Question 1

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time.
-Refer to Pessimism. What happens to the expected price level and what's the result for wage bargaining?

Accepted Answer

A)   The expected price level rises. Bargains are struck for higher wages.
B)   The expected price level rises. Bargains are struck for lower wages.
C)   The expected price level falls. Bargains are struck for higher wages.
D)   The expected price level falls. Bargains are struck for lower wages.E) A) and B)
F) A) and C)

Question 2

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

Accepted Answer

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

Question 3

From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made people feel less wealthy, then it would have shifted

Accepted Answer

A)   aggregate demand right.
B)   aggregate demand left.
C)   aggregate supply right.
D)   aggregate supply left.E) None of the above
F) C) and D)

Question 4

The division of variables into real and nominal is a dichotomy assumed by

Accepted Answer

A)   classical economists.
B)   John Maynard Keynes.
C)   the wealth effect.
D)   short-run macroeconomic theory.E) B) and D)
F) A) and B)

Question 5

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if

Accepted Answer

A)   the price level is higher than expected making production more profitable.
B)   the price level is higher than expected making production less profitable.
C)   the price level is lower than expected making production more profitable.
D)   the price level is higher than expected making production less profitableE) A) and D)
F) A) and C)

Question 6

A decrease in the money supply causes the interest rate to rise so that investment falls.

Accepted Answer

A) True 
 B)False

Question 7

We can explain continued increases in both output and the price level by supposing that only aggregate demand shifted right over time.

Accepted Answer

A) True 
 B)False

Question 8

When the dollar appreciates, U.S.

Accepted Answer

A)   net exports rise, which increases the aggregate quantity of goods and services demanded.
B)   net exports rise, which decreases the aggregate quantity of goods and services demanded.
C)   net exports fall, which increases the aggregate quantity of goods and services demanded.
D)   net exports fall, which decreases the aggregate quantity of goods and services demanded.E) B) and C)
F) C) and D)

Question 9

When the dollar appreciates, U.S.

Accepted Answer

A)   exports decrease, while imports increase.
B)   exports and imports decrease.
C)   exports and imports increase.
D)   exports increase, while imports decrease.E) All of the above
F) B) and D)

Question 10

When the price level falls

Accepted Answer

A)   the interest rate rises, so the quantity of goods and services demand rises.
B)   the interest rate rises, so the quantity of goods and services demand falls.
C)   the interest rate falls, so the quantity of goods and services demand rises.
D)   the interest rate falls, so the quantity of goods and services demand falls.E) A) and D)
F) A) and C)

Question 11

Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

Accepted Answer

A) True 
 B)False

Question 12

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if

Accepted Answer

A)   real wealth falls.
B)   the interest rate rises.
C)   the dollar depreciates.
D)   None of the above is correct.E) B) and C)
F) A) and B)

Question 13

An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level

Accepted Answer

A)   falls, shifting aggregate demand right.
B)   rises, shifting aggregate demand left.
C)   falls, shifting aggregate supply right.
D)   rises, shifting aggregate supply left.E) A) and B)
F) A) and C)

Question 14

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because

Accepted Answer

A)   monetary neutrality would mean that neither prices nor production should have risen.
B)   monetary neutrality would mean that production should have risen, but prices should not have.
C)   monetary neutrality would mean the prices should have risen, but production should not have changed.
D)   monetary neutrality would mean that prices and production should both have fallen.E) All of the above
F) B) and D)

Question 15

The recessions of the 1970s are often attributed to

Accepted Answer

A)   declining inflation expectations.
B)   an increase in oil prices.
C)   declines in the price of stock.
D)   decreases in the money supply.E) B) and D)
F) B) and C)

Question 16

Economic variables we are most interested in are

Accepted Answer

A)   real variables, but we usually observe nominal variables.
B)   nominal variables, but we usually observe real variables.
C)   real variables, which we usually observe.
D)   nominal variables, which we usually observe.E) B) and D)
F) A) and D)

Question 17

If a central bank is independent,

Accepted Answer

A)   it has the ability to alter taxes.
B)   it allocates savings to firms.
C)   it restricts trade to increase domestic employment.
D)   it operations are not controlled by the political process.E) A) and B)
F) B) and C)

Question 18

When the price level changes, which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

Accepted Answer

A)   the real value of wealth
B)   the interest rate
C)   the value of currency in the market for foreign exchange
D)   All of the above are correct.E) B) and C)
F) A) and C)

Question 19

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Accepted Answer

A)   the wealth effect and the interest-rate effect
B)   the wealth effect but not the interest-rate effect
C)   the interest-rate effect but not the wealth effect
D)   neither the wealth-effect nor the interest rate effectE) None of the above
F) B) and D)

Question 20

Other things the same, as the price level falls,

Accepted Answer

A)   the dollar depreciates.
B)   the interest rate rises.
C)   people feel less wealthy.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Exam 15: Aggregate Demand and Aggregate Supply

Other things the same, as the price level falls,

Correct Answer
verified

When the price level changes, which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

Correct Answer
verified

Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

Correct Answer
verified

Economic variables we are most interested in are

Correct Answer
verified

When the dollar appreciates, U.S.

Correct Answer
verified

We can explain continued increases in both output and the price level by supposing that only aggregate demand shifted right over time.

Correct Answer
verified

A decrease in the money supply causes the interest rate to rise so that investment falls.

Correct Answer
verified

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Correct Answer
verified

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if

Correct Answer
verified

The recessions of the 1970s are often attributed to

Correct Answer
verified

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if

Correct Answer
verified

An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level

Correct Answer
verified

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

Correct Answer
verified

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because

Correct Answer
verified

Correct Answer
verified

When the price level falls

Correct Answer
verified

When the dollar appreciates, U.S.

Correct Answer
verified

The division of variables into real and nominal is a dichotomy assumed by

Correct Answer
verified

From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made people feel less wealthy, then it would have shifted

Correct Answer
verified

If a central bank is independent,

Correct Answer
verified

Exam 15: Aggregate Demand and Aggregate Supply

Other things the same, as the price level falls,

Correct AnswerverifiedShow Answer

When the price level changes, which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

Correct AnswerverifiedShow Answer

Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

Correct AnswerverifiedShow Answer

Economic variables we are most interested in are

Correct AnswerverifiedShow Answer

When the dollar appreciates, U.S.

Correct AnswerverifiedShow Answer

We can explain continued increases in both output and the price level by supposing that only aggregate demand shifted right over time.

Correct AnswerverifiedShow Answer

A decrease in the money supply causes the interest rate to rise so that investment falls.

Correct AnswerverifiedShow Answer

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Correct AnswerverifiedShow Answer

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if

Correct AnswerverifiedShow Answer

The recessions of the 1970s are often attributed to

Correct AnswerverifiedShow Answer

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if

Correct AnswerverifiedShow Answer

An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level

Correct AnswerverifiedShow Answer

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

Correct AnswerverifiedShow Answer

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When the price level falls

Correct AnswerverifiedShow Answer

When the dollar appreciates, U.S.

Correct AnswerverifiedShow Answer

The division of variables into real and nominal is a dichotomy assumed by

Correct AnswerverifiedShow Answer

From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made people feel less wealthy, then it would have shifted

Correct AnswerverifiedShow Answer

If a central bank is independent,

Correct AnswerverifiedShow Answer

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