Question 1

If there is an inflationary gap, nominal wages _____, and the _____ curve shifts _____ until the economy reaches long-run equilibrium.

Accepted Answer

A)   fall; aggregate demand; left
B)   rise; aggregate demand; right
C)   fall; short-run aggregate supply; right
D)   rise; short-run aggregate supply; leftE) B) and D)
F) A) and D)

Question 2

Use the following to answer questions:
Figure: AD-AS Model II 
-(Figure: AD-AS Model II)  Refer to Figure: AD-AS Model II. If productivity increases, the _____ curve will shift to the _____.

Accepted Answer

A)   SRAS; left
B)   SRAS; right
C)   AD; left
D)   AD; rightE) A) and D)
F) B) and C)

Question 3

Which factor will shift the short-run aggregate supply curve to the RIGHT?

Accepted Answer

A)   a widespread decrease in commodity prices
B)   an increase in nominal wages
C)   a decrease in productivity
D)   a decrease in government purchases of goods and servicesE) B) and C)
F) A) and D)

Question 4

Use the following to answer questions:
Figure: AD-AS 2. B)  the aggregate demand curve will stay unchanged at AD1. C)  there will be a downward movement along the aggregate demand curve AD1. D)  the aggregate demand curve will shift to AD3." class="answers-bank-image d-inline" rel="preload" >
-(Figure: AD-AS)  Refer to Figure: AD-AS. Assume that the economy is in long-run equilibrium. If the Federal Reserve lowers the key interest rate:

Accepted Answer

A)   the aggregate demand curve will shift to AD2.
B)   the aggregate demand curve will stay unchanged at AD1.
C)   there will be a downward movement along the aggregate demand curve AD1.
D)   the aggregate demand curve will shift to AD3.E) All of the above
F) A) and B)

Question 5

If the economy is in a recessionary gap:

Accepted Answer

A)   it will remain in a recession forever without any kind of government intervention.
B)   nominal wages will fall and SRAS will shift to the right until the economy is at full employment.
C)   AD will shift to the right and prices of goods will rise until the economy goes back to producing potential output.
D)   nominal wages will rise, SRAS will shift to the left, and the economy will eventually restore itself.E) B) and C)
F) C) and D)

Question 6

The short-run aggregate supply curve has a positive slope, showing that increases in the price level will increase the quantity of aggregate output supplied by firms.

Accepted Answer

A) True 
 B)False

Question 7

The dollar amount of the wage paid is called the sticky wage.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer question 167:
Figure: Macroeconomics Equilibrium 
-(Figure: Macroeconomics Equilibrium)  Refer to Figure: Macroeconomic Equilibrium. Curve 1 refers to _____, curve 2 refers to _____, and curve 3 refers to _____.

Accepted Answer

A)   long-run aggregate supply; short-run aggregate supply; aggregate demand
B)   aggregate demand; short-run aggregate supply; long-run aggregate supply
C)   short-run aggregate supply; long-run aggregate supply; aggregate demand
D)   aggregate demand; long-run aggregate supply; short-run aggregate supplyE) A) and D)
F) A) and C)

Question 9

The only government policy that has a DIRECT effect on the aggregate demand curve is:

Accepted Answer

A)   changing the quantity of money.
B)   raising or lowering the tax rate.
C)   changing the level of government purchases of final goods and services.
D)   changing the level of government transfers.E) C) and D)
F) A) and B)

Question 10

Use the following to answer questions:
Figure: An Increase in Aggregate Demand 2 and P2: A)  the SRAS will shift to the right. B)  the SRAS curve will shift to the left. C)  unemployment will decrease. D)  LRAS will shift to the right." class="answers-bank-image d-inline" rel="preload" >
-(Figure: An Increase in Aggregate Demand)  Refer to Figure: An Increase in Aggregate Demand. Because of the pressures at the short-run equilibrium at Y2 and P2:

Accepted Answer

A)   the SRAS will shift to the right.
B)   the SRAS curve will shift to the left.
C)   unemployment will decrease.
D)   LRAS will shift to the right.E) None of the above
F) B) and C)

Question 11

Use the following to answer questions:
Figure: Shifts of the AD-AS Curves 
-(Figure: Shifts of the AD-AS Curves)  Refer to Figure: Shifts of the AD-AS Curves. A decrease in wages in the short run is illustrated by panel:

Accepted Answer

A)   (a) .
B)   (b) .
C)   (c) .
D)   (d) .E) B) and D)
F) B) and C)

Question 12

The aggregate supply curve shows the relationship between the aggregate price level and the quantity of aggregate output supplied.

Accepted Answer

A) True 
 B)False

Question 13

In the long run, the aggregate price level has no effect on the quantity of aggregate output supplied.

Accepted Answer

A) True 
 B)False

Question 14

In 2011, the Federal Reserve worried about:

Accepted Answer

A)   the threat of stagflation, the simultaneous existence of high inflation and high unemployment.
B)   hyperinflation, and it used strong disinflationary policies to bring the rise in prices under control.
C)   a healthy, booming economy, and it used fine-tuning methods to keep the growing economy on track.
D)   a deep recession with falling prices, and it used stabilization policies to take the economy out of the slump.E) C) and D)
F) B) and D)

Question 15

Use the following to answer questions:
Figure: AD-AS 1; right to AD2 D)  AD1; left to AD3" class="answers-bank-image d-inline" rel="preload" >
-(Figure: AD-AS)  Refer to Figure: AD-AS. Suppose that initially the economy is at long-run equilibrium. If the government cuts taxes, _____ will shift to the _____.

Accepted Answer

A)   SRAS; right
B)   SRAS; left
C)   AD1; right to AD2
D)   AD1; left to AD3E) None of the above
F) B) and C)

Question 16

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of:

Accepted Answer

A)   LRAS and SRAS.
B)   LRAS and aggregate demand.
C)   SRAS and aggregate demand.
D)   potential output and LRAS.E) A) and B)
F) C) and D)

Question 17

The long run in macroeconomic analysis is a period:

Accepted Answer

A)   in which wages and some other prices are sticky.
B)   in which prices and nominal wages are flexible.
C)   longer than one year.
D)   in which the capital stock is held constant.E) All of the above
F) A) and B)

Question 18

Stagflation is the combination of inflation and rising aggregate output.

Accepted Answer

A) True 
 B)False

Question 19

In response to a negative supply shock, the government decreases taxes. The MOST likely result of the government's tax decrease is a(n)  _____ in unemployment and a(n)  _____ in the aggregate price level.

Accepted Answer

A)   decrease; increase
B)   decrease; decrease
C)   increase; increase
D)   increase; decreaseE) All of the above
F) C) and D)

Question 20

When the price level decreases, firms in perfectly competitive markets will:

Accepted Answer

A)   decrease output and increase the price.
B)   decrease output.
C)   increase output and decrease the price.
D)   increase output.E) A) and B)
F) A) and C)

Exam 12: Aggregate Demand and Aggregate Supply

The aggregate supply curve shows the relationship between the aggregate price level and the quantity of aggregate output supplied.

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The dollar amount of the wage paid is called the sticky wage.

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Use the following to answer questions: Figure: An Increase in Aggregate Demand -(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. Because of the pressures at the short-run equilibrium at Y2 and P2:

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When the price level decreases, firms in perfectly competitive markets will:

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If the economy is in a recessionary gap:

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The long run in macroeconomic analysis is a period:

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In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of:

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In 2011, the Federal Reserve worried about:

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Stagflation is the combination of inflation and rising aggregate output.

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Use the following to answer question 167: Figure: Macroeconomics Equilibrium -(Figure: Macroeconomics Equilibrium) Refer to Figure: Macroeconomic Equilibrium. Curve 1 refers to _____, curve 2 refers to _____, and curve 3 refers to _____.

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In response to a negative supply shock, the government decreases taxes. The MOST likely result of the government's tax decrease is a(n) _____ in unemployment and a(n) _____ in the aggregate price level.

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Use the following to answer questions: Figure: AD-AS -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that initially the economy is at long-run equilibrium. If the government cuts taxes, _____ will shift to the _____.

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Use the following to answer questions: Figure: Shifts of the AD-AS Curves -(Figure: Shifts of the AD-AS Curves) Refer to Figure: Shifts of the AD-AS Curves. A decrease in wages in the short run is illustrated by panel:

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Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If productivity increases, the _____ curve will shift to the _____.

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If there is an inflationary gap, nominal wages _____, and the _____ curve shifts _____ until the economy reaches long-run equilibrium.

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In the long run, the aggregate price level has no effect on the quantity of aggregate output supplied.

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Which factor will shift the short-run aggregate supply curve to the RIGHT?

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The only government policy that has a DIRECT effect on the aggregate demand curve is:

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Use the following to answer questions: Figure: AD-AS -(Figure: AD-AS) Refer to Figure: AD-AS. Assume that the economy is in long-run equilibrium. If the Federal Reserve lowers the key interest rate:

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The short-run aggregate supply curve has a positive slope, showing that increases in the price level will increase the quantity of aggregate output supplied by firms.

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Use the following to answer questions: Figure: An Increase in Aggregate Demand -(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. Because of the pressures at the short-run equilibrium at Y₂ and P₂:

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Use the following to answer question 167: Figure: Macroeconomics Equilibrium -(Figure: Macroeconomics Equilibrium) Refer to Figure: Macroeconomic Equilibrium. Curve 1 refers to ___, curve 2 refers to _, and curve 3 refers to ___.

Correct Answer
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In response to a negative supply shock, the government decreases taxes. The MOST likely result of the government's tax decrease is a(n) _ in unemployment and a(n) _ in the aggregate price level.

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Use the following to answer questions: Figure: AD-AS -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that initially the economy is at long-run equilibrium. If the government cuts taxes, _ will shift to the _.

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Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If productivity increases, the _ curve will shift to the _.

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If there is an inflationary gap, nominal wages ___, and the _ curve shifts ___ until the economy reaches long-run equilibrium.

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