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Which of the following shifts the short-run aggregate supply curve right?


A) both an increase in the price level that is greater than expected and an increase in the expected price level.
B) an increase in the price level that is greater than expected, but not an increase in the expected price level.
C) an increase in the expected price level, but not an increase in the price level that is greater than expected.
D) neither an increase in the price level that is greater than expected nor an increase in the expected price level.

E) B) and C)
F) All of the above

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The aggregate demand and aggregate supply model helps us to understand both short-run economic fluctuations and how the economy moves from the short to the long run.

A) True
B) False

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The variables on the vertical and horizontal axes of the aggregate demand and supply graph are


A) the price level and real output.
B) real output and employment.
C) employment and the inflation rate.
D) the value of money and the price level.

E) B) and D)
F) All of the above

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When looking at a graph of aggregate demand, which of the following is correct?


A) There are nominal variables on both the vertical and the horizontal axes.
B) There are real variables on both the vertical and horizontal axes.
C) The variable on the vertical axis is nominal; the variable on the horizontal axis is real
D) The variable on the vertical axis is real; the variable on the horizontal axis is nominal

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

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Political Instability Abroad Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. -Refer to Political Instability Abroad. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the U.S.?


A) make it rise which by itself would increase U.S. aggregate demand.
B) make it rise which by itself would decrease U.S. aggregate demand.
C) make it fall which by itself would increase U.S. aggregate demand.
D) make it fall which by itself would decrease U.S. aggregate demand.

E) A) and B)
F) C) and D)

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In the early 1930s in the United States, there was a


A) large increase in output. In the early 1940s there was also a large increase in output.
B) large increase in output. In the early 1940s there was a large decrease in output.
C) large decrease in output. In the early 1940s there was a large increase in output.
D) large decrease in output. In the early 1940s there was also a large decrease in output.

E) None of the above
F) C) and D)

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During the 2008-2009 unemployment rose from about 4.4% to about


A) 6%
B) 8%
C) 10%
D) 12%

E) A) and B)
F) A) and C)

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Real GDP


A) moves in the same direction as unemployment.
B) is not adjusted for inflation.
C) measures economic activity and real income.
D) All of the above are correct.

E) B) and C)
F) None of the above

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If output is above its natural rate, then according to sticky-wage theory


A) workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve right.
B) workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.
C) workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate supply curve right.
D) workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate supply curve left.

E) C) and D)
F) None of the above

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Aggregate demand shifts right when the government


A) raises personal income taxes.
B) increases the money supply.
C) repeals an investment tax credit.
D) All of the above are correct.

E) A) and B)
F) A) and C)

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Changes in the price level affect which components of aggregate demand?


A) only consumption and investment
B) only consumption and net exports
C) only investment
D) consumption, investment, and net exports

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

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Which of the following shifts aggregate demand to the left?


A) The price level rises.
B) The price level falls.
C) The dollar depreciates for some reason other than a change in the price level.
D) Stock prices fall for some reason other than a change in the price level.

E) B) and D)
F) All of the above

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Other things the same, as the price level decreases it induces greater spending on


A) both net exports and investment.
B) net exports but not investment.
C) investment but not net exports.
D) neither net exports nor investment.

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

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Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. -Refer to Financial Crisis. What happens to the price level and real GDP in the short run?


A) both the price level and real GDP rise
B) the the price level level rises and real GDP falls
C) the the price level level falls and real GDP rises
D) both the price level and real GDP fall

E) A) and B)
F) A) and C)

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Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp increase in the minimum wage, a major new discovery of oil, a large influx of immigrants, and new environmental regulations that raise the cost of electricity production. In the short run


A) the price level will rise and real GDP will fall.
B) the price level will fall and real GDP will rise.
C) the price level and real GDP will both stay the same.
D) All of the above are possible.

E) A) and D)
F) All of the above

Correct Answer

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Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to


A) decrease consumption, which shifts aggregate supply left.
B) decrease consumption, which shifts aggregate demand left.
C) increase consumption, which shifts aggregate supply right.
D) increase consumption, which shifts aggregate demand right.

E) B) and C)
F) All of the above

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Which of the following shifts the long-run aggregate supply curve to the right?


A) both an increase in the capital stock and technological improvements
B) an increase in the capital stock but not technological improvements.
C) An increase in the capital stock but not technological improvements
D) neither an increase in the capital stock nor an technological improvements.

E) A) and B)
F) B) and C)

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If the government provides an investment tax credit and increases income taxes,


A) real GDP rises, and the price level could rise, fall, or stay the same.
B) real GDP falls, and the price level could rise, fall, or stay the same.
C) the price level rises and real GDP could rise, fall or stay the same
D) None of the above are necessarily correct.

E) A) and B)
F) A) and C)

Correct Answer

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The classical dichotomy refers to the separation of


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 D)
F) A) and B)

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If the price level falls, the real value of a dollar


A) rises, so people will want to buy more.
B) rises, so people will want to buy less.
C) falls, so people will want to buy more.
D) falls, so people will want to buy less.

E) B) and C)
F) A) and C)

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