Question 1

When interest rates fall

Accepted Answer

A)  firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.
B)  firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding.
C)  firms want to borrow less for new plants and equipment and households want to borrow more for homebuilding.
D)  firms want to borrow less for new plants and equipment and households want to borrow less for homebuilding.E) A) and B)
F) B) and C)

Question 2

Consider the exhibit below for the following questions.Figure 20-1 
-Refer to Figure 20-1. If the economy starts at C, an increase in the money supply moves the economy

Accepted Answer

A)  to A in the long run.
B)  to B in the long run.
C)  back to C in the long run.
D)  to D in the long run.E) A) and D)
F) A) and B)

Question 3

An increase in the money supply causes the interest rate to fall, investment spending to rise, and aggregate demand to shift right.

Accepted Answer

A) True 
 B)False

Question 4

During the 2008-2009 recession real GDP fell by about

Accepted Answer

A)  2%
B)  4%
C)  6%
D)  8%E) A) and B)
F) A) and C)

Question 5

If there are sticky wages, and the price level is greater than what was expected, then

Accepted Answer

A)  the quantity of aggregate goods and services supplied falls, which is shown by a shift of the short-run aggregate supply curve to the left.
B)  the quantity of aggregate goods and services supplied falls, as shown by a movement to the left along the short-run aggregate supply curve.
C)  the quantity of aggregate goods and services supplied rises, as shown by a shift of the short-run aggregate supply curve to the right.
D)  the quantity of aggregate goods and services supplied rises, as shown by a movement to the right along the short-run aggregate supply curve.E) A) and B)
F) A) and C)

Question 6

Keynes thought that the behavior of the economy in the short run was influenced by what he called "animal spirits." By this he meant that business people sometimes felt good about the economy, and carried out lots of investment, and at other times felt bad about the economy, and so cut back on their investment spending. Explain how such fluctuations in investment would lead to fluctuations in real GDP and prices.

Accepted Answer

Fluctuations in investment cause the agg...

Question 7

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

Accepted Answer

A)  aggregate supply to the right.
B)  aggregate supply to the left.
C)  aggregate demand to the right.
D)  aggregate demand to the left.E) B) and C)
F) A) and D)

Question 8

Other things the same, when the price level falls, interest rates

Accepted Answer

A)  rise, which means consumers will want to spend more on homebuilding.
B)  rise, which means consumers will want to spend less on homebuilding.
C)  fall, which means consumers will want to spend more on homebuilding.
D)  fall, which means consumers will want to spend less on homebuilding.E) A) and B)
F) A) and C)

Question 9

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

Accepted Answer

A)  increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve.
B)  decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve.
C)  increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve.
D)  decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve.E) B) and C)
F) A) and B)

Question 10

Which part of real GDP fluctuates most over the course of the business cycle?

Accepted Answer

A)  consumption expenditures
B)  government expenditures
C)  investment expenditures
D)  net exportsE) B) and C)
F) A) and B)

Question 11

In the mid-1970s the price of oil rose dramatically. This

Accepted Answer

A)  shifted aggregate supply left.
B)  caused U.S. prices to fall.
C)  was the consequence of OPEC increasing oil production.
D)  All of the above are correct.E) B) and C)
F) C) and D)

Question 12

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) All of the above
F) A) and B)

Question 13

A decrease in the availability of an important major resource such as oil shifts

Accepted Answer

A)  aggregate supply right.
B)  aggregate supply left.
C)  aggregate demand right.
D)  aggregate demand left.E) A) and C)
F) A) and D)

Question 14

Financial Crisis
Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time.
-Refer to Financial Crisis. Suppose the economy reaches long-run equilibrium without the Fed responding. Now suppose the financial crisis ends and the ability of banks to lend returns to normal. In which case is the price level lower compared to its value prior to the crisis?

Accepted Answer

A)  both after the economy reaches long-run equilibrium during the crisis and in the long-run equilibrium after the crisis is over
B)  after the economy reaches long-run equilibrium during the crisis but not in the long-run equilibrium after the crisis is over
C)  in the long-run equilibrium after the crisis is over but not after the economy reaches long-run equilibrium during the crisis
D)  neither after the economy reaches long-run equilibrium during the crisis nor in the long-run equilibrium after the crisis is overE) B) and C)
F) C) and D)

Question 15

The effect of a change in the value of the dollar in the foreign exchange market due to a change in the price level helps explain the slope of aggregate demand, but does not shift it. The effects of a change in the value of the dollar in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 16

Consider the exhibit below for the following questions.Figure 20-1 
-Refer to Figure 20-1. If the economy starts at A and moves to D in the short run, the economy

Accepted Answer

A)  moves to A in the long run.
B)  moves to B in the long run.
C)  moves to C in the long run.
D)  stays at D in the long run.E) All of the above
F) B) and C)

Question 17

Other things the same, if the U.S. price level falls, then

Accepted Answer

A)  U.S. residents want to buy more foreign bonds. The real exchange rate rises.
B)  U.S. residents want to buy more foreign bonds. The real exchange rate falls.
C)  U.S. residents want to buy fewer foreign bonds. The real exchange rate rises.
D)  U.S. residents want to buy fewer foreign bonds. The real exchange rate falls.E) B) and C)
F) None of the above

Question 18

Which of the following will reduce the price level and real output in the short run?

Accepted Answer

A)  an increase in the money supply
B)  an increase in oil prices
C)  a decrease in the money supply
D)  technical progressE) B) and D)
F) All of the above

Question 19

During World War II government expenditures increased almost five-fold and output almost doubled.

Accepted Answer

A) True 
 B)False

Question 20

The aggregate demand and aggregate supply model implies monetary neutrality

Accepted Answer

A)  only in the short run.
B)  only in the long run.
C)  in both the short run and the long run.
D)  in neither the short run nor long run.E) A) and B)
F) A) and C)

Exam 20: Aggregate Demand and Aggregate Supply

When interest rates fall

Correct Answer
verified

Other things the same, when the price level falls, interest rates

Correct Answer
verified

Other things the same, if the U.S. price level falls, then

Correct Answer
verified

A decrease in the availability of an important major resource such as oil shifts

Correct Answer
verified

During World War II government expenditures increased almost five-fold and output almost doubled.

Correct Answer
verified

Consider the exhibit below for the following questions.Figure 20-1 -Refer to Figure 20-1. If the economy starts at A and moves to D in the short run, the economy

Correct Answer
verified

The aggregate demand and aggregate supply model implies monetary neutrality

Correct Answer
verified

Correct Answer
verified

If there are sticky wages, and the price level is greater than what was expected, then

Correct Answer
verified

An increase in the money supply causes the interest rate to fall, investment spending to rise, and aggregate demand to shift right.

Correct Answer
verified

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

Correct Answer
verified

Correct Answer
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Which of the following will reduce the price level and real output in the short run?

Correct Answer
verified

Which part of real GDP fluctuates most over the course of the business cycle?

Correct Answer
verified

Consider the exhibit below for the following questions.Figure 20-1 -Refer to Figure 20-1. If the economy starts at C, an increase in the money supply moves the economy

Correct Answer
verified

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

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

Correct Answer
verified
Fluctuations in investment cause the agg...
View Answer

During the 2008-2009 recession real GDP fell by about

Correct Answer
verified

In the mid-1970s the price of oil rose dramatically. This

Correct Answer
verified

Exam 20: Aggregate Demand and Aggregate Supply

When interest rates fall

Correct AnswerverifiedShow Answer

Other things the same, when the price level falls, interest rates

Correct AnswerverifiedShow Answer

Other things the same, if the U.S. price level falls, then

Correct AnswerverifiedShow Answer

A decrease in the availability of an important major resource such as oil shifts

Correct AnswerverifiedShow Answer

During World War II government expenditures increased almost five-fold and output almost doubled.

Correct AnswerverifiedShow Answer

Consider the exhibit below for the following questions.Figure 20-1 -Refer to Figure 20-1. If the economy starts at A and moves to D in the short run, the economy

Correct AnswerverifiedShow Answer

The aggregate demand and aggregate supply model implies monetary neutrality

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If there are sticky wages, and the price level is greater than what was expected, then

Correct AnswerverifiedShow Answer

An increase in the money supply causes the interest rate to fall, investment spending to rise, and aggregate demand to shift right.

Correct AnswerverifiedShow Answer

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following will reduce the price level and real output in the short run?

Correct AnswerverifiedShow Answer

Which part of real GDP fluctuates most over the course of the business cycle?

Correct AnswerverifiedShow Answer

Consider the exhibit below for the following questions.Figure 20-1 -Refer to Figure 20-1. If the economy starts at C, an increase in the money supply moves the economy

Correct AnswerverifiedShow Answer

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

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

Correct AnswerverifiedFluctuations in investment cause the agg...View AnswerShow Answer

During the 2008-2009 recession real GDP fell by about

Correct AnswerverifiedShow Answer

In the mid-1970s the price of oil rose dramatically. This

Correct AnswerverifiedShow Answer

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Fluctuations in investment cause the agg...
View Answer

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