Chapter 20 Aggregate Supply And Demand

Front 1

Which of the following explains why production rises in most years?
a. increases in the labor force
b. increases in the capital stock
c. advances in technological knowledge
d. All of the above are correct.

Back 1

D. All of the above

Front 2

On average over the past 50 years, the U.S. economy has grown at the rate of about
a. 1 percent per year.
b. 3 percent per year.
c. 4 percent per year.
d. 6 percent per year.

Back 2

B. 3% per year

Front 3

A short period of falling incomes and rising unemployment is called a
a. depression.
b. recession.
c. expansion.
d. business cycle.

Back 3

B. Recession

Front 4

During recessions
a. workers are laid off.
b. factories are idle.
c. firms may find they are unable to sell all they produce.
d. All of the above are correct.

Back 4

D. All of the above

Front 5

During a recession the economy experiences
a. rising employment and income.
b. rising employment and falling income.
c. rising income and falling employment.
d. falling employment and income

Back 5

D. Falling employment and income

Front 6

Which of the following is correct?
a. Economic fluctuations are easily predicted by competent economists.
b. Recessions have never occurred very close together.
c. Other measures of spending, income, and production do not fluctuate closely with real GDP.
d. None of the above is correct.

Back 6

D. None of the above

Front 7

Which of the following is correct?
a. Over the business cycle consumption fluctuates more than investment.
b. Economic fluctuations are easy to predict.
c. During recessions sales and profits tend to fall.
d. Because of government policy the U.S. has suffered no recessions in the last 25 years.

Back 7

C. During recessions, sales and profits tend to fall.

Front 8

During recessions
a. sales and profits fall.
b. sales and profits rise.
c. sales rise, profits fall.
d. profits fall, sales rise

Back 8

a. sales and profits fall.

Front 9

Which of the following typically rises during a recession?
a. garbage collection
b. unemployment
c. corporate profits
d. automobile sales

Back 9

b. unemployment

Front 10

Most economists use the aggregate demand and aggregate supply model primarily to analyze
a. short-run fluctuations in the economy.
b. the effects of macroeconomic policy on the prices of individual goods.
c. the long-run effects of international trade policies.
d. productivity and economic growth.

Back 10

a. short-run fluctuations in the economy.

Front 11

Real GDP
a. is the current dollar value of all goods produced by the citizens of an economy within a given time.
b. measures economic activity and income.
c. is used primarily to measure long-run trends rather than short-run fluctuations.
d. All of the above are correct.

Back 11

b. measures economic activity and income.

Front 12

Real GDP
a. moves in the same direction as unemployment.
b. is not adjusted for inflation.
c. also measures real income.
d. All of the above are correct.

Back 12

c. also measures real income.

Front 13

As recessions begin, production
a. and unemployment both rise.
b. rises and unemployment falls.
c. falls and unemployment rises.
d. and unemployment both fall.

Back 13

c. falls and unemployment rises.

Front 14

During recessions investment
a. falls by a larger percentage than GDP.
b. falls by about the same percentage as GDP.
c. falls by a smaller percentage than GDP.
d. falls but the percentage change is sometimes much larger and sometimes much smaller

Back 14

a. falls by a larger percentage than GDP.

Front 15

Which of the following is correct concerning recessions?
a. They come at fairly regular and predictable intervals.
b. They are associated with comparatively large declines in investment spending.
c. They are any period when real GDP growth is less than average.
d. They tend to be associated with falling unemployment rates.

Back 15

b. They are associated with comparatively large declines in investment spending.

Front 16

Historically, the change in real GDP during recessions has been
a. mostly a change in investment spending.
b. mostly a change in consumption spending.
c. about equally divided between consumption and investment spending.
d. sometimes mostly a change in consumption and sometimes mostly a change in investment.

Back 16

a. mostly a change in investment spending.

Front 17

Which part of real GDP fluctuates most over the course of the business cycle?
a. consumption expenditures
b. government expenditures
c. investment expenditures
d. net exports

Back 17

c. investment expenditures

Front 18

During recessions declines in investment account for about
a. 1/6 of the decline in real GDP.
b. 1/3 of the decline in real GDP.
c. 1/2 of the decline in real GDP.
d. 2/3 of the decline in real GDP.

Back 18

d. 2/3 of the decline in real GDP.

Front 19

Investment is a
a. small part of real GDP, so it accounts for a small share of the fluctuation in real GDP.
b. small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
c. large part of real GDP, so it accounts for a large share of the fluctuation in real GDP.
d. large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP.

Back 19

b. small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.

Front 20

In 2001, the United States was in recession. Which of the following things would you expect not to have
happened?
a. increased layoffs and firings
b. a higher rate of bankruptcy
c. increased claims for unemployment insurance
d. increased investment spending

Back 20

d. increased investment spending

Front 21

Below are pairs of GDP growth rates and unemployment rates. Economists would be shocked to see most of these
pairs. Which pair of GDP growth rates and unemployment rates is realistic?
a. 6 percent, 0 percent
b. 3 percent, 10 percent
c. -1 percent, 6 percent
d. -3 percent, 2 percent

Back 21

c. -1 percent, 6 percent

Front 22

Below are pairs of GDP growth rates and unemployment rates. Economists would be shocked to see most of these
pairs. Which pair of GDP growth rates and unemployment rates is realistic?
a. 5 percent, 1 percent
b. 3 percent, 5 percent
c. -1 percent, 3 percent
d. -2 percent, 4 percent

Back 22

b. 3 percent, 5 percent

Front 23

In the last half of 1999, the U.S. unemployment rate was about 4 percent. Historical experience suggests that this is
a. above the natural rate, so that real GDP growth was likely low.
b. above the natural rate, so that real GDP growth was likely high.
c. below the natural rate, so that real GDP growth was likely low.
d. below the natural rate, so that real GDP growth was likely high.

Back 23

d. below the natural rate, so that real GDP growth was likely high.

Front 24

During the last half of 1980, the U.S. unemployment rate was about 7.5 percent. Historical experience suggests that
this is
a. above the natural rate, so that real GDP growth was likely low.
b. above the natural rate, so that real GDP growth was likely high.
c. below the natural rate, so that real GDP growth was likely low.
d. below the natural rate, so that real GDP growth was likely high.

Back 24

a. above the natural rate, so that real GDP growth was likely low.

Front 25

The classical dichotomy refers to the separation of
a. variables that move with the business cycle and variables that do not.
b. changes in money and changes in government expenditures.
c. decisions made by the public and decisions made by the government.
d. real and nominal variables.

Back 25

d. real and nominal variables.

Front 26

According to classical macroeconomic theory, changes in the money supply affect
a. nominal variables and real variables.
b. nominal variables, but not real variables.
c. real variables, but not nominal variables.
d. neither nominal nor real variables.

Back 26

b. nominal variables, but not real variables.

Front 27

According to classical macroeconomic theory, changes in the money supply affect
a. real GDP and the price level.
b. real GDP but not the price level.
c. the price level, but not real GDP.
d. neither the price level nor real GDP.

Back 27

c. the price level, but not real GDP.

Front 28

To say that money is a veil means that
a. while nominal variables are the first thing we may observe about an economy, what’s important are the real
variables and the forces that determine them.
b. money is the principal medium of exchange in most economies.
c. the primary determinant of short-run economic fluctuations is not real variables, but rather changes in the
money supply.
d. in the long run money is of no importance to the determination of either real or nominal variables.

Back 28

a. while nominal variables are the first thing we may observe about an economy, what’s important are the real

Front 29

Most economists believe that classical macroeconomic theory is a good description of the world
a. in neither the short nor long run.
b. in the short run and in the long run.
c. in the short run, but not in the long run.
d. in the long run, but not in the short run.

Back 29

d. in the long run, but not in the short run.

Front 30

Most economists believe that after a few years, changes in the money supply change
a. only nominal variables, but not real variables.
b. only real variables, but not nominal variables.
c. neither nominal nor real variables.
d. both nominal and real variables.

Back 30

a. only nominal variables, but not real variables.

Front 31

Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most
economists would agree that this statement accurately describes
a. both the short run and the long run.
b. the short run, but not the long run.
c. the long run, but not the short run.
d. neither the long run nor the short run.

Back 31

b. the short run, but not the long run.

Front 32

The quantity of money has no real impact on things people really care about like whether or not they have a job.
Most economists would agree that this statement is appropriate concerning
a. both the short run and the long run.
b. the short run, but not the long run.
c. the long run, but not the short run.
d. neither the long run nor the short run.

Back 32

c. the long run, but not the short run.

Front 33

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some
time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is
inconsistent with monetary neutrality because
a. monetary neutrality would mean that neither prices nor production should have risen.
b. monetary neutrality would mean that production should have risen, but prices should not have.
c. monetary neutrality would mean the prices should have risen, but production should not have changed.
d. monetary neutrality would mean that prices and production should both have fallen.

Back 33

c. monetary neutrality would mean the prices should have risen, but production should not have changed.

Front 34

The model of short-run economic fluctuations focuses on the price level and
a. real GDP.
b. economic growth.
c. the neutrality of money.
d. None of the above is correct.

Back 34

a. real GDP.

Front 35

The average price level is measured by
a. any real variable.
b. the rate of inflation.
c. the level of the money supply.
d. the CPI or the GDP deflator.

Back 35

d. the CPI or the GDP deflator

Front 36

The model of aggregate demand and aggregate supply explains the relationship between
a. the price and quantity of a particular good.
b. unemployment and output.
c. wages and employment.
d. real GDP and the price level

Back 36

d. real GDP and the price level

Front 37

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are
a. the price level, real output.
b. real output, employment.
c. employment, the inflation rate.
d. the value of money, the price level.

Back 37

a. the price level, real output.

Front 38

Which of the sentences concerning the aggregate demand and aggregate supply model is correct?
a. The aggregate demand and supply model is nothing more than a large version of the model of market demand
and supply.
b. The price level and quantity of output adjust to bring aggregate demand and supply into balance.
c. The aggregate supply curve shows the quantity of goods and services that households, firms, and the
government want to buy at each price.
d. All of the above are correct.

Back 38

b. The price level and quantity of output adjust to bring aggregate demand and supply into balance.

Front 39

Which of the following adjusts to bring aggregate supply and demand into balance?
a. the price level and real output
b. the real rate of interest and the money supply
c. government expenditures and taxes
d. the saving rate and net exports

Back 39

a. the price level and real output

Front 40

The aggregate demand curve
a. has a slope that is explained in the same way as the slope of the demand curve for a particular product.
b. is vertical in the long run.
c. shows an inverse relation between the price level and the quantity of all goods and services demanded.
d. All of the above are correct.

Back 40

c. shows an inverse relation between the price level and the quantity of all goods and services demanded.

Front 41

Other things the same, a fall in the economy's overall level of prices tends to
a. raise both the quantity demanded and supplied of goods and services.
b. raise the quantity demanded of goods and services, but lower the quantity supplied.
c. lower the quantity demanded of goods and services, but raise the quantity supplied.
d. lower both the quantity demanded and the quantity supplied of goods and services.

Back 41

b. raise the quantity demanded of goods and services, but lower the quantity supplied.

Front 42

As the price level rises
a. people will want to buy more bonds, so the interest rate rises.
b. people will want to buy fewer bonds, so the interest rate falls.
c. people will want to buy more bonds, so the interest rate falls.
d. people will want to buy fewer bonds, so the interest rate rises.

Back 42

d. people will want to buy fewer bonds, so the interest rate rises.

Front 43

Which of the following is included in the aggregate demand for goods and services?
a. consumption demand
b. investment demand
c. net exports
d. All of the above are correct

Back 43

d. All of the above are correct

Front 44

Which of the following is not included in aggregate demand?
a. purchases of stock and bonds
b. purchases of services such as visits to the doctor
c. purchases of capital goods such as equipment in a factory
d. purchases by foreigners of consumer goods produced in the United States

Back 44

a. purchases of stock and bonds

Front 45

The effect of an increase in the price level on aggregate demand is represented by a
a. shift to the right of the aggregate demand curve.
b. shift to the left of the aggregate demand curve.
c. movement to the left along a given aggregate demand curve.
d. movement to the right along a given aggregate demand curve

Back 45

c. movement to the left along a given aggregate demand curve.

Front 46

The wealth effect, interest rate effect, and exchange rate effect are all explanations for
a. the slope of short-run aggregate supply.
b. the slope of long-run aggregate supply.
c. the slope of the aggregate demand curve.
d. everything that makes the aggregate demand curve shift.

Back 46

c. the slope of the aggregate demand curve.

Front 47

Other things the same, as the price level falls,
a. the money supply falls.
b. interest rates rise.
c. a dollar buys more domestic goods.
d. the aggregate demand curve shifts right

Back 47

c. a dollar buys more domestic goods.

Front 48

Other things the same, as the price level rises, the real value of a dollar
a. rises, and interest rates rise.
b. rises, and interest rates fall.
c. falls, and interest rates rise.
d. falls, and interest rates fall.

Back 48

c. falls, and interest rates rise.

Front 49

Other things the same, as the price level falls, the real value of a dollar
a. rises, and interest rates rise.
b. rises, and interest rates fall.
c. falls, and interest rates rise.
d. falls, and interest rates fall

Back 49

b. rises, and interest rates fall.

Front 50

Other things the same, as the price level falls, a country's exchange rate
a. and interest rates rise.
b. and interest rates fall.
c. falls and interest rates rise.
d. rises and interest rates fall.

Back 50

b. and interest rates fall.

Front 51

Other things the same, as the price level rises, exchange rates
a. and interest rates rise.
b. and interest rates fall.
c. fall and interest rates rise.
d. rise and interest rates fall.

Back 51

a. and interest rates rise.

Front 52

Other things the same, as the price level rises, the real value of money
a. and the exchange rate rise.
b. and the exchange rate fall.
c. rises and the exchange rate falls.
d. falls and the exchange rate rises.

Back 52

d. falls and the exchange rate rises.

Front 53

Other things the same, an increase in the price level makes consumers feel
a. less wealthy, so the quantity of goods and services demanded falls.
b. less wealthy, so the quantity of goods and services demanded rises.
c. more wealthy, so the quantity of goods and services demanded rises.
d. more wealthy, so the quantity of goods and services demanded falls.

Back 53

a. less wealthy, so the quantity of goods and services demanded falls.

Front 54

Other things the same, a decrease in the price level makes the dollars people hold worth
a. more, so they are willing to spend more.
b. more, so they are willing to spend less.
c. less, so they are willing to spend more.
d. less, so they are willing to spend less.

Back 54

a. more, so they are willing to spend more.

Front 55

Other things the same, an increase in the price level makes the dollars people hold worth
a. more, so they spend more.
b. more, so they spend less.
c. less, so they spend more.
d. less, so they spend less.

Back 55

d. less, so they spend less.

Front 56

People will spend more if the price level
a. rises because rising prices increase the real value of a dollar.
b. rises because rising prices decrease the real value of a dollar.
c. falls because falling prices increase the real value of a dollar.
d. falls because falling prices decrease the real value of a dollar

Back 56

c. falls because falling prices increase the real value of a dollar.

Front 57

People will spend more if real wealth
a. and interest rates rise.
b. rises and interest rates fall.
c. falls and interest rates rise.
d. and interest rates fall.

Back 57

b. rises and interest rates fall.

Front 58

Other things the same, if the price level falls, households
a. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.
b. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.
c. decrease foreign bond purchases, so the supply of dollars in market for foreign-currency exchange increases.
d. decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.

Back 58

a. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange
increases.

Front 59

Other things the same, if the price level rises, households
a. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.
b. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.
c. decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.
d. decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.

Back 59

d. decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange
decreases.

Front 60

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
a. real wealth falls.
b. the interest rate rises.
c. the dollar depreciates.
d. None of the above is correct.

Back 60

c. the dollar depreciates.

Front 61

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
a. real wealth rises.
b. the interest rate rises.
c. the dollar appreciates.
d. All of the above are correct

Back 61

a. real wealth rises.

Front 62

Other things the same, the aggregate quantity of goods demanded decreases if
a. real wealth falls.
b. the interest rate rises.
c. the dollar appreciates.
d. All of the above are correct

Back 62

d. All of the above are correct

Front 63

Other things the same, a decrease in the price level induces people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.
c. more money, so they lend more, and the interest rate rises.
d. more money, so they lend less, and the interest rate falls.

Back 63

b. less money, so they lend more, and the interest rate falls.

Front 64

Other things the same, an increase in the price level induces people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.
c. more money, so they lend more, and the interest rate falls.
d. more money, so they lend less, and the interest rate rises.

Back 64

d. more money, so they lend less, and the interest rate rises.

Front 65

Other things the same, when the price level rises,
a. interest rates rise, so firms increase investment.
b. interest rates rise, so firms decrease investment.
c. interest rates fall, so firms increase investment.
d. interest rates fall, so firms decrease investment.

Back 65

b. interest rates rise, so firms decrease investment.

Front 66

Other things the same, when the price level falls, interest rates
a. rise, so firms increase investment.
b. rise, so firms decrease investment.
c. fall, so firms increase investment.
d. fall, so firms decrease investment.

Back 66

c. fall, so firms increase investment.

Front 67

Other things the same, as the price level falls, which of the following increases?
a. lending and investment spending
b. lending, but not investment spending
c. investment spending, but not lending
d. neither investment spending nor lending

Back 67

a. lending and investment spending

Front 68

Investment spending decreases when the price level
a. rises and interest rates rise.
b. rises and interest rates fall.
c. falls and interest rates rise.
d. falls and interest rates fall.

Back 68

a. rises and interest rates rise.

Front 69

Other things the same, a decrease in the U.S. price level leads to
a. a rise in U.S. interest rates and increased demand for foreign bonds.
b. a rise in U.S. interest rates and decreased demand for foreign bonds.
c. a fall in U.S. interest rates and increased demand for foreign bonds.
d. a fall in U.S. interest rates and decreased demand for foreign bonds.

Back 69

c. a fall in U.S. interest rates and increased demand for foreign bonds.

Front 70

Other things the same, a decrease in the price level causes real wealth to
a. fall, interest rates to fall, and the dollar to appreciate.
b. fall, interest rates to rise, and the dollar to depreciate.
c. rise, interest rates to rise, and the dollar to appreciate.
d. rise, interest rates to fall, and the dollar to depreciate.

Back 70

d. rise, interest rates to fall, and the dollar to depreciate.

Front 71

Other things the same, a decrease in the price level causes the interest rate to
a. increase, the dollar to appreciate, and net exports to increase.
b. increase, the dollar to depreciate, and net exports to decrease.
c. decrease, the dollar to depreciate, and net exports to increase.
d. decrease, the dollar to appreciate, and net exports to decrease.

Back 71

c. decrease, the dollar to depreciate, and net exports to increase.

Front 72

An increase in the price level causes the interest rate to
a. increase, the dollar to depreciate, and net exports to increase.
b. increase, the dollar to appreciate, and net exports to decrease.
c. decrease, the dollar to depreciate, and net exports to increase.
d. decrease, the dollar to appreciate, and net exports to decrease.

Back 72

b. increase, the dollar to appreciate, and net exports to decrease.

Front 73

When the dollar depreciates, U.S.
a. exports and imports increase.
b. exports increase, while imports decrease.
c. exports decrease, while imports increase.
d. exports and imports decrease.

Back 73

b. exports increase, while imports decrease.

Front 74

When the dollar appreciates, U.S.
a. exports decrease, while imports increase.
b. exports and imports decrease.
c. exports and imports increase.
d. exports increase, while imports decrease.

Back 74

a. exports decrease, while imports increase.

Front 75

When the dollar depreciates, each dollar buys
a. more foreign currency, and so buys more foreign goods.
b. more foreign currency, and so buys fewer foreign goods.
c. less foreign currency, and so buys more foreign goods.
d. less foreign currency, and so buys fewer foreign goods.

Back 75

d. less foreign currency, and so buys fewer foreign goods.

Front 76

A decrease in U.S. interest rates leads to
a. a depreciation of the dollar that leads to greater net exports.
b. a depreciation of the dollar that leads to smaller net exports.
c. an appreciation of the dollar that leads to greater net exports.
d. an appreciation of the dollar that leads to smaller net exports

Back 76

a. a depreciation of the dollar that leads to greater net exports.

Front 77

An increase in the interest rate causes investment to
a. rise and the exchange rate to appreciate.
b. fall and the exchange rate to depreciate.
c. rise and the exchange rate to depreciate.
d. fall and the exchange rate to appreciate

Back 77

d. fall and the exchange rate to appreciate

Front 78

Other things the same, as the price level decreases it induces greater spending on
a. both net exports and investment.
b. net exports but not investment.
c. investment but not net exports.
d. neither net exports nor investment.

Back 78

a. both net exports and investment.

Front 79

The slope of the U.S. aggregate demand curve is based partly on the conclusion that as the price level rises,
a. the dollar depreciates.
b. the interest rate falls.
c. people feel less wealthy.
d. All of the above are correct.

Back 79

c. people feel less wealthy.

Front 80

The change in the quantity of goods and services demanded in the U.S. is based on the logic that as the price level
rises,
a. real wealth falls, interest rates rise, and the dollar appreciates.
b. real wealth falls, interest rates rise, and the dollar depreciates.
c. real wealth rises, interest rates fall, and the dollar appreciates.
d. real wealth rises, interest rates fall, and the dollar depreciates.

Back 80

a. real wealth falls, interest rates rise, and the dollar appreciates.

Front 81

The change in the aggregate quantity of goods and services demanded in the U.S. is based on the logic that as the
price level falls,
a. real wealth rises, interest rates rise, and the dollar appreciates.
b. real wealth rises, interest rates fall, and the dollar depreciates.
c. real wealth falls, interest rates rise, and the dollar appreciates.
d. real wealth falls, interest rates fall, and the dollar depreciates.

Back 81

b. real wealth rises, interest rates fall, and the dollar depreciates.

Front 82

Changes in the price level affect which components of aggregate demand?
a. only consumption and investment
b. only consumption and net exports
c. only investment
d. consumption, investment, and net exports

Back 82

d. consumption, investment, and net exports

Front 83

Which of the following does not help explain the direction the quantity of aggregate goods demanded changes
when the price level decreases?
a. consumer wealth rises
b. borrowing rises
c. each dollar is worth more domestic goods
d. the dollar appreciates relative to other currencies

Back 83

d. the dollar appreciates relative to other currencies

Front 84

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire
a. increased consumption, which shifts the aggregate demand curve right.
b. increased consumption, which shifts the aggregate demand curve left.
c. decreased consumption, which shifts the aggregate demand curve right.
d. decreased consumption, which shifts the aggregate demand curve left.

Back 84

a. increased consumption, which shifts the aggregate demand curve right.

Front 85

Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to
a. decrease consumption, shown as a movement to the left along a given aggregate demand curve.
b. increase consumption, shown as a movement to the right along a given aggregate demand curve.
c. decrease consumption, shifting the aggregate demand curve to the left.
d. increase consumption, shifting the aggregate demand curve to the right

Back 85

c. decrease consumption, shifting the aggregate demand curve to the left.

Front 86

Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to
a. decrease consumption, which shifts aggregate supply left.
b. decrease consumption, which shifts aggregate demand left.
c. increase consumption, which shifts aggregate supply right.
d. increase consumption, which shifts aggregate demand right.

Back 86

b. decrease consumption, which shifts aggregate demand left.

Front 87

From 2001 to 2005 there was a dramatic rise in the price of houses. If this made people feel wealthier, then it
would shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left

Back 87

a. aggregate demand right

Front 88

The Central Bank of Libertina increases the money supply at the same time the Parliament of Libertina passes a
new investment tax credit. Consider the effects of these policies on the Libertinian economy. The money supply
increase
a. and the investment tax credit each cause aggregate demand to shift right.
b. and the investment tax credit each cause aggregate demand to shift left.
c. causes aggregate demand to right, while the investment tax credit causes aggregate demand to shift left.
d. causes aggregate demand to shift left, while the investment tax credit causes the aggregate demand curve to
shift right.

Back 88

a. and the investment tax credit each cause aggregate demand to shift right.

Front 89

The initial impact of an increase in an investment tax credit is to shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.

Back 89

a. aggregate demand right.

Front 90

The initial impact of the repeal of an investment tax credit is to shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.

Back 90

b. aggregate demand left.

Front 91

Other things the same, an increase in the amount of capital firms wish to purchase would initially shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.

Back 91

a. aggregate demand right.

Front 92

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this
would initially shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.

Back 92

a. aggregate demand right.

Front 93

Imagine that businesses in general believe that the economy is likely to head into recession and so they reduce
capital purchases. Their reaction would initially shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.

Back 93

b. aggregate demand left.

Front 94

When taxes decrease, consumption
a. increases as shown by a movement to the right along a given aggregate demand curve.
b. increases, shifting aggregate demand to the right.
c. decreases, shifting aggregate supply to the right.
d. None of the above is correct.

Back 94

b. increases, shifting aggregate demand to the right.

Front 95

When taxes increase, consumption
a. decreases as shown by a movement to the left along a given aggregate demand curve.
b. decreases as shown by shifting aggregate demand to the left.
c. increases as shown by shifting aggregate supply the left.
d. None of the above is correct.

