Question 1

The classical approach to a downturn in the business cycle was for the government to do nothing.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would cause a rightward shift in the aggregate supply curve?

Accepted Answer

A)  Larger-than-expected wage increases.
B)  Lower oil prices.
C)  Increased investment spending.
D)  Greater government regulation.E) A) and D)
F) A) and B)

Question 3

The real balances effect predicts that higher prices:

Accepted Answer

A)  make people worse off by reducing the value of their wealth, leading them to save more and spend less.
B)  make people worse off by reducing the value of their wealth, leading them to save less and spend more.
C)  make people better off by increasing the value of their wealth, leading them to save less and spend more.
D)  increase borrowing, leading to higher interest rates and less investment.
E)  make domestic goods relatively more expensive, increasing the demand for domestic goods and decreasing the demand for foreign goods.F) C) and D)
G) A) and C)

Question 4

Along the classical or vertical range of the aggregate supply curve, an increase in the aggregate demand curve will increase:

Accepted Answer

A)  both the price level and real GDP.
B)  only real GDP.
C)  only the price level.
D)  real GDP and reduce the price level.E) None of the above
F) A) and B)

Question 5

Along the Keynesian range of the aggregate supply curve, an increase in the aggregate demand curve will increase:

Accepted Answer

A)  both the price level and real GDP.
B)  only real GDP.
C)  only the price level.
D)  real GDP and reduce the price level.E) None of the above
F) B) and C)

Question 6

An increase in total spending in the economy will shift the aggregate demand curve to the left.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 10-7 Aggregate supply and demand curves 1 to AD2, A) output and prices will increase. B) output and prices will decrease. C) output alone will increase. D) prices alone will decrease. E) prices alone will increase." class="answers-bank-image d-inline" rel="preload" > In Exhibit 10-7, if aggregate demand increases from AD1 to AD2,

Accepted Answer

A)  output and prices will increase.
B)  output and prices will decrease.
C)  output alone will increase.
D)  prices alone will decrease.
E)  prices alone will increase.F) A) and D)
G) A) and E)

Question 8

The aggregate supply curve will shift to the right when the:

Accepted Answer

A)  amount of labor in the society decreases.
B)  capital stock of the society shrinks.
C)  amount of natural resources in the society gets smaller.
D)  amount of labor in the society increases.
E)  price level in the economy rises.F) B) and C)
G) None of the above

Question 9

The aggregate supply curve relating the price level to real GDP has three distinguishing segments. Which one of the following indicates the segments?

Accepted Answer

A)  The horizontal segment reflects the increasing pressure on the price level as firms bid for resources. The upward-sloping segment reflects the availability of unused resources. The vertical segment reflects the full employment of all resources.
B)  The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects the full employment of all resources. The vertical segment reflects the increasing pressure on the price level as firms bid for resources.
C)  The horizontal segment reflects the full employment of all resources. The upward-sloping segment reflects the increasing pressure on the price level as firms bid for resources. The vertical segment reflects the availability of unused resources.
D)  The horizontal segment reflects the availability of unused resources. The downward-sloping segment reflects decreasing pressure on the price level as firms bid for resources. The vertical segment reflects the full employment of all resources.
E)  The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects increasing pressure on the price level as firms bid for resources. The vertical segment reflects the full employment of all resources.F) C) and D)
G) B) and E)

Question 10

Why does the aggregate demand (AD)curve slope downward? What could cause the AD curve to shift to the right? What impact would a rightward shift of the AD curve have on the economy?

Accepted Answer

The AD curve slopes downward because of ...

Question 11

According to classical macroeconomic theory, if real GDP is below the full-employment level, then an increase in aggregate demand will result in which of the following changes in equilibrium?

Accepted Answer

A)  Real GDP will rise, but the price level will remain constant.
B)  Real GDP and the price level will both rise.
C)  Real GDP will remain unchanged but the price level will rise.
D)  None of the above.E) A) and B)
F) All of the above

Question 12

When the economy is experiencing high inflation and high unemployment at the same time, then it is experiencing:

Accepted Answer

A)  stagnation.
B)  deflation.
C)  reflation.
D)  stagflation.
E)  innation.F) A) and E)
G) B) and D)

Question 13

The interest rate effect predicts that higher prices:

Accepted Answer

A)  make it more expensive to borrow, leading to higher interest rates and less investment.
B)  make people worse off by reducing the value of their wealth, leading them to save more and spend less.
C)  decrease borrowing, leading to higher interest rates and less investment.
D)  decrease borrowing, leading to lower interest rates and more investment.
E)  increase borrowing, leading to higher interest rates and less investment.F) B) and E)
G) B) and C)

Question 14

If a new method for obtaining oil from dry oil fields is found, then we will see:

Accepted Answer

A)  the AS curve shift to the left.
B)  a movement to the left along the AD curve.
C)  the AD curve shift to the left.
D)  the AD curve shift to the right.
E)  the AS curve shift to the right.F) A) and E)
G) B) and C)

Question 15

Excessive government spending can cause demand-pull inflation.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 10-8 Aggregate demand and supply 1 to AD3, A) real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140. B) real GDP will increase from $3.0 to $7.0, and the price level will increase from 100 to 140. C) real GDP will increase from $3.0 to $4.0, and the price level does not change. D) real GDP will increase from $3.0 to $7.0, and the price level will increase from 100 to 120. E) real GDP will not change and the price level will increase from 100 to 140." class="answers-bank-image d-inline" rel="preload" > In Exhibit 10-8, if aggregate demand shifts from AD1 to AD3,

Accepted Answer

A)  real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140.
B)  real GDP will increase from $3.0 to $7.0, and the price level will increase from 100 to 140.
C)  real GDP will increase from $3.0 to $4.0, and the price level does not change.
D)  real GDP will increase from $3.0 to $7.0, and the price level will increase from 100 to 120.
E)  real GDP will not change and the price level will increase from 100 to 140.F) B) and C)
G) A) and E)

Question 17

Which of the following will most likely cause an increase in the aggregate supply curve?

Accepted Answer

A)  a reduction in the general level of prices
B)  an increase in the general level of prices
C)  an improvement in technology that substantially reduces the cost of generating energy
D)  an increase in taxes that makes it more expensive for Americans to import crude oilE) C) and D)
F) None of the above

Question 18

Which of the following is not a reason for the downward slope of an aggregate demand curve?

Accepted Answer

A)  Real balances effect.
B)  Real interest-rate effect.
C)  Net exports effect.
D)  All of these are reasons.E) B) and D)
F) All of the above

Question 19

The horizontal segment of the aggregate supply curve:

Accepted Answer

A)  shows that real GDP can increase only by affecting the economy's price level.
B)  shows that real GDP can increase without affecting the economy's price level.
C)  depicts a positive relationship between real GDP and the price level.
D)  depicts a negative relationship between real GDP and the price level.
E)  marks the full-employment level of real GDP.F) C) and D)
G) A) and C)

Question 20

To illustrate the classical argument that "supply creates its own demand," the aggregate supply curve should be drawn:

Accepted Answer

A)  downward-sloping.
B)  upward-sloping.
C)  horizontal.
D)  vertical.E) A) and B)
F) A) and C)

Exam 10: Aggregate Demand and Supply

The interest rate effect predicts that higher prices:

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When the economy is experiencing high inflation and high unemployment at the same time, then it is experiencing:

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Along the classical or vertical range of the aggregate supply curve, an increase in the aggregate demand curve will increase:

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Which of the following will most likely cause an increase in the aggregate supply curve?

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An increase in total spending in the economy will shift the aggregate demand curve to the left.

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According to classical macroeconomic theory, if real GDP is below the full-employment level, then an increase in aggregate demand will result in which of the following changes in equilibrium?

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Which of the following is not a reason for the downward slope of an aggregate demand curve?

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Exhibit 10-7 Aggregate supply and demand curves In Exhibit 10-7, if aggregate demand increases from AD1 to AD2,

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The aggregate supply curve relating the price level to real GDP has three distinguishing segments. Which one of the following indicates the segments?

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If a new method for obtaining oil from dry oil fields is found, then we will see:

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The aggregate supply curve will shift to the right when the:

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The horizontal segment of the aggregate supply curve:

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Why does the aggregate demand (AD)curve slope downward? What could cause the AD curve to shift to the right? What impact would a rightward shift of the AD curve have on the economy?

Correct AnswerverifiedThe AD curve slopes downward because of ...View AnswerShow Answer

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD1 to AD3,

Correct AnswerverifiedShow Answer

Which of the following would cause a rightward shift in the aggregate supply curve?

Correct AnswerverifiedShow Answer

The real balances effect predicts that higher prices:

Correct AnswerverifiedShow Answer

Excessive government spending can cause demand-pull inflation.

Correct AnswerverifiedShow Answer

Along the Keynesian range of the aggregate supply curve, an increase in the aggregate demand curve will increase:

Correct AnswerverifiedShow Answer

The classical approach to a downturn in the business cycle was for the government to do nothing.

Correct AnswerverifiedShow Answer

To illustrate the classical argument that "supply creates its own demand," the aggregate supply curve should be drawn:

Correct AnswerverifiedShow Answer

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Exhibit 10-7 Aggregate supply and demand curves In Exhibit 10-7, if aggregate demand increases from AD₁ to AD₂,

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The AD curve slopes downward because of ...
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Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD₁ to AD₃,

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