Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)   misperceptions theory of the short-run aggregate supply curve.
B)   classical dichotomy theory of the short-run aggregate supply curve.
C)   sticky-price theory of the short-run aggregate supply curve.
D)   sticky-wage theory of the short-run aggregate supply curve.E) A) and B)
F) A) and C)

Question 3

Explain the short-run and long-run effects on output and prices of a recession overseas causing foreigners to buy fewer U.K. goods. Create a chart to demonstrate the effects.

Accepted Answer

When a recession overseas causes foreign...

Question 4

If there is speculation that the economy will soon enter a recession, which means that our incomes will probably fall, then the immediate effect on the economy now will be that the

Accepted Answer

A)   aggregate supply curve will shift to the left.
B)   aggregate demand curve will shift to the right.
C)   price level will rise and real output will rise.
D)   price level will fall and real output will fall.E) B) and D)
F) A) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to shift the

Accepted Answer

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

Question 7

Shifts in aggregate demand affect the price level in

Accepted Answer

A)   the short run but not in the long run.
B)   the long run but not in the short run.
C)   both the short and long run.
D)   neither the short nor long run.E) A) and B)
F) B) and D)

Question 8

Which of the following is correct?

Accepted Answer

A)   Short run fluctuations in economic activity happen only in developing countries.
B)   During economic contractions most firms experience rising sales.
C)   Recessions come at regular intervals and are easy to predict.
D)   When real GDP falls, the rate of unemployment rises.E) C) and D)
F) A) and D)

Question 9

According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause prices to

Accepted Answer

A)   rise and output to rise.
B)   fall and output to remain unchanged.
C)   fall and output to fall.
D)   rise and output to remain unchanged.E) C) and D)
F) A) and D)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The classical dichotomy refers to the separation of

Accepted Answer

A)   variables that move with the business cycle and variables that do not.
B)   changes in money and changes in government expenditures.
C)   decisions made by the public and decisions made by the government.
D)   real and nominal variables.E) A) and C)
F) A) and B)

Question 12

Explain the short-run and long-run effects on output and prices of technological improvements. Create a chart to demonstrate the effects.

Accepted Answer

When a technological improvement raises ...

Question 13

Stagflation occurs when the economy experiences

Accepted Answer

A)   rising prices and rising output.
B)   rising prices and falling output.
C)   falling prices and falling output.
D)   falling prices and rising output.E) B) and D)
F) All of the above

Question 14

Suppose the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production. This is a demonstration of the

Accepted Answer

A)   sticky-wage theory of the short-run aggregate supply curve.
B)   classical dichotomy theory of the short-run aggregate supply curve.
C)   misperceptions theory of the short-run aggregate supply curve.
D)   sticky-price theory of the short-run aggregate supply curve.E) A) and D)
F) A) and C)

Question 15

Make a list of things that would shift the aggregate demand curve to the right.

Accepted Answer

Examples (and variations on examples) in...

Question 16

Which of the following will reduce the price level and reduce real output in the short run?

Accepted Answer

A)   an increase in the money supply
B)   an increase in oil prices
C)   a decrease in the money supply
D)   technical progressE) A) and B)
F) C) and D)

Question 17

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Accepted Answer

A)   Prices rise; output falls.
B)   Prices fall; output rises.
C)   Prices rise; output rises.
D)   Prices fall; output falls.E) A) and C)
F) B) and D)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

There are three factors that help explain the downward slope of the aggregate demand curve. Discuss the importance of these factors.

Accepted Answer

The three factors are the wealth effect,...

Question 20

Which of the following is most commonly used to monitor short-run changes in economic activity?

Accepted Answer

A)   the inflation rate
B)   real GDP
C)   aggregate demand
D)   aggregate supplyE) A) and D)
F) All of the above

Exam 33: Aggregate Demand and Aggregate Supply

Make a list of things that would shift the aggregate demand curve to the right.

Correct AnswerverifiedExamples (and variations on examples) in...View AnswerShow Answer

If there is speculation that the economy will soon enter a recession, which means that our incomes will probably fall, then the immediate effect on the economy now will be that the

Correct AnswerverifiedShow Answer

Shifts in aggregate demand affect the price level in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Explain the short-run and long-run effects on output and prices of technological improvements. Create a chart to demonstrate the effects.

Correct AnswerverifiedWhen a technological improvement raises ...View AnswerShow Answer

According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause prices to

Correct AnswerverifiedShow Answer

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The classical dichotomy refers to the separation of

Correct AnswerverifiedShow Answer

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to shift the

Correct AnswerverifiedShow Answer

Explain the short-run and long-run effects on output and prices of a recession overseas causing foreigners to buy fewer U.K. goods. Create a chart to demonstrate the effects.

Correct AnswerverifiedWhen a recession overseas causes foreign...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Which of the following is most commonly used to monitor short-run changes in economic activity?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production. This is a demonstration of the

Correct AnswerverifiedShow Answer

There are three factors that help explain the downward slope of the aggregate demand curve. Discuss the importance of these factors.

Correct AnswerverifiedThe three factors are the wealth effect,...View AnswerShow Answer

Which of the following will reduce the price level and reduce real output in the short run?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Stagflation occurs when the economy experiences

Correct AnswerverifiedShow Answer

Correct Answer
verified
Examples (and variations on examples) in...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When a technological improvement raises ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When a recession overseas causes foreign...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The three factors are the wealth effect,...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified