Question 1

'Monetarism' is a school of thought put forth by Milton Friedman in the 1940s. He argued that the economy would most likely be:

Accepted Answer

A)  below potential GDP.
B)  at potential GDP.
C)  unstable.
D)  above potential GDP.E) All of the above
F) B) and D)

Question 2

What does the slope of the aggregate demand curve indicate?

Accepted Answer

A)  That a decrease in the price level leads to a higher level of aggregate spending.
B)  That a decrease in the price level leads to a higher level of aggregate supply.
C)  That a decrease in the price level leads to a lower level of aggregate spending.
D)  That an increase in the price level leads to a higher level of aggregate spending.E) A) and B)
F) None of the above

Question 3

Use the dynamic aggregate demand and aggregate supply model to illustrate a supply shock that causes an increase in the price level and a decline in real GDP. Assume that potential GDP continues to grow due to other factors, and that the aggregate demand curve does not change.
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Accepted Answer

The economy begins at the point P₁Y₁ on ...

Question 4

What do the 'aggregate demand' and 'aggregate supply' models help explain?

Accepted Answer

A)  long-run economic growth
B)  short-run fluctuations in real GDP and the price level
C)  price fluctuations in an individual market
D)  output fluctuations in an individual marketE) A) and B)
F) B) and C)

Question 5

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Accepted Answer

A)  The leftward shift in short-run aggregate supply that occurs after a recession.
B)  The rightward shift in short-run aggregate supply that occurs after a recession.
C)  The leftward shift in aggregate demand that occurs after a recession.
D)  The rightward shift in aggregate demand that occurs after a recession.E) B) and C)
F) All of the above

Question 6

How does an increase in the price level in Australia relative to the price level of other countries affect the aggregate demand curve, ceteris paribus?

Accepted Answer

A)  This will move the economy up along a stationary aggregate demand curve.
B)  This will move the economy down along a stationary aggregate demand curve.
C)  This will shift the aggregate demand curve to the left.
D)  This will shift the aggregate demand curve to the right.E) A) and B)
F) A) and C)

Question 7

Which of the following is true of the short-run aggregate supply curve?

Accepted Answer

A)  it has a negative slope
B)  it has a vertical slope
C)  it has a positive slope
D)  it has a horizontal slopeE) None of the above
F) B) and D)

Question 8

'Stagflation' is often a result of:

Accepted Answer

A)  a negative supply shock.
B)  a decrease in aggregate demand.
C)  an increase in aggregate demand.
D)  an increase in aggregate supply.E) All of the above
F) B) and D)

Question 9

Refer to Figure 10.2 for the following questions.
Figure 10.2
 
-Refer to Figure 10.2. Given the economy is at point A in year 1, what is the difference between the actual growth rate in GDP in year 2 and the potential growth rate in GDP in year 2?

Accepted Answer

A)  0.3%
B)  1.1%
C)  2.7%
D)  3.7%E) A) and D)
F) A) and C)

Question 10

Because of a supply shock, in the short-run:

Accepted Answer

A)  the aggregate supply curve shifts to the left.
B)  the price level falls.
C)  unemployment falls.
D)  equilibrium real GDP rises.E) A) and B)
F) A) and C)

Question 11

List and explain the three reasons the aggregate demand curve slopes downward.
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_____________________________________________________________________________________________

Accepted Answer

The three reasons are the wealth effect,...

Question 12

What is the result of a decrease in the price level?

Accepted Answer

A)  It will shift the aggregate demand curve to the left.
B)  It will shift the aggregate demand curve to the right.
C)  It will move the economy down along a stationary aggregate demand curve.
D)  It will move the economy up along a stationary aggregate demand curve.E) A) and B)
F) None of the above

Question 13

Inflation is generally the result of total spending growing slower than total production.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. In the short run:

Accepted Answer

A)  output will decline.
B)  unemployment will decline.
C)  prices will decline.
D)  aggregate demand will shift to the left.E) C) and D)
F) B) and D)

Question 15

When the price level in Australia rises relative to the price level of other countries, ceteris paribus, ________ will rise, ________ will fall, and ________ will fall.

Accepted Answer

A)  imports; exports; net exports
B)  exports; imports; net exports
C)  net exports; exports; imports
D)  net exports; imports; exportsE) All of the above
F) B) and D)

Question 16

Which of the following is true in the long run?

Accepted Answer

A)  unemployment is above its natural state
B)  unemployment is below its natural rate
C)  LRAS and SRAS lie on the same line
D)  real GDP = potential GDPE) A) and D)
F) B) and D)

Question 17

What happens if technological change occurs in the economy?

Accepted Answer

A)  The long-run aggregate supply curve will shift to the left.
B)  The long-run aggregate supply curve will shift to the right.
C)  The economy will move up along the long-run aggregate supply curve.
D)  The economy will move down along the long-run aggregate supply curve.E) A) and D)
F) A) and C)

Question 18

What is the slope of the long-run aggregate supply curve?

Accepted Answer

A)  negative slope
B)  steep but positive slope
C)  vertical slope
D)  flat slopeE) A) and B)
F) B) and C)

Question 19

The international-trade effect states that, ceteris paribus, an increase in the price level will:

Accepted Answer

A)  increase net exports.
B)  decrease net exports.
C)  increase exports.
D)  decrease imports.E) A) and B)
F) C) and D)

Question 20

A decrease in the price level results in a(n) ________ in the quantity of real GDP demanded because a lower price level ________ consumption, investment and net exports.

Accepted Answer

A)  decrease; increases
B)  increase; increases
C)  decrease; decreases
D)  increase; decreasesE) B) and C)
F) C) and D)

Exam 10: Aggregate Demand and Aggregate Supply Analysis

What is the result of a decrease in the price level?

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The international-trade effect states that, ceteris paribus, an increase in the price level will:

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Refer to Figure 10.2 for the following questions. Figure 10.2 -Refer to Figure 10.2. Given the economy is at point A in year 1, what is the difference between the actual growth rate in GDP in year 2 and the potential growth rate in GDP in year 2?

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Inflation is generally the result of total spending growing slower than total production.

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What happens if technological change occurs in the economy?

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Because of a supply shock, in the short-run:

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Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

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Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. In the short run:

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How does an increase in the price level in Australia relative to the price level of other countries affect the aggregate demand curve, ceteris paribus?

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Which of the following is true in the long run?

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A decrease in the price level results in a(n) ________ in the quantity of real GDP demanded because a lower price level ________ consumption, investment and net exports.

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'Stagflation' is often a result of:

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'Monetarism' is a school of thought put forth by Milton Friedman in the 1940s. He argued that the economy would most likely be:

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Which of the following is true of the short-run aggregate supply curve?

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Correct AnswerverifiedThe economy begins at the point P₁Y₁ on ...View AnswerShow Answer

When the price level in Australia rises relative to the price level of other countries, ceteris paribus, ________ will rise, ________ will fall, and ________ will fall.

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What is the slope of the long-run aggregate supply curve?

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What do the 'aggregate demand' and 'aggregate supply' models help explain?

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What does the slope of the aggregate demand curve indicate?

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List and explain the three reasons the aggregate demand curve slopes downward. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Correct AnswerverifiedThe three reasons are the wealth effect,...View AnswerShow Answer

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A decrease in the price level results in a(n) in the quantity of real GDP demanded because a lower price level consumption, investment and net exports.

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The economy begins at the point P₁Y₁ on ...
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When the price level in Australia rises relative to the price level of other countries, ceteris paribus, will rise, will fall, and will fall.

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List and explain the three reasons the aggregate demand curve slopes downward. _ _

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The three reasons are the wealth effect,...
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