ch 13 study questions – Flashcards

The aggregate demand and aggregate supply model explains a. the effect of changes in the inflation rate on the nominal interest rate. b. short-run fluctuations in real GDP and the price level. c. the effect of long-run economic growth on the standard of living. d. the effect of changes in the interest rate on investment spending.

The aggregate demand curve shows the relationship between a. the interest rate and the quantity of real GDP demanded. b. the interest rate and the quantity of real GDP supplied. c. the price level and the interest rate. d. the price level and the quantity of real GDP demanded.

The wealth effect refers to the fact that a. when the price level falls, the real value of household wealth rises, and so will consumption. b. when income rises, consumption rises. c. when the price level falls, the nominal value of assets rises, while the real value of assets remains the same. d. all of the above

The interest rate effect refers to the fact that a higher price level results in a. higher interest rates and higher investment. b. higher interest rates and lower investment. c. lower interest rates and lower investment. d. lower interest rates and higher investment.

The international-trade effect refers to the fact that an increase in the price level will result in a. an increase in exports and a decrease in imports. b. a decrease in exports and an increase in imports. c. an increase in exports and an increase in imports. d. a decrease in exports and a decrease in imports.

If the price level increases, then a. the economy will move up and to the left along a stationary aggregate demand curve. b. the aggregate demand curve will shift to the right. c. the aggregate demand curve will shift to the left. d. none of the above would occur.

Which of the following factors does not cause the aggregate demand curve to shift? a. a change in the price level b. a change in government policies c. a change in the expectations of households and firms d. a change in foreign variables

Which of the following shifts the aggregate demand curve to the right? a. a fall in the price level b. lower interest rates c. households expecting lower future income d. falling exports

Which of the following policies affects the economy through intended changes in the money supply and interest rates? a. fiscal policy b. monetary policy c. both fiscal and monetary policies d. neither fiscal nor monetary policies

How can government policies shift the aggregate demand curve to the right? a. by increasing personal income taxes b. by increasing business taxes c. by increasing government purchases d. all of the above

If households become more optimistic about their future incomes, then a. the short-run aggregate supply curve will shift to the right. b. the short-run aggregate supply curve will shift to the left. c. the aggregate demand curve will shift to the left. d. the aggregate demand curve will shift to the right.

If real GDP in the United States increases faster than real GDP in other countries, U.S. imports will __________ faster than U.S. exports, and net exports will ___________. a. increase; rise b. increase; fall c. decrease; rise d. decrease; fall

If the exchange rate between the dollar and foreign currencies rises (the dollar rises in value versus foreign currencies), the price in foreign currency of U.S. products will _________ and the U.S. aggregate demand curve will shift to the _________. a. rise; right b. rise; left c. fall; right d. fall; left

If net exports decrease as a result of a change in the price level in the United States, then a. the aggregate demand curve will shift to the right. b. the aggregate demand curve will shift to the left. c. both the aggregate demand curve and the short-run aggregate supply curve will shift to the right. d. neither the aggregate demand curve nor the short-run aggregate supply curve will shift.

Which of the following statements is true? a. In the long run, increases in the price level result in an increase in real GDP. b. In the long run, increases in the price level result in a decrease in real GDP. c. In the long run, changes in the price level do not affect the level of real GDP. d. In the long run, changes in the price level may either increase or decrease real GDP.

The long-run aggregate supply curve a. is positively sloped. b. shifts to the right as technological change occurs. c. is negatively sloped. d. shifts to the left as the capital stock of the country grows.

Which of the following factors will cause the long-run aggregate supply curve to shift to the right? a. an increase in the number of workers in the economy b. the accumulation of more machinery and equipment c. technological change d. all of the above

Which of the following factors will shift the short-run aggregate supply to the left? a. a decrease in the price level b. a decrease in the wage rate c. a decrease in the cost of production d. a decrease in the size of the labor force

Why does the short-run aggregate supply curve slope upward? a. Profits rise when the prices of the goods and services firms sell rise more rapidly than the prices they pay for inputs. b. An increase in market price results in an increase in quantity supplied, as stated by the law of supply. c. As the number of workers, machinery, equipment, and technological changes increase, quantity supplied increases. d. All of the above are reasons the short-run aggregate supply curve slopes upward.

If firms and workers could predict the future price level exactly, the short-run aggregate supply curve would be a. downward sloping. b. upward sloping. c. horizontal. d. the same as the long-run aggregate supply curve.

Why does the failure of workers and firms to accurately predict the price level result in an upward- sloping aggregate supply curve? a. because contracts make some wages and prices "sticky" b. because firms are often slow to adjust wages c. because menu costs make some prices "sticky" d. all of the above

Assume that cotton is the only good produced in the economy. Which of the following would explain why the short-run aggregate supply curve for cotton would be upward sloping? a. Cotton demand and cotton prices begin to rise rapidly, and the wages of cotton workers rise as the demand for cotton workers increases. b. Cotton demand and cotton prices begin to rise rapidly, but the price of fertilizer—an input into the production of cotton—remains fixed by contract. c. Cotton demand and cotton prices begin to rise rapidly, but foreign cotton producers increase production faster than domestic cotton producers increase production. d. All of the above explain why the short-run aggregate supply curve for cotton would be upward sloping.

What are menu costs? a. the costs of searching for profitable opportunities b. the costs associated with guarding against the effects of inflation c. the costs to firms of changing prices d. the costs of a fixed list of inputs

Which of the following causes the short-run aggregate supply curve to shift to the right? a. a higher expected future price level b. an increase in the actual (or current) price level c. a technological change d. all of the above

If all workers and firms adjust to the fact that the price level is higher than they had expected it to be, a. there will be a movement up and to the right along a stationary aggregate supply curve. b. there will be a movement down and to the left along a stationary aggregate supply curve. c. the short-run aggregate supply curve will shift to the left. d. the short-run aggregate supply curve will shift to the right.

If oil prices rise unexpectedly, a. there will be a movement up and to the right along a stationary aggregate supply curve. b. there will be a movement down and to the left along a stationary aggregate supply curve. c. the short-run aggregate supply curve will shift to the left. d. the short-run aggregate supply curve will shift to the right.

An unexpected change in the price of oil would be called _________ by economists. a. a demand shock b. a supply shock c. disinflation d. stagflation

In the short run, a supply shock as a result of an unexpected decrease in oil prices will a. increase the price level but decrease real GDP. b. decrease the price level but increase real GDP. c. increase both the price level and real GDP. d. decrease both the price level and real GDP.

The economy is in long-run equilibrium when a. the short-run aggregate supply curve and the aggregate demand curve intersect at a point to the right of the long-run aggregate supply curve. b. the short-run aggregate supply curve and the aggregate demand curve intersect at a point to the left of the long-run aggregate supply curve. c. the short-run aggregate supply curve and the aggregate demand curve intersect at a point on the long-run aggregate supply curve. d. None of the above is true of an economy in long-run equilibrium.

If firms reduce investment spending and the economy enters a recession, which of the following contributes to the adjustment that causes the economy to return to its long-run equilibrium? a. the eventual agreement by workers to accept lower wages b. the decision by firms to charge higher prices c. both of the above d. none of the above

If the economy adjusts through the automatic mechanism, then a decline in aggregate demand causes a. a recession in the short run and an increase in the price level in the long run. b. a recession in the short run and a decline in the price level in the long run. c. an expansion in the short run and a decline in the price level in the long run. d. an expansion in the short run and an increase in the price level in the long run.

If the economy is initially at full-employment equilibrium, then an increase in aggregate demand causes _____________ in real GDP in the short run and ___________ in the price level in the long run. a. an increase; an increase b. a decrease; a decrease c. an increase; a decrease d. a decrease; an increase

Stagflation is a. a combination of inflation and recession. b. a combination of recession and deflation. c. a situation of low inflation and low unemployment. d. stagnant employment during periods of expansion.

Which of the following is usually the cause of stagflation? a. a reduction in government purchases b. an increase in investment as a result of a reduction in interest rates c. a decline in net exports as a result of a change in the exchange rate d. a supply shock as a result of an unexpected increase in the price of a natural resource

After a supply shock that shifts the short-run aggregate supply (SRAS) curve to the left, what causes the SRAS to shift to the right until the long-run level of equilibrium output is reached once again? a. an increase in the wages that workers earn and the prices that firms charge b. workers' willingness to accept lower wages and firms' willingness to accept lower prices c. an increase in government spending d. a decrease in government spending

Which of the following is true about the basic or static aggregate demand and aggregate supply model? a. The economy experiences continuing inflation. b. The economy does not experience long-run growth. c. The price level is constant and so the short-run aggregate supply is horizontal. d. All of the above are true.

To turn the basic model of aggregate demand and aggregate supply into a dynamic model, which of the following assumptions must be made? a. Potential real GDP increases continually, shifting the long-run aggregate supply (LRAS) curve to the right. b. During most years, the aggregate demand (AD) curve will be shifting to the right. c. Except during periods when workers and firms expect high rates of inflation, the short-run aggregate supply (SRAS) curve will be shifting to the right. d. All of the above assumption must be made.

If no other factors that affect the SRAS curve have changed, what impact will increases in the labor force, increases in the capital stock, and technological change have on both the short-run and the long-run aggregate supply? a. Over time, both the long-run aggregate supply and the short-run aggregate supply will shift to the right by the same amount. b. Over time, the long-run aggregate supply will shift to the right, and the short-run aggregate supply will remain stationary. c. Over time, the long-run aggregate supply will remain stationary, and the short-run aggregate supply will shift to the right. d. Both the long-run aggregate supply and the short-run aggregate supply will shift to the left by the same amount.

How does the dynamic model of aggregate supply and aggregate demand explain inflation? a. by showing that if total production in the economy grows faster than total spending, prices will rise b. by showing that increases in labor productivity usually lead to increases in prices c. by showing that if total spending in the economy grows faster than total production, prices will rise d. none of the above

In the dynamic aggregate demand and supply model, which of the following is correct? a. If aggregate demand increases more than aggregate supply increases, the price level will rise. b. If aggregate demand and aggregate supply both increase the same amount, the price level will rise. c. If aggregate supply increases more than aggregate demand increases, the price level will rise. d. If aggregate supply increases more than aggregate demand increases, the price level will not change.

The recession of 2007-2009 was caused by a decline in aggregate demand. Which factors contributed to this decline? a. unexpected increases in oil prices b. a "credit crunch" as a result of the collapse of major banks and other financial institutions c. the corporate accounting scandals d. all of the above

The increases of oil prices in 2008 are best described as shifts of the a. short-run aggregate supply curve to the right. b. short-run aggregate supply curve to the left. c. aggregate demand curve to the right. d. aggregate demand curve to the left .

The 2007-2009 recession was a clear example of a. the impact that a decrease in aggregate demand can have on the economy. b. the impact of a shift to the left in the long-run aggregate supply on the economy. c. the impact of a positive supply shock on the economy. d. all of the above.

The 1974-1975 recession was a result of a. a supply shock that caused a leftward shift of the short-run aggregate supply curve. b. a supply shock that caused a leftward shift of the long-run aggregate supply curve. c. a housing bubble collapse that caused a leftward shift of the aggregate demand curve. d. a financial crisis that caused a leftward shift of both the short-run aggregate supply curve and the aggregate demand curve.