Back 95

b. decreases as shown by shifting aggregate demand to the left.

Front 96

When taxes decrease, consumption
a. increases, so aggregate demand shifts right.
b. increases, so aggregate supply shifts right.
c. decreases, so aggregate demand shifts left.
d. decreases, so aggregate supply shifts left.

Back 96

a. increases, so aggregate demand shifts right.

Front 97

Consumption would decrease and aggregate demand would shift
a. right if taxes increased.
b. right if taxes decreased.
c. left if taxes increased.
d. left if taxes decreased

Back 97

c. left if taxes increased.

Front 98

When the money supply increases
a. interest rates fall and so aggregate demand shifts right.
b. interest rates fall and so aggregate demand shifts left.
c. interest rates rise and so aggregate demand shifts right.
d. interest rates rise and so aggregate demand shifts left.

Back 98

a. interest rates fall and so aggregate demand shifts right.

Front 99

When the money supply decreases
a. interest rates fall and so aggregate demand shifts right.
b. interest rates fall and so aggregate demand shifts left.
c. interest rates rise and so aggregate demand shifts right.
d. interest rates rise and so aggregate demand shifts left.

Back 99

d. interest rates rise and so aggregate demand shifts left.

Front 100

An increase in the money supply
a. and the investment tax credit both cause aggregate demand to shift right.
b. and the investment tax credit both cause aggregate demand to shift left.
c. causes aggregate demand to shift right, while the investment tax credit causes aggregate demand to shift left.
d. causes aggregate demand to shift left, while the investment tax credit causes aggregate demand to shift right.

Back 100

a. and the investment tax credit both cause aggregate demand to shift right.

Front 101

Which of the following shifts aggregate demand to the right?
a. an increase in the money supply
b. an increase in net exports due to something other than a change in domestic prices
c. an investment tax credit
d. All of the above are correct.

Back 101

d. All of the above are correct.

Front 102

Which of the following shifts aggregate demand to the right?
a. a decrease in the money supply
b. increases in the profitability of capital due perhaps to technological progress.
c. the repeal of an investment tax credit
d. a decrease in the price level

Back 102

b. increases in the profitability of capital due perhaps to technological progress.

Front 103

Which of the following shifts aggregate demand to the left?
a. an increase in the price level
b. a decrease in the money supply
c. an increase in net exports
d. Congress passes a new investment tax credit

Back 103

b. a decrease in the money supply

Front 104

Which of the following shifts aggregate demand to the right?
a. Congress reduces purchases of new weapons systems.
b. The Fed buys bonds in the open market.
c. The price level falls.
d. Net exports fall.

Back 104

b. The Fed buys bonds in the open market.

Front 105

Which of the following shifts aggregate demand to the left?
a. The price level rises.
b. The price level falls.
c. The dollar depreciates for some reason other than a change in the price level.
d. Stock prices fall for some reason other than a change in the price level.

Back 105

d. Stock prices fall for some reason other than a change in the price level.

Front 106

Other things the same, when the government spends more, the initial effect is that
a. aggregate demand shifts right.
b. aggregate demand shifts left.
c. aggregate supply shifts right.
d. aggregate supply shifts left.

Back 106

a. aggregate demand shifts right

Front 107

Aggregate demand shifts left when the government
a. decreases taxes.
b. cuts military expenditures.
c. creates a new investment tax credit
d. None of the above is correct.

Back 107

b. cuts military expenditures.

Front 108

Aggregate demand shifts right when the government
a. raises personal income taxes.
b. increases the money supply.
c. repeals an investment tax credit.
d. All of the above are correct.

Back 108

b. increases the money supply.

Front 109

Aggregate demand would shift right if either
a. the price level decreased, or government expenditures increased.
b. the price level decreased, or the government instituted an investment tax credit.
c. government expenditures or the money supply increased.
d. All of the above are correct.

Back 109

c. government expenditures or the money supply increased.

Front 110

Aggregate demand shifts right if
a. net exports rise or the money supply rises.
b. net exports rise or the price level rises.
c. net exports fall or the money supply rises.
d. net exports fall or the price level rises.

Back 110

a. net exports rise or the money supply rises.

Front 111

Aggregate demand shifts right if
a. taxes rise or stock prices rise.
b. taxes rise or stock prices fall.
c. taxes fall or stock prices rise.
d. taxes fall or stock prices fall.

Back 111

c. taxes fall or stock prices rise.

Front 112

If countries that imported goods and services from the United States went into recession, we would expect that U.S.
net exports would
a. rise, making aggregate demand shift right.
b. rise, making aggregate demand shift left.
c. fall, making aggregate demand shift right.
d. fall, making aggregate demand shift left.

Back 112

d. fall, making aggregate demand shift left.

Front 113

If people want to save more for retirement
a. or if the government raises taxes, aggregate demand shifts right.
b. or if the government raises taxes, aggregate demand shifts left.
c. aggregate demand shifts right. If the government raises taxes, aggregate demand shifts left.
d. aggregate demand shifts left. If the government raises taxes, aggregate demand shifts right.

Back 113

b. or if the government raises taxes, aggregate demand shifts left.

Front 114

At the end of World War II many European countries were rebuilding and so were eager to buy capital goods and
had rising incomes. We would expect that the rebuilding increased aggregate demand in
a. both the United States and Europe.
b. the United States but not Europe.
c. Europe, but not the United States.
d. neither the United States, nor Europe.

Back 114

a. both the United States and Europe.

Front 115

If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports
a. increase which shifts aggregate demand right.
b. increase which shifts aggregate demand left.
c. decrease which shifts aggregate demand right.
d. decrease which shifts aggregate demand left.

Back 115

d. decrease which shifts aggregate demand left.

Front 116

If the dollar appreciates because of speculation or government policy
a. or if other countries experience recessions, aggregate demand shifts right in the United States.
b. or if other countries experience recessions, aggregate demand shifts left in the United States.
c. aggregate demand shifts right in the United States. If other countries experience recessions aggregate demand
shifts left in the United States.
d. aggregate demand shifts left in the United States. If other countries experience recessions aggregate demand
shifts right in the United States.

Back 116

b. or if other countries experience recessions, aggregate demand shifts left in the United States.

Front 117

An increase in which of the following, other things the same, shifts aggregate demand to the right?
a. consumption
b. investment
c. government expenditures
d. All of the above are correct.

Back 117

d. All of the above are correct

Front 118

If speculators lost confidence in foreign economies and so wanted to buy more U.S. bonds
a. the dollar would appreciate which would cause aggregate demand to shift right.
b. the dollar would appreciate which would cause aggregate demand to shift left.
c. the dollar would depreciate which would cause aggregate demand to shift right.
d. the dollar would depreciate which would cause aggregate demand to shift left.

Back 118

b. the dollar would appreciate which would cause aggregate demand to shift left.

Front 119

If speculators gained greater confidence so that they wanted to buy more assets of foreign countries and fewer U.S.
bonds,
a. the dollar would appreciate which would cause aggregate demand to shift right.
b. the dollar would appreciate which would cause aggregate demand to shift left.
c. the dollar would depreciate which would cause aggregate demand to shift right.
d. the dollar would depreciate which would cause aggregate demand to shift left.

Back 119

c. the dollar would depreciate which would cause aggregate demand to shift right.

Front 120

Political Instability Abroad
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so
that they desire to purchase more U.S assets.
120. Refer to Political Instability Abroad. What would happen to the dollar?
a. It would appreciate in foreign exchange markets making U.S goods more expensive compared to foreign goods.
b. It would appreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods.
c. It would depreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.
d. It would depreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods

Back 120

a. It would appreciate in foreign exchange markets making U.S goods more expensive compared to foreign goods.

Front 121

Political Instability Abroad
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so
that they desire to purchase more U.S assets.
What would the change in the exchange rate make happen to U.S. net
exports and U.S. aggregate demand?
a. Net exports would rise and so U.S. aggregate demand would fall.
b. Net exports would rise and so U.S. aggregate demand would rise.
c. Net exports would fall and so U.S. aggregate demand would fall.
d. Net exports would fall and so U.S. aggregate demand would rise.

Back 121

c. Net exports would fall and so U.S. aggregate demand would fall.

Front 122

The aggregate supply curve is upward sloping rather than vertical in
a. the short and long run.
b. neither the short nor the long run.
c. the long run, but not the short run.
d. the short run, but not the long run.

Back 122

c. the long run, but not the short run.

Front 123

The aggregate supply curve is upward sloping in
a. the short and long run.
b. neither the short nor long run.
c. the long run, but not the short run.
d. the short run, but not the long run.

Back 123

d. the short run, but not the long run.

Front 124

Imagine two economies that are identical except that for a long time, economy A has had a money supply of $500
billion while economy B has had a money supply of $1,000 billion. It follows that
a. real GDP and the price level are higher in country B.
b. real GDP, but not the price level, is higher in country B.
c. the price level, but not real GDP is higher in country B.
d. neither the price level nor real GDP is higher in country B

Back 124

c. the price level, but not real GDP is higher in country B.

Front 125

Imagine two economies that are identical except that for a long time, economy A has had a money supply of
$1,000 billion while economy B has had a money supply of $500 billion. It follows that
a. real GDP and the price level are lower in country B.
b. real GDP, but not the price level, is lower in country B.
c. the price level, but not real GDP is lower in country B.
d. neither the price level or real GDP is lower in country B

Back 125

c. the price level, but not real GDP is lower in country B.

Front 126

Which of the following is not a determinant of the long-run level of real GDP?
a. the price level
b. the supply of labor
c. available natural resources
d. available technology

Back 126

a. the price level

Front 127

The long-run aggregate supply curve
a. is vertical.
b. is a graphical representation of the classical dichotomy.
c. indicates monetary neutrality in the long run.
d. All of the above are correct.

Back 127

d. All of the above are correct.

Front 128

Which of the following is correct?
a. The short-run, but not the long-run, aggregate supply curve is consistent with the idea that nominal variables do
not affect real variables.
b. The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do
not affect real variables.
c. The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real
variables.
d. Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables
affect real variables.

Back 128

b. The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do
not affect real variables.

Front 129

The position of the long-run aggregate supply curve
a. is determined by the things that determine output in the classical model.
b. is at the point where unemployment is zero.
c. shifts to the right when the price level increases.
d. is at the point where the economy would cease to grow.

Back 129

a. is determined by the things that determine output in the classical model.

Front 130

The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a
long-run change
a. in the price level and real GDP.
b. in the price level, but not real GDP.
c. in real GDP, but not the price level.
d. in neither the price level nor real GDP.

Back 130

b. in the price level, but not real GDP.

Front 131

The long-run aggregate supply curve would shift right if immigration from abroad
a. increased or Congress made a substantial increase in the minimum wage.
b. decreased or Congress abolished the minimum wage.
c. increased or Congress abolished the minimum wage.
d. decreased or Congress made a substantial increase in the minimum wage

Back 131

c. increased or Congress abolished the minimum wage.

Front 132

The long-run aggregate supply curve shifts right if
a. immigration from abroad increases.
b. the capital stock increases.
c. technology advances.
d. All of the above are correct.

Back 132

d. All of the above are correct.

Front 133

The long-run aggregate supply curve shifts left if
a. the capital stock increases.
b. there is a hurricane.
c. the government removes some environmental regulations that limit production methods.
d. None of the above is correct.

Back 133

b. there is a hurricane.

Front 134

Which of the following shifts long-run aggregate supply right?
a. an increase in either the physical or human capital stock
b. an increase in the human but not the physical capital stock
c. an increase in the physical capital stock, but no the human capital stock
d. neither an increase in the physical capital stock or the human capital stock

Back 134

a. an increase in either the physical or human capital stock

Front 135

Which of the following would shift the long-run aggregate supply curve to the right?
a. an increase in the actual price level
b. an increase in the money supply
c. increased international trade
d. None of the above is correct.

Back 135

c. increased international trade

Front 136

The long-run aggregate supply curve would shift right if the government were to
a. increase the minimum-wage.
b. make unemployment benefits more generous.
c. raise taxes on investment spending.
d. None of the above is correct.

Back 136

d. None of the above is correct.

Front 137

Which of the following shifts the long-run aggregate supply curve to the left?
a. either an increase in the price of imported natural resources or opening up international trade
b. neither an increase in the price of imported natural resources or opening up international trade
c. an increase in the price of imported natural resources, but not opening up international trade
d. opening up international trade, but not an increase in the price of imported natural resources

Back 137

c. an increase in the price of imported natural resources, but not opening up international trade

Front 138

Some countries have high minimum wages and require a lengthy and costly process to get permission to open a business
a. reducing either the minimum wage or the time and cost to open a business would have no effect on the long run aggregate supply curve
b. Reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right.
c. Reducing the minimum wage would shift long-run aggregate supply to the right. Reducing the time and cost to
open a business would have no affect on the long-run aggregate supply curve.
d. Reducing the minimum wage would have no affect on the long-run aggregate supply curve. Reducing the time
and cost to open a business would shift the long-run aggregate supply curve to the right.

Back 138

b. Reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right.

Front 139

The long-run aggregate supply curve shifts right if
a. technology improves.
b. the price level decreases.
c. the money supply increases.
d. All of the above are correct.

Back 139

a. technology improves.

Front 140

Which of the following would shift long-run aggregate supply to the right?
a. increased immigration from abroad
b. a decrease in the price of an imported natural resource
c. opening the economy to international trade
d. All of the above are correct.

Back 140

d. All of the above are correct.

Front 141

A candidate for political office announces the following policies which, he says, economics clearly demonstrates
will lead to higher output in the long run. 1. reduce immigration from abroad 2. make trade more open between the
US and other countries.
a. 1 and 2 both shift long-run aggregate supply right.
b. 1 and 2 both shift long-run aggregate supply left.
c. 1 shifts long-run aggregate supply right, 2 shifts long-run aggregate supply left.
d. 1 shifts long-run aggregate supply left, 2 shifts long-run aggregate supply right.

Back 141

d. 1 shifts long-run aggregate supply left, 2 shifts long-run aggregate supply right.

Front 142

In the long run, technological progress
a. and increases in the money supply both make the price level rise.
b. and increases in the money supply both make the price level fall.
c. makes the price level rise, while increases in the money supply make prices fall.
d. makes the price level fall, while increases in the money supply make prices rise.

Back 142

d. makes the price level fall, while increases in the money supply make prices rise.

Front 143

Other things the same, if the long-run aggregate supply curve shifts right, prices
a. and output both increase.
b. and output both decrease.
c. increase and output decreases.
d. decrease and output increases.

Back 143

d. decrease and output increases.

Front 144

Other things the same, if the long-run aggregate supply curve shifts left, prices
a. and output both increase.
b. and output both decrease.
c. increase and output decreases.
d. decrease and output increases.

Back 144

c. increase and output decreases.

Front 145

According to the aggregate demand and aggregate supply model, in the long run an increase in the money supply
leads to
a. increases in both the price level and real GDP.
b. an increase in real GDP but does not change the price level.
c. an increase in the price level but does not change real GDP.
d. no change in either the price level or real GDP.

Back 145

c. an increase in the price level but does not change real GDP.

Front 146

Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP
growth and inflation can be explained by
a. continuing technological progress alone.
b. continuing increases in the money supply alone.
c. continued technological progress and continuing increases in the money supply.
d. None of the above can explain continuing real GDP growth and inflation.

Back 146

c. continued technological progress and continuing increases in the money supply.

Front 147

Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. To
explain this
a. it is only necessary that long-run aggregate supply shifts right over time.
b. it is only necessary that aggregate demand shifts right over time.
c. both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must shift farther.
d. None of the above cases would produce rising prices and growing real GDP over time.

Back 147

c. both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must shift farther.

Front 148

Which of the following, other things the same, would make the price level decrease and real GDP increase?
a. long-run aggregate supply shifts right
b. long-run aggregate supply shifts left
c. aggregate demand shifts right
d. aggregate demand shifts left

Back 148

a. long-run aggregate supply shifts right

Front 149

Wages tend to be sticky
a. because of contracts, social norms, and notions of fairness.
b. because of contracts, but not social norms or notions of fairness.
c. because of social norms and notions of fairness, but not contracts.
d. but not because of social norms, notions of fairness or contracts.

Back 149

a. because of contracts, social norms, and notions of fairness.

Front 150

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than
expected,
a. production is more profitable and employment rises.
b. production is more profitable and employment falls.
c. production is less profitable and employment rises.
d. production is less profitable and employment falls

Back 150

a. production is more profitable and employment rises.

Front 151

The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than
expected,
a. production is more profitable and employment rises.
b. production is more profitable and employment falls.
c. production is less profitable and employment rises.
d. production is less profitable and employment falls

Back 151

d. production is less profitable and employment falls

Front 152

Other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent,
then
a. employment and production rise.
b. employment rises and production falls.
c. employment falls and production rises.
d. employment and production fall.

Back 152

a. employment and production rise.

Front 153

Other things the same, if prices fell when firms and workers were expecting them to rise, then
a. employment and production would rise.
b. employment would rise and production would fall.
c. employment would fall and production would rise.
d. employment and production would fall.

Back 153

d. employment and production would fall.

Front 154

According to the sticky-wage theory of the short-run aggregate supply curve, if workers and firms expected prices
to rise by 4 percent, but instead they rise by 2 percent, then
a. employment and production rise.
b. employment rises and production falls.
c. employment falls and production rises.
d. employment and production fall

Back 154

d. employment and production fall

Front 155

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will
increase if
a. the price level is higher than expected making production more profitable.
b. the price level is higher than expected making production less profitable.
c. the price level is lower than expected making production more profitable.
d. the price level is higher than expected making production less profitable.

Back 155

a. the price level is higher than expected making production more profitable.

Front 156

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

Back 156

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.

Front 157

The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than
expected, some firms will have
a. higher than desired prices which increases their sales.
b. higher than desired prices which depresses their sales.
c. lower than desired prices which increases their sales.
d. lower than desired prices which depresses their sales

Back 157

c. lower than desired prices which increases their sales.

Front 158

Other things the same, an unexpected fall in the price level results in some firms having
a. lower than desired prices which increases their sales.
b. lower than desired prices which depresses their sales.
c. higher than desired prices which increases their sales.
d. higher than desired prices which depresses their sales.

Back 158

d. higher than desired prices which depresses their sales.

Front 159

Other things the same, when the price level rises more than expected, some firms will have
a. higher than desired prices which increases their sales.
b. higher than desired prices which depresses their sales.
c. lower than desired prices which increases their sales.
d. lower than desired prices which depresses their sales.

Back 159

c. lower than desired prices which increases their sales.

Front 160

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% and people
were expecting it to rise by 2%, then firms have
a. higher than desired prices which increases their sales.
b. higher than desired prices which depresses their sales.
c. lower than desired prices which increases their sales.
d. lower than desired prices which depresses their sales.

Back 160

c. lower than desired prices which increases their sales.

Front 161

Other things the same, if the price level rises by 2% and people were expecting it to rise by 5%, then some firms
have
a. higher than desired prices which increases their sales.
b. higher than desired prices which depresses their sales.
c. lower than desired prices which increases their sales.
d. lower than desired prices which depresses their sales.

Back 161

b. higher than desired prices which depresses their sales.

Front 162

Other things the same, if the money supply rises by 2% and people were expecting it to rise by 5%, then some
firms have
a. higher than desired prices which increases their sales.
b. higher than desired prices which depresses their sales.
c. lower than desired prices which increases their sales.
d. lower than desired prices which depresses their sales.

Back 162

b. higher than desired prices which depresses their sales.

Front 163

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people
expected, then some firms believe that the relative price of what they produce has
a. decreased, so they increase production.
b. decreased, so they decrease production.
c. increased, so they increase production.
d. increased, so they decrease production.

Back 163

c. increased, so they increase production.

Front 164

Other things the same, if the price level is lower than expected, then some firms believe that the relative price of
what they produce has
a. decreased, so they increase production.
b. decreased, so they decrease production.
c. increased, so they increase production.
d. increased, so they decrease production

Back 164

b. decreased, so they decrease production

Front 165

According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5
percent and actual inflation was 6 percent, then the firm would believe that the relative price of what they produce
had
a. increased, so they would increase production.
b. increased, so they would decrease production.
c. decreased, so they would increase production.
d. decreased, so they would decrease production

Back 165

a. increased, so they would increase production.

Front 166

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was
going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what
they produce had
a. increased, so they would increase production.
b. increased, so they would decrease production.
c. decreased, so they would increase production.
d. decreased, so they would decrease production.

Back 166

d. decreased, so they would decrease production

Front 167

The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will
increase if the price level
a. increases less than expected so that firms believe the relative price of their output has increased.
b. increases less than expected so that firms believe the relative price of their output has decreased.
c. increases more than expected so that firms believe the relative price of their output has increased.
d. increases more than expected so that firms believe the relative price of their output has decreased.

Back 167

c. increases more than expected so that firms believe the relative price of their output has increased.

Front 168

Suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume
have fallen by the same percentage. They may infer that the reward to working is
a. temporarily low and so supply a smaller quantity of labor.
b. temporarily low and so supply a larger quantity of labor.
c. temporarily high and so supply a smaller quantity of labor.
d. temporarily high and so supply a larger quantity of labor.

Back 168

a. temporarily low and so supply a smaller quantity of labor.

Front 169

Other things the same, the aggregate quantity of output supplied will decrease if the price level
a. is lower than expected so that firms believe the relative price of their output has increased.
b. is lower than expected so that firms believe the relative price of their output has decreased.
c. is higher than expected so that firms believe the relative price of their output has increased.
d. is higher than expected so that firms believe the relative price of their output has decreased.

Back 169

b. is lower than expected so that firms believe the relative price of their output has decreased.

Front 170

Other things the same, the aggregate quantity of output supplied will increase if the price level
a. is lower than expected so that firms believe the relative price of their output has increased.
b. is lower than expected so that firms believe the relative price of their output has decreased.
c. is higher than expected so that firms believe the relative price of their output has increased.
d. is higher than expected so that firms believe the relative price of their output has decreased.

Back 170

c. is higher than expected so that firms believe the relative price of their output has increased.

Front 171

Of the following theories, which is consistent with a vertical long-run aggregate supply curve?
a. the sticky-wage theory
b. misperceptions theory
c. both the sticky-wage and misperceptions theories.
d. neither the sticky-wage nor the misperceptions theory

Back 171

c. both the sticky-wage and misperceptions theories.

Front 172

If the price level is higher than expected, firms might raise their production in the short run if
a. the nominal wage they pay their employees was set based on the expected price level.
b. prices are costly to adjust and they have set their price at some time in the past and are not ready to change it.
c. they believe that the price of their product has risen relative to the price of other products, when in fact the rise
in the price of their product reflects an increase in the general price level.
d. All of the above are correct

Back 172

d. All of the above are correct

Front 173

If the actual price level is 165, but people had been expecting it to be 160, then
a. the quantity of output supplied rises, but only in the short run.
b. the quantity of output supplied rises in the short run and the long run.
c. the quantity of output supplied falls, but only in the short run.
d. the quantity of output supplied falls in the short run and the long run.

Back 173

a. the quantity of output supplied rises, but only in the short run.

Front 174

Assuming that a is positive, theories of short-run aggregate supply are expressed mathematically as
a. quantity of output supplied = natural rate of output + a(actual price level - expected price level).
b. quantity of output supplied = natural rate of output + a(expected price level - actual price level).
c. quantity of output supplied = a(actual price level -expected price level) - natural rate of output.
d. quantity of output supplied = a(expected price level - actual price level) - natural rate of output.

Back 174

a. quantity of output supplied = natural rate of output + a(actual price level - expected price level).

Front 175

The equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level),
where a is a positive number, represents
a. an upward-sloping, short-run aggregate supply curve.
b. a vertical, long-run supply curve.
c. a downward-sloping aggregate demand curve.
d. None of the above is correct.

Back 175

a. an upward-sloping, short-run aggregate supply curve.

Front 176

The effects of a higher than expected price level are shown by
a. shifting the short-run aggregate supply curve right.
b. shifting the short-run aggregate supply curve left.
c. moving to the right along a given aggregate supply curve.
d. moving to the left along a given aggregate supply curve.

Back 176

c. moving to the right along a given aggregate supply curve.

Front 177

An increase in the expected price level shifts short-run aggregate supply to the
a. right, and an increase in the actual price level shifts short-run aggregate supply to the right.
b. right, and an increase in the actual price level does not shift short-run aggregate supply.
c. left, and an increase in the actual price level shifts short-run aggregate supply to the left.
d. left, and an increase in the actual price level does not shift short-run aggregate supply.

Back 177

d. left, and an increase in the actual price level does not shift short-run aggregate supply

Front 178

A decrease in the expected price level would shift
a. only the long-run aggregate supply curve right.
b. only the short-run aggregate supply curve right.
c. both the short-run and the long-run aggregate supply curve right.
d. Neither the short-run nor the long-run aggregate supply curve right.

Back 178

b. only the short-run aggregate supply curve right

Front 179

Which of the following shifts both the short-run and long-run aggregate supply right?
a. an increase in the actual price level
b. an increase in the expected price level
c. an increase in the capital stock
d. None of the above is correct.

Back 179

c. an increase in the capital stock

Front 180

Which of the following shifts both short-run and long-run aggregate supply left?
a. a decrease in the actual price level
b. a decrease in the expected price level
c. a decrease in the capital stock
d. a decrease in the money supply

Back 180

c. a decrease in the capital stock

Front 181

Which of the following shifts short-run, but not long-run aggregate supply right?
a. a decrease in the actual price level
b. a decrease in the expected price level
c. a decrease in the capital stock
d. an increase in the money supply

Back 181

b. a decrease in the expected price level

Front 182

Which of the following shifts short-run aggregate supply right?
a. an increase in the minimum wage
b. an increase in immigration from abroad
c. an increase in the price of oil
d. an increase in the actual price level

Back 182

b. an increase in immigration from abroad

Front 183

Which of the following shifts short-run aggregate supply left?
a. an increase in the actual price level
b. an increase in the expected price level
c. an increase in the capital stock
d. None of the above is correct.

Back 183

b. an increase in the expected price level

Front 184

Which of the following shifts short-run aggregate supply right?
a. an increase in the price level
b. an increase in the minimum wage
c. a decrease in the price of oil
d. more people migrate abroad than immigrate from abroad

Back 184

c. a decrease in the price of oil

Front 185

Which of the following would shift the short-run aggregate supply curve to the right?
a. a decrease in the actual price level.
b. an increase in the actual price level.
c. a decrease in the expected price level.
d. an increase in the expected price level.

Back 185

c. a decrease in the expected price level.

Front 186

The aggregate demand and aggregate supply model implies monetary neutrality
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

Back 186

b. only in the long run.

Front 187

In the short run Recessions in South Korea and Indonesia will cause
a. the U.S. price level and real GDP to rise.
b. the U.S. price level and real GDP to fall.
c. the U.S. price level to rise and real GDP to fall.
d. the U.S. price level to fall and real GDP to rise.

Back 187

b. the U.S. price level and real GDP to fall.

Front 188

Which of the following would cause prices and real GDP to rise in the short run?
a. Short-run aggregate supply shifts right.
b. Short-run aggregate supply shifts left.
c. Aggregate demand shifts right.
d. Aggregate demand shifts left.

Back 188

c. Aggregate demand shifts right.

Front 189

Which of the following would cause prices to fall and output to rise in the short run?
a. Short-run aggregate supply shifts right.
b. Short-run aggregate supply shifts left.
c. Aggregate demand shifts right.
d. Aggregate demand shifts left.

Back 189

a. Short-run aggregate supply shifts right.

Front 190

Which of the following would cause prices and real GDP to rise in the short run?
a. an increase in the expected price level
b. an increase in the money supply
c. a decrease in the capital stock
d. None of the above is correct.

Back 190

b. an increase in the money supply

Front 191

Which of the following would cause prices to rise and real GDP to fall in the short run?
a. an increase in the expected price level
b. an increase in the capital stock
c. an increase in the quantity of labor available
d. All of the above are correct.

Back 191

a. an increase in the expected price level

Front 192

Which of the following will reduce the price level and real output in the short run?
a. an increase in the money supply
b. an increase in oil prices
c. a decrease in the money supply
d. technical progress

Back 192

c. a decrease in the money supply

Front 193

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient
speed and precision, they can offset the initial shift by shifting
a. aggregate supply right.
b. aggregate supply left.
c. aggregate demand right.
d. aggregate demand left

Back 193

c. aggregate demand right.

Front 194

If something caused resources to become more readily available, then
a. the price level and real GDP would rise.
b. the price level and real GDP would fall.
c. the price level would rise and real GDP would fall.
d. the price level would fall and real GDP would rise.

Back 194

d. the price level would fall and real GDP would rise.

Front 195

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price
level
a. rises, shifting aggregate demand right.
b. rises, shifting aggregate demand left.
c. falls, shifting aggregate supply right.
d. falls, shifting aggregate supply left.

Back 195

c. falls, shifting aggregate supply right.

Front 196

An economic contraction caused by a shift in aggregate demand causes prices to
a. rise in the short run, and rise even more in the long run.
b. rise in the short run, and fall back to their original level in the long run.
c. fall in the short run, and fall even more in the long run.
d. fall in the short run, and rise back to their original level in the long run.

Back 196

c. fall in the short run, and fall even more in the long run.

Front 197

Suppose the economy is initially in long-run equilibrium and aggregate demand rises. In the long run prices
a. and output are higher than in the original long-run equilibrium.
b. and output are lower than in the original long-run equilibrium.
c. are higher and output is the same as the original long-run equilibrium.
d. are the same and output is lower than in the original long-run equilibrium.

Back 197

c. are higher and output is the same as the original long-run equilibrium.

Front 198

The long-run effect of an increase in government spending is to raise
a. both real output and the price level.
b. real output and lower the price level.
c. real output and leave the price level unchanged.
d. the price level and leave real output unchanged

Back 198

d. the price level and leave real output unchanged

Front 199

The Stock Market Boom of 2010
Imagine that in 2010 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high
for some time.
21. Refer to Stock Market Boom 2010. Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right
d. aggregate supply shifts left.

Back 199

a. aggregate demand shifts right

Front 200

The Stock Market Boom of 2010
Imagine that in 2010 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high
for some time.
Refer to Stock Market Boom 2010. In the short run what happens to the price level and real GDP?
a. both the price level and real GDP rise.
b. both the price level and real GDP fall.
c. the price level rises and real GDP falls.
d. the price level falls and real GDP rises

Back 200

a. both the price level and real GDP rise.

Front 201

The Stock Market Boom of 2010
Imagine that in 2010 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high
for some time.
Refer to Stock Market Boom 2010. What happens to the expected price level and what impact does this have on
wage bargaining?
a. The expected price level falls. Bargains are struck for higher wages.
b. The expected price level falls. Bargains are struck for lower wages.
c. The expected price level rises. Bargains are struck for higher wages.
d. The expected price level rises. Bargains are struck for lower wages.

Back 201

c. The expected price level rises. Bargains are struck for higher wages.

Front 202

The Stock Market Boom of 2010
Imagine that in 2010 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high
for some time.
Refer to Stock Market Boom 2010. In the long run, the change in price expectations created by the stock market
boom shifts
a. long-run aggregate supply right.
b. long-run aggregate supply left.
c. short-run aggregate supply right.
d. short-run aggregate supply left.

Back 202

d. short-run aggregate supply left.

Front 203

The Stock Market Boom of 2010
Imagine that in 2010 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high
for some time.
Refer to Stock Market Boom 2010. How is the new long-run equilibrium different from the original one?
a. the price level and real GDP are higher
b. the price level and real GDP are lower.
c. the price level is higher and real GDP is the same.
d. the price level is the same and real GDP is higher.

Back 203

c. the price level is higher and real GDP is the same.

Front 204

Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and
increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
Refer to Optimism. Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right.
d. aggregate supply shifts left.

Back 204

a. aggregate demand shifts right

Front 205

Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and
increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
Refer to Optimism. In the short run what happens to the price level and real GDP?
a. both the price level and real GDP rise.
b. both the price level and real GDP fall.
c. the price level rises and real GDP falls.
d. the price level falls and real GDP rises.

Back 205

a. both the price level and real GDP rise.

Front 206

Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and
increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
Refer to Optimism. What happens to the expected price level and what’s the result for wage bargaining?
a. The expected price level falls. Bargains are struck for higher wages.
b. The expected price level falls. Bargains are struck for lower wages.
c. The expected price level rises. Bargains are struck for higher wages.
d. The expected price level rises. Bargains are struck for lower wages.

Back 206

c. The expected price level rises. Bargains are struck for higher wages.

Front 207

Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and
increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
Refer to Optimism. In the long run, the change in price expectations created by optimism shifts
a. long-run aggregate supply right.
b. long-run aggregate supply left.
c. short-run aggregate supply right.
d. short-run aggregate supply left.

Back 207

d. short-run aggregate supply left.

Front 208

Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and
increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
Refer to Optimism. How is the new long-run equilibrium different from the original one?
a. both price and real GDP are higher
b. both price and real GDP are lower.
c. the price level is the same and GDP is higher.
d. the price level is higher and real GDP is the same.

Back 208

d. the price level is higher and real GDP is the same.

Front 209

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of
confidence in policymakers people become pessimistic regarding the future and retain that level of pessimism for some time.
Refer to Pessimism. Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right.
d. aggregate supply shifts left.

Back 209

b. aggregate demand shifts left

Front 210

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of
confidence in policymakers people become pessimistic regarding the future and retain that level of pessimism for some time.
Refer to Pessimism. In the short run what happens to the price level and real GDP?
a. Both the price level and real GDP rise.
b. Both the price level and real GDP fall.
c. The price level rises and real GDP falls.
d. The price level falls and real GDP rises.

Back 210

b. Both the price level and real GDP fall.

Front 211

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of
confidence in policymakers people become pessimistic regarding the future and retain that level of pessimism for some time.
Refer to Pessimism. What happens to the expected price level and what’s the result for wage bargaining?
a. The expected price level rises. Bargains are struck for higher wages.
b. The expected price level rises. Bargains are struck for lower wages.
c. The expected price level falls. Bargains are struck for higher wages.
d. The expected price level falls. Bargains are struck for lower wages.

Back 211

d. The expected price level falls. Bargains are struck for lower wages.

Front 212

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of
confidence in policymakers people become pessimistic regarding the future and retain that level of pessimism for some time.
Refer to Pessimism. In the long run, the change in price expectations created by pessimism shifts
a. long-run aggregate supply right.
b. long-run aggregate supply left.
c. short-run aggregate supply right.
d. short-run aggregate supply left.

Back 212

c. short-run aggregate supply right.

Front 213

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of
confidence in policymakers people become pessimistic regarding the future and retain that level of pessimism for some time.
Refer to Pessimism. How is the new long-run equilibrium different from the original one?
a. both price and real GDP are higher.
b. both price and real GDP are lower.
c. the price level is the same and GDP is lower.
d. the price level is lower and real GDP is the same.

Back 213

d. the price level is lower and real GDP is the same.

Front 214

Which of the following is a lesson concerning shifts in aggregate demand?
a. they contribute to fluctuations in output.
b. in the long-run they change real output, but not the price level.
c. policymakers are unable to mitigate the severity of economic fluctuations.
d. All of the above are correct.

Back 214

a. they contribute to fluctuations in output.

Front 215

In the early 1930s in the United States, there was a
a. large increase in output. In the early 1940s there was also a large increase in output.
b. large increase in output. In the early 1940s there was a large decrease in output.
c. large decrease in output. In the early 1940s there was a large increase in output.
d. large decrease in output. In the early 1940s there was also a large decrease in output.

Back 215

c. large decrease in output. In the early 1940s there was a large increase in output.

Front 216

Which of the following has been suggested as a cause of the Great Depression?
a. a decline in the money supply
b. a decrease in stock prices
c. the collapse of the banking system
d. All of the above are correct.

Back 216

d. All of the above are correct.

Front 217

Which of the following did not happen during the onset of the Great Depression?
a. The money supply fell as households took money out of bank deposits.
b. The Fed conducted expansionary monetary policy.
c. Stock prices fell about 90 percent.
d. Disruption of the banking system made it difficult for some firms to obtain funds for investment

Back 217

b. The Fed conducted expansionary monetary policy.

Front 218

In the first few years of the Great Depression, unemployment rose to about
a. 10 percent, and prices rose about 14 percent.
b. 15 percent, and prices rose about 22 percent.
c. 20 percent, and prices fell about 14 percent.
d. 25 percent, and prices fell about 22 percent.

Back 218

d. 25 percent, and prices fell about 22 percent.

Front 219

During World War II,
a. government purchases of goods and services increased fivefold.
b. the economy's production increased about 25 percent.
c. unemployment fell to about 1%.
d. All of the above are correct.

Back 219

a. government purchases of goods and services increased fivefold.

Front 220

During World War II, the economy's production increased about
a. 25 percent and prices rose about 5 percent.
b. 50 percent and prices rose about 10 percent.
c. 75 percent and prices rose about 15 percent.
d. 100 percent and prices rose about 20 percent

Back 220

d. 100 percent and prices rose about 20 percent

Front 221

The economic boom of the early 1940s resulted mostly from
a. increased government expenditures.
b. falling prices of oil and other natural resources.
c. an increase in the growth rate of the money supply.
d. rapid developments in transportation, electronics, and communication

Back 221

a. increased government expenditures.

Front 222

The recession of 2001 appears to have been mostly the result of decreased
a. aggregate demand due to decreases in the money supply.
b. aggregate demand due to falling stock prices and increased uncertainty.
c. aggregate supply due to early retirements.
d. aggregate supply due to changes in labor laws and decreased availability of natural resources.

Back 222

b. aggregate demand due to falling stock prices and increased uncertainty.

Front 223

What, if anything, did policymakers do in response to the recession of 2001?
a. tax cuts and expansionary monetary policy
b. only tax cuts
c. only expansionary monetary policy
d. neither tax cuts nor expansionary monetary policy

Back 223

a. tax cuts and expansionary monetary policy

Front 224

If there is bad weather for farming or some other temporary decrease in the availability of raw materials
a. aggregate supply shifts right.
b. output falls in the short run.
c. prices fall in the short run.
d. None of the above is correct.

Back 224

b. output falls in the short run.

Front 225

An increase in the price level and a reduction in real GDP could be created by
a. a fall in stock prices.
b. natural disasters such as hurricanes and famines.
c. declining government expenditures.
d. tax rebates.

Back 225

b. natural disasters such as hurricanes and famines.

Front 226

An increase in the price level and a decrease in real GDP in the short run could be created by
a. an increase in the money supply.
b. an increase in government expenditures.
c. a fall in stock prices.
d. bad weather in farm states

Back 226

d. bad weather in farm states

Front 227

A decrease in the availability of an important major resource such as oil shifts
a. aggregate supply right.
b. aggregate supply left.
c. aggregate demand right.
d. aggregate demand left.

Back 227

b. aggregate supply left.

Front 228

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
a. aggregate supply to the right.
b. aggregate supply to the left.
c. aggregate demand to the right.
d. aggregate demand to the left.

Back 228

c. aggregate demand to the right.

Front 229

Stagflation exists when prices
a. and output rise.
b. rise and output falls.
c. fall and output rises.
d. and output fall.

Back 229

b. rise and output falls.

Front 230

Which of the following would cause stagflation?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right
d. aggregate supply shifts left

Back 230

d. aggregate supply shifts left

Front 231

Which of the following will cause stagflation?
a. an increase in the money supply
b. an increase in oil prices
c. a decrease in the money supply
d. technical progress

Back 231

b. an increase in oil prices

Front 232

When production costs rise,
a. the short-run aggregate supply curve shifts to the right.
b. the short-run aggregate supply curve shifts to the left.
c. the aggregate demand curve shifts to the right.
d. the aggregate demand curve shifts to the left.

Back 232

b. the short-run aggregate supply curve shifts to the left.

Front 233

In the short-run an increase in the costs of production makes
a. output and prices rise.
b. output rise and prices fall.
c. output fall and prices rise.
d. output and prices fall.

Back 233

c. output fall and prices rise.

Front 234

Which of the following shifts short-run aggregate supply left?
a. an increase in price expectations
b. an increase in the actual price level
c. a decrease in the money supply
d. a decrease in the price of oil

Back 234

a. an increase in price expectations

Front 235

Imagine the U.S. economy is in long-run equilibrium. Then suppose the value of the U.S. dollar increases. At the
same time, people in the U.S. revise their expectations so that the expected price level falls. We would expect that
in the short-run
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.

Back 235

d. the price level will fall, and real GDP might rise, fall, or stay the same.

Front 236

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an
increase in pessimism about future business conditions, then we would expect that in the short-run,
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.

Back 236

b. real GDP will fall and the price level might rise, fall, or stay the same.

Front 237

Imagine the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a
significant increase in immigration of skilled workers, then we would expect that in the short run,
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same

Back 237

d. the price level will fall, and real GDP might rise, fall, or stay the same

Front 238

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil
are discovered in the country, then in the short-run we would expect
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.

Back 238

a. real GDP will rise and the price level might rise, fall, or stay the same.

Front 239

Suppose the economy is in long-run equilibrium. Concerns about pollution cause the government to significantly
restrict the production of electricity. At the same time, the value of the dollar falls. In the short-run we would
expect
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.

Back 239

c. the price level will rise, and real GDP might rise, fall, or stay the same.

Front 240

Suppose the economy is in long-run equilibrium. Senator Aviary succeeds in getting a major new highway project
for his state. At the same time, Senator Green succeeds in getting major new restrictions on logging enacted. In the
short run, we would expect
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.

Back 240

c. the price level will rise, and real GDP might rise, fall, or stay the same.