54) To prevent demand-pull inlation,
A) irms must refuse to increase the money wage rate.
B) irms must refuse to increase the real wage rate.
C) the Fed must not let the quantity of money persistently rise.
D) the natural unemployment rate must increase.
E) real GDP must increase.
Skill: Level 4: Applying models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
55) In a demand-pull inlation, if the Fed stops expanding the quantity of money,
A) a cost-push inlation will occur.
B) government expenditure will cause the demand-pull inlation to continue.
C) a delation will occur.
D) the demand-pull inlation ends.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
56) The main sources of cost-push inlation are increases in
A) the money wage rate and the price of raw materials.
B) the real wage rate and the price of raw materials.
C) the money wage rate and aggregate demand.
D) the quantity of money and the real wage rate.
E) government expenditure and the quantity of money.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
71
57) Cost-push inlation can be started by
A) a decrease in the money wage rate.
B) an increase in the money prices of raw materials.
C) an increase in the quantity of money.
D) an increase in government expenditure on goods and services.
E) a decrease in government expenditure on goods and services.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
58) Cost-push inlation can start with
A) a decrease in investment.
B) an increase in oil prices.
C) an increase in government expenditure.
D) a decrease in government expenditure.
E) a decrease in the quantity of money.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
59) Cost-push inlation might initially result from
A) an increase in the quantity of money.
B) a decrease in the quantity of money.
C) the use of new technology.
D) an increase in government expenditure.
E) an increase in the cost of resources.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
72
60) Cost-push inlation starts with
A) an increase in aggregate demand.
B) a decrease in aggregate demand.
C) an increase in aggregate supply.
D) a decrease in aggregate supply.
E) an increase in potential GDP.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
61) When cost-push inlation starts, real GDP ________ and the unemployment rate ________.
A) decreases; falls
B) does not change; falls
C) decreases; rises
D) does not change; does not change
E) increases; falls
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
62) When cost-push inlation starts, real GDP ________ and the price level ________.
A) decreases; falls
B) does not change; falls
C) decreases; rises
D) does not change; does not change
E) increases; falls
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
73
63) At the start of a cost-push inlation,
A) the price level remains constant and real GDP decreases.
B) the price level and real GDP both increase.
C) the price level remains constant and real GDP increases.
D) the price level rises and real GDP decreases.
E) the price level rises and real GDP does not change.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
64) Suppose that the money prices of raw materials increase so that short-run aggregate
supply decreases. If the Federal Reserve does not respond, the higher money price of raw
materials will
i. repeatedly shift the aggregate demand curve rightward and raise the price level.
ii. shift the aggregate demand curve rightward and the aggregate supply curve leftward,
raising prices.
iii. result initially in lower employment and a higher price level.
A) i only
B) both i and ii
C) both ii and iii
D) i and iii
E) iii only
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
65) By itself, an increase in the price of oil shifts the
A) aggregate supply curve leftward and does not shift the aggregate demand curve.
B) aggregate supply curve rightward and does not shift the aggregate demand curve.
C) aggregate demand curve leftward and does not shift the aggregate supply curve.
D) aggregate demand curve rightward and does not shift the aggregate supply curve.
E) aggregate demand curve rightward and shifts the potential GDP line rightward.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
74
66) The AS curve shifts leftward if
A) good weather increases agricultural harvests.
B) OPEC reduces world oil prices.
C) tax cuts stimulate labor supply.
D) the money wage rate increases.
E) