63) When the price level rises, the real interest rate ________ and the quantity of real GDP
demanded ________.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
E) does not change; does not change
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Relective thinking
64) A change in any of the following factors EXCEPT ________ shifts the aggregate demand
curve.
A) expectations about the future
B) the money wage rate
C) monetary and iscal policy
D) foreign income
E) the foreign exchange rate
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
65) Which of the following shifts the aggregate demand curve leftward?
A) a decrease in government expenditure on goods and services
B) an increase in the price level
C) a tax cut
D) an increase in foreign income
E) a decrease in the price level
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
51
66) When investment increases, the ________ in aggregate demand is ________ the change in
investment.
A) increase; greater than
B) increase; smaller than
C) increase; the same as
D) decrease; the same as
E) decrease; greater than
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
13.3 Explaining Economic Trends and Fluctuations
1) Macroeconomic equilibrium occurs when
A) there is no inlation.
B) real GDP is equal to potential GDP.
C) the aggregate quantity demanded is equal to the aggregate quantity supplied.
D) the economy is fully employed.
E) the price level equals the potential price level.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
2) A macroeconomic equilibrium occurs when the
A) quantity of real GDP demanded is greater than the quantity of real GDP supplied.
B) quantity of real GDP demanded is less than the quantity of real GDP supplied.
C) quantity of real GDP demanded equals the quantity of real GDP supplied even if they are
not equal to potential GDP.
D) quantity of real GDP demanded equals the quantity of real GDP supplied and both equal
potential GDP.
E) None of the above answers is correct.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
52
3) If the economy is at macroeconomic equilibrium, then real GDP
A) must equal potential GDP.
B) must be less than potential GDP.
C) must be great than potential GDP.
D) might be equal to, greater than, or less than potential GDP
E) cannot be compared to potential GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
4) According to the AS-AD model,
A) the aggregate quantity supplied is typically greater than the aggregate quantity
demanded, thereby leading to unemployment.
B) the equilibrium is where the AS curve crosses the AD curve, but the amount of real GDP
at this point is not always equal to potential GDP.
C) the aggregate quantity demanded is typically greater than the aggregate quantity
supplied, thereby leading to inlation.
D) the AS curve is always equal to potential GDP.
E) changes in the amount of potential GDP is the only factor that shifts both the aggregate
supply curve and the aggregate demand curve.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
5) In its macroeconomic equilibrium, the economy can be producing at
i. below full employment.
ii. full employment.
iii. above full employment.
A) i only
B) ii only
C) iii only
D) i or ii
E) i, ii, or iii
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
53
6) When the quantity of real GDP demanded exceeds the quantity of real GDP supplied,
irms
A) increase production and prices.
B) decrease production and prices.
C) increase production and lower prices.
D) decrease production and increase prices.
E) do not change production because aggregate demand and potential GDP will adjust.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
7) If the quantity of real GDP demanded is less than the quantity of real GDP supplied, then
A) the economy must be producing at potential GDP.
B) the price level falls and irms decrease production.
C) the price level falls and irms increase production.
D) the price level rises to restore the macroeconomic equilibrium.
E) aggregate demand changes to restore the equilibrium.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
8) If the quantity of real GDP demanded is greater than the quantity of real GDP supplied,
then
A) the economy must be producing at potential GDP.
B) the price level falls and irms decrease production.
C) the price level rises and irms increase production.
D) the price level falls to restore the macroeconomic equilibrium.
E) aggregate demand changes to restore equilibrium.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
54
9) If real GDP is greater than potential GDP, then to restore equilibrium, ________ and the
price level ________.
A) the aggregate demand curve shifts leftward; rises
B) the aggregate demand curve shifts rightward; falls
C) the aggregate supply curve shifts leftward; rises
D) the aggregate supply curve shifts rightward; falls
E) potential GDP increases; falls
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
10) If the aggregate demand curve and the aggregate supply curve intersect at a level of
real GDP more than potential GDP, there is
A) a recessionary gap.
B) an inlationary gap.
C) a falling price level.
D) a rising real GDP.
E) a below-full employment equilibrium.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
11) During an inlationary gap,
A) real GDP is less than potential GDP.
B) the aggregate demand curve and the aggregate supply curve intersect at potential GDP.
C) the aggregate demand curve and the aggregate supply curve intersect at a level of real
GDP that exceeds potential GDP.
D) the aggregate demand curve and the aggregate supply curve do not intersect.
