government spending tends to increase output and prices
    • A. 

      True

    • B. 

      False

  • 15. 
    If policymakers choose to try to move the economy out of a recession, they should use their policy tools to decrease aggregate demand
    • A. 

      True

    • B. 

      False

  • 16. 
    Which of the following statements about economic fluctuations is true?
    • A. 

      A recession is when output rises above the natural rate of output

    • B. 

      A depression is a mild recession

    • C. 

      Economic fluctuations have been termed the "business cycle" because the movements in output are regular and predictable

    • D. 

      A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together

    • E. 

      None of the above

  • 17. 
    According to the interest-rate effect, aggregate demand slopes downward (negatively) because
    • A. 

      Lower prices increase the value of money holdings and consumer spending increases

    • B. 

      Lower prices decrease the value of money holdings and consumer spending decreases

    • C. 

      Lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases

    • D. 

      Lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls

  • 18. 
    Which of the following would not cause a shift in the long-run aggregate-supply curve?
    • A. 

      An increase in the available labor

    • B. 

      An increase in the available capital

    • C. 

      An increase in the available technology

    • D. 

      An increase in price expectations

    • E. 

      All of the above shift the long-run aggregate-supply curve

  • 19. 
    Which of the following is not a reason why the aggregate-demand curve slopes downward?
    • A. 

      The wealth effect

    • B. 

      The interest-rate effect

    • C. 

      The classical dichotomy/monetary neutrality effects

    • D. 

      The exchange-rate effect

    • E. 

      All of the above are reasons why the aggregate-demand curve slopes downward

  • 20. 
    In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to
    • A. 

      Shift short-run aggregate supply to the right

    • B. 

      Shift short-run aggregate supply to the left

    • C. 

      Shift aggregate demand to the right

    • D. 

      Shift aggregate demand to the left

    • E. 

      Shift long-run aggregate supply to the left

  • 21. 
    Which of the following statements is true regarding the long-run aggregate-supply curve?  The long-run aggregate-supply curve
    • A. 

      Shifts left when the natural rate of unemployment falls

    • B. 

      Is vertical because an equal change in all prices and wages leaves output unaffected

    • C. 

      Is positively sloped because price expectations and wages tend to be fixed in the long run

    • D. 

      Shifts right when the government raises the minimum wage

  • 22. 
    According to the wealth effect, aggregate demand slopes downward (negatively) because
    • A. 

      Lower prices increase the value of money holdings and consumer spending increases

    • B. 

      Lower prices decrease the value of money holdings and consumer spending decreases

    • C. 

      Lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases

    • D. 

      Lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls

  • 23. 
    • A. 

      When there is no employment

    • B. 

      When the economy is at the natural rate of investment

    • C. 

      When the economy is at the natural rate of aggregate demand

    • D. 

      When the economy is at the natural rate of unemployment

  • 24. 
    Suppose the price level falls.  Because of fixed nominal wage contracts, firms become less profitable and they cut back on production.  This is a demonstration of the
    • A. 

      Sticky-wage theory of the short-run aggregate-supply curve

    • B. 

      Sticky-price theory of the short-run aggregate-supply curve

    • C. 

      Misperceptions theory of the short-run aggregate-supply curve

    • D. 

      Classical dichotomy theory of the short-run aggregate-supply curve

  • 25. 
    Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production.  This is a demonstration of the
    • A. 

      Sticky-wage theory of the short-run aggregate-supply curve

    • B. 

      Sticky-price theory of the short-run aggregate-supply curve

    • C. 

      Misperceptions theory of the short-run aggregate-supply curve

    • D. 

      Classical dichotomy theory of the short-run aggregate-supply curve