Question 1

A temporary decrease in the price of oil is a:

Accepted Answer

A)   short-run supply shock.
B)   long-run supply shock.
C)   demand shock.
D)   The changing price of oil would not influence aggregate demand or supply.E) A) and B)
F) C) and D)

Question 2

During the 1970s, the U.S. economy experienced high rates of inflation and limited economic growth. This phenomenon is often called:

Accepted Answer

A)   stagflation.
B)   inflagnation.
C)   contractionary policy.
D)   economic malaise.E) A) and D)
F) C) and D)

Question 3

If an economy is in a recession, it means that:

Accepted Answer

A)   the economy is not in long-run equilibrium.
B)   total output is less than potential output.
C)   the short-run equilibrium lies to the left of the long-run aggregate supply curve.
D)   All of these are true.E) A) and B)
F) None of the above

Question 4

Increases in the overall price level:

Accepted Answer

A)   increase people's dollar-denominated wealth.
B)   generally have no effect on spending.
C)   increase consumption.
D)   reduce consumption.E) B) and C)
F) All of the above

Question 5

The aggregate supply and aggregate demand model describes the:

Accepted Answer

A)   overall health of the economy.
B)   overall effect of large markets within the economy.
C)   way sellers and buyers interact within a particular market.
D)   way unemployment affects output, ignoring the impact of the price level.E) B) and D)
F) B) and C)

Question 6

The figure shown displays various economic outcomes. 2 to AD1, the resulting price and output in the short run would be: A)  P 1 and Y 1. B)  P 3 and Y 1. C)  P 4 and Y 1. D)  P 4 and Y 2." class="answers-bank-image d-inline" rel="preload" > If the aggregate demand curve shifts from AD2 to AD1, the resulting price and output in the short run would be:

Accepted Answer

A)   P 1 and Y 1.
B)   P 3 and Y 1.
C)   P 4 and Y 1.
D)   P 4 and Y 2.E) C) and D)
F) None of the above

Question 7

The negative relationship that exists between the price level and aggregate expenditure partially explains why the aggregate demand curve is:

Accepted Answer

A)   downward sloping.
B)   upward sloping.
C)   perfectly elastic.
D)   perfectly inelastic.E) A) and D)
F) A) and C)

Question 8

If U.S. prices increase relative to the rest of the world, we would expect imports to _______ and exports to _______.

Accepted Answer

A)   increase; decrease
B)   decrease; increase
C)   increase; increase
D)   decrease; decreaseE) A) and B)
F) B) and C)

Question 9

The government might increase spending to end a recession because:

Accepted Answer

A)   allowing short-run aggregate supply to adjust back to the long run can take a long time.
B)   it causes prices to be lower in the new long-run equilibrium.
C)   the economy enjoys a higher level of output in the long run.
D)   None of these explain why the government might increase its spending to end a recession.E) B) and C)
F) A) and D)

Question 10

The long-run aggregate supply curve:

Accepted Answer

A)   is affected by the price level.
B)   never moves.
C)   shifts to the right when the economy experiences economic growth.
D)   shifts to the left when the economy experiences economic growth.E) A) and B)
F) B) and D)

Question 11

What occurs when the price level increases?

Accepted Answer

A)   People demand a smaller aggregate quantity of goods and services.
B)   Consumers feel wealthier.
C)   The same real value of assets is held by the public, regardless of the change in the price level.
D)   People want to spend more.E) A) and D)
F) A) and C)

Question 12

During a recession, analysts at the CBO project that the economy is operating $1.5 trillion below potential output. Assuming the MPC is 0.8, by how much would the government have to increase spending to restore potential output?

Accepted Answer

A)   $500 billion
B)   $300 billion
C)   $1.2 trillion
D)   $800 billionE) None of the above
F) B) and C)

Question 13

If an economy is in a recession, the government might _______ spending to _______ aggregate demand.

Accepted Answer

A)   increase; increase
B)   decrease; decrease
C)   increase; decrease
D)   decrease; increaseE) A) and C)
F) B) and C)

Question 14

When the economy produces less than its potential output, it is:

Accepted Answer

A)   in a recession.
B)   not in long-run equilibrium.
C)   producing a quantity less than the long-run aggregate supply.
D)   All of these are true.E) A) and B)
F) A) and C)

Question 15

When are firms willing to change the aggregate quantity of output supplied based on price?

Accepted Answer

A)   In the short run only
B)   In the long run only
C)   In the short and long run
D)   Price never affects the quantity that firms supply.E) None of the above
F) All of the above

Question 16

Which of the following is not a cost of production?

Accepted Answer

A)   Fuel
B)   Labor
C)   Advertising
D)   RentE) B) and C)
F) A) and C)

Question 17

Which of the following events would cause a demand shock?

Accepted Answer

A)   Refinery capacity in the United States drops permanently.
B)   A new pest destroys much of the alfalfa crop in a given year.
C)   The government spends less on infrastructure maintenance.
D)   Housing prices fall.E) B) and C)
F) B) and D)

Question 18

Which of the following is a component of aggregate demand?

Accepted Answer

A)   Consumption
B)   Investment
C)   Net exports
D)   All of these are components of aggregate demand.E) C) and D)
F) B) and D)

Question 19

The aggregate supply curve shows:

Accepted Answer

A)   the relationship between the overall price level and firms' total production.
B)   the relationship between the overall price level and firms' investment decisions.
C)   the total production of all firms in an economy at every given demand level.
D)   the total production of all firms in an economy for every level of profit.E) C) and D)
F) A) and D)

Question 20

If the government increases spending by $400 billion, and the MPC is 0.75, the change in GDP will be:

Accepted Answer

A)   $400 billion.
B)   $1,600 billion.
C)   $300 billion.
D)   $1,200 billion.E) A) and D)
F) B) and C)

Exam 12: Aggregatedemand and Aggregate Supply

When the economy produces less than its potential output, it is:

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The figure shown displays various economic outcomes. If the aggregate demand curve shifts from AD2 to AD1, the resulting price and output in the short run would be:

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During a recession, analysts at the CBO project that the economy is operating $1.5 trillion below potential output. Assuming the MPC is 0.8, by how much would the government have to increase spending to restore potential output?

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The aggregate supply and aggregate demand model describes the:

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A temporary decrease in the price of oil is a:

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What occurs when the price level increases?

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If U.S. prices increase relative to the rest of the world, we would expect imports to _______ and exports to _______.

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When are firms willing to change the aggregate quantity of output supplied based on price?

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The long-run aggregate supply curve:

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Increases in the overall price level:

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The government might increase spending to end a recession because:

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If the government increases spending by $400 billion, and the MPC is 0.75, the change in GDP will be:

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Which of the following is a component of aggregate demand?

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If an economy is in a recession, the government might _______ spending to _______ aggregate demand.

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The aggregate supply curve shows:

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The negative relationship that exists between the price level and aggregate expenditure partially explains why the aggregate demand curve is:

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If an economy is in a recession, it means that:

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Which of the following is not a cost of production?

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During the 1970s, the U.S. economy experienced high rates of inflation and limited economic growth. This phenomenon is often called:

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Which of the following events would cause a demand shock?

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The figure shown displays various economic outcomes. If the aggregate demand curve shifts from AD₂ to AD₁, the resulting price and output in the short run would be:

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If U.S. prices increase relative to the rest of the world, we would expect imports to _ and exports to _.

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If an economy is in a recession, the government might _ spending to _ aggregate demand.

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