E) the price level will fall to restore the long-run equilibrium.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
55
12) Starting from a situation of full employment, an increase in aggregate demand creates
________ and ________ the price level.
A) an inlationary gap; raises
B) a recessionary gap; lowers
C) a recessionary gap; raises
D) an inlationary gap; lowers
E) a recessionary gap; does not change
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
13) If real GDP is less than potential GDP, then the money wage rate ________, and
aggregate supply ________ so that the price level ________.
A) rises; decreases; rises
B) falls; increases; falls
C) rises; increases; falls
D) falls; decreases; rises
E) does not change; increases; falls
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
14) If real GDP is less than potential GDP, then the ________ and the price level ________.
A) aggregate demand curve shifts leftward; rises
B) aggregate demand curve shifts rightward; falls
C) aggregate supply curve shifts leftward; rises
D) aggregate supply curve shifts rightward; falls
E) amount of potential GDP increases; falls
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
56
15) A recessionary gap occurs when ________ so that real GDP is ________ potential GDP.
A) aggregate supply increases; less than
B) aggregate supply decreases; less than
C) aggregate demand increases; greater than
D) aggregate demand decreases; less than
E) potential GDP decreases; greater than
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
16) If the aggregate demand curve and the aggregate supply curve intersect at a level of
real GDP less than potential GDP, there is
A) a recessionary gap.
B) an inlationary gap.
C) a rising price level.
D) a falling real GDP.
E) an above full-employment equilibrium.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
17) If the equilibrium price level is 135 but the actual price level is 150, then
A) irms increase their production because they are able to sell their output at a higher
than expected price.
B) the quantity of real GDP demanded is less than the quantity of real GDP supplied.
C) the quantity of real GDP demanded is greater than the quantity of real GDP supplied.
D) aggregate demand will increase to restore equilibrium.
E) aggregate demand will decrease to restore equilibrium.
Skill: Level 4: Applying models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
57
18) If the equilibrium price level is 135 but the actual price level is 120, then
A) irms decrease their production because they cannot sell the output they produce.
B) the quantity of real GDP demanded is less than the quantity of real GDP supplied.
C) the quantity of real GDP demanded is greater than the quantity of real GDP supplied.
D) aggregate demand will increase to restore equilibrium.
E) aggregate demand will decrease to restore equilibrium.
Skill: Level 4: Applying models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
19) At a peak in the business cycle, the macroeconomic equilibrium is ________ the level of
potential real GDP.
A) greater than
B) equal to
C) less than
D) falling below
E) None of the above answers is always correct because the relationship depends on
whether the previous phase of the business cycle had been a recession or an expansion.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
20) At a trough in the business cycle, the macroeconomic equilibrium is ________ the level of
potential real GDP.
A) greater than
B) rising above
C) equal to
D) less than
E) None of the above answers is always correct because the relationship depends on
whether the previous phase of the business cycle had been a recession or an expansion.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
The table gives the aggregate demand and aggregate supply schedules for a nation.
58
21) Based on the table above, equilibrium real GDP is
A) $10 trillion.
B) $9 trillion.
C) $8 trillion.
D) $7 trillion.
E) $6 trillion.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
22) Based on the table above, the equilibrium price level is
A) 130.
B) 120.
C) 110.
D) 100.
E) 90.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
59
23) Refer to the table above. If the price level is 120, then the aggregate quantity
demanded is ________ than the aggregate quantity supplied and the price level ________.
A) greater; rises
B) greater; falls
C) less; rises
D) less; falls
E) less; might fall, rise or not change depending on whether real GDP is more than, less
than, or equal to potential GDP.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
24) If the price level is 90, then the price level will ________ because ________.
A) either fall or rise; markets are unstable and macroeconomic equilibrium is diicult to
predict
B) fall; the aggregate quantity demanded is less than the aggregate quantity supplied
C) rise; the aggregate quantity demanded is less than the aggregate quantity supplied
D) rise; the aggregate quantity demanded is greater than the aggregate quantity supplied
E) fall; the aggregate quantity demanded is greater than the aggregate quantity supplied
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: New
AACSB: Analytical thinking
25) The table above gives data for the nation of Pearl, a small island in the South Paciic.
The economy is at full employment when real GDP is
A) $25 billion.
B) $28 billion.
C) $22 billion.
D) $31 billion.
E) $34 billion.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
26) The table above gives data for the nation of Pearl, a small island in the South Paciic.
When the economy is at full employment the price level is
A) 130.
B) 120.
C) 110.