Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Suppose the economy is initially in long run equilibrium.Then suppose there is an increase in military spending due to rising international tensions.According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

Accepted Answer

A)  Output falls; prices are unchanged from the initial value.
B)  Prices fall; output is unchanged from its initial value.
C)  Output and the price level are unchanged from their initial values.
D)  Prices rise; output is unchanged from its initial value.
E)  Output rises; prices are unchanged from the initial value.F) D) and E)
G) None of the above D

Question 3

Which of the following will reduce the price level and raise real output?

Accepted Answer

A)  An adjustment of prices to equilibrium.
B)  An increase in wage rates.
C)  The short run aggregate supply curve becoming steeper.
D)  Technical progress.E) C) and D)
F) B) and D)

Question 4

According to classical macroeconomic theory, changes in the money supply affect

Accepted Answer

A)  nominal variables and real variables.
B)  nominal variables, but not real variables.
C)  real variables, but not nominal variables.
D)  neither nominal nor real variables.E) A) and D)
F) All of the above

Question 5

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 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 B)
G) A) and D)

Question 8

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) B) and D)
F) C) and D)

Question 9

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 progress.E) A) and C)
F) C) and D)

Question 10

Recession in SA will cause

Accepted Answer

A)  an upward movement along the SA aggregate demand curve.
B)  a downward movement along the SA aggregate demand curve.
C)  the SA aggregate supply curve to shift to the right.
D)  the SA aggregate demand curve to shift to the left.E) B) and D)
F) B) and C)

Question 11

Which of the following would not cause a shift in the long run aggregate supply curve? An increase in

Accepted Answer

A)  the available capital.
B)  the available labour.
C)  the available technology.
D)  price expectations.E) All of the above
F) B) and C)

Question 12

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 supply.E) A) and C)
F) All of the above

Question 13

Suppose the economy is initially in long run equilibrium.Then suppose there is a drought that destroys much of the wheat crop.If policymakers allow the economy to adjust to long run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

Accepted Answer

A)  Output rises; prices are unchanged from the initial value.
B)  Output and the price level are unchanged from their initial values.
C)  Output falls; prices are unchanged from the initial value.
D)  Prices fall; output is unchanged from its initial value.
E)  Prices rise; output is unchanged from its initial value.F) A) and E)
G) B) and E)

Question 14

Suppose an economy is in recession.If the government does nothing, what ensures that the economy still eventually gets back to the natural rate of output? Create a chart to depict an economy in recession.

Accepted Answer

The graph below depicts an economy in a recession.The short run aggregate supply curve is AS₁ and the economy is in equilibrium at point A, which is to the left of the long run aggregate supply curve.If policymakers take no action, the economy will return to the long run aggregate supply curve over time, since the actual price level will be below the price level that people expected.Individuals will eventually correct their expectations about the price level.As they do so, prices and wages will adjust accordingly, shifting the aggregate supply curve to the right to AS₂.The economy's new equilibrium is at point B.The rightward shift in aggregate supply eventually causes output to rise back to the natural rate.

Question 15

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) B) and C)
F) B) and D) D

Question 16

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) A) and D)
F) A) and C)

Question 17

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) A) and B)
F) B) and D)

Question 18

Make a list of things that would shift the long run aggregate supply curve to the right.

Accepted Answer

Examples (or variations) include increas...

Question 19

Movements along the aggregate supply curve are caused by changes in

Accepted Answer

A)  technology.
B)  government regulations.
C)  wages and salaries.
D)  the price level.E) B) and D)
F) B) and C)

Question 20

Any factor that increases resource availability causes

Accepted Answer

A)  an increase in aggregate demand.
B)  a decrease in aggregate demand.
C)  an increase in aggregate supply.
D)  a decrease in aggregate supply.E) B) and C)
F) All of the above

Exam 15: Aggregate Demand and Aggregate Supply

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

Correct Answer
verified

Suppose the economy is initially in long run equilibrium.Then suppose there is an increase in military spending due to rising international tensions.According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

Correct Answer
verified
D

Which of the following will reduce the price level and raise real output?

Correct Answer
verified

According to classical macroeconomic theory, changes in the money supply affect

Correct Answer
verified

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

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

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

Correct Answer
verified

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

Correct Answer
verified

Shifts in aggregate demand affect the price level in

Correct Answer
verified

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

Correct Answer
verified

Recession in SA will cause

Correct Answer
verified

Which of the following would not cause a shift in the long run aggregate supply curve? An increase in

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Suppose an economy is in recession.If the government does nothing, what ensures that the economy still eventually gets back to the natural rate of output? Create a chart to depict an economy in recession.

The classical dichotomy refers to the separation of

Correct Answer
verified
D

Stagflation occurs when the economy experiences

Correct Answer
verified

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 Answer
verified

Make a list of things that would shift the long run aggregate supply curve to the right.

Correct Answer
verified
Examples (or variations) include increas...
View Answer

Movements along the aggregate supply curve are caused by changes in

Correct Answer
verified

Any factor that increases resource availability causes

Correct Answer
verified

Exam 15: Aggregate Demand and Aggregate Supply

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

Correct AnswerverifiedShow Answer

Suppose the economy is initially in long run equilibrium.Then suppose there is an increase in military spending due to rising international tensions.According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

Correct AnswerverifiedD

Which of the following will reduce the price level and raise real output?

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory, changes in the money supply affect

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

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

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

Shifts in aggregate demand affect the price level in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Recession in SA will cause

Correct AnswerverifiedShow Answer

Which of the following would not cause a shift in the long run aggregate supply curve? An increase in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose an economy is in recession.If the government does nothing, what ensures that the economy still eventually gets back to the natural rate of output? Create a chart to depict an economy in recession.

The classical dichotomy refers to the separation of

Correct AnswerverifiedD

Stagflation occurs when the economy experiences

Correct AnswerverifiedShow 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

Make a list of things that would shift the long run aggregate supply curve to the right.

Correct AnswerverifiedExamples (or variations) include increas...View AnswerShow Answer

Movements along the aggregate supply curve are caused by changes in

Correct AnswerverifiedShow Answer

Any factor that increases resource availability causes

Correct AnswerverifiedShow Answer

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Correct Answer
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D

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

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Correct Answer
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Correct Answer
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D

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Examples (or variations) include increas...
View Answer

Correct Answer
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Correct Answer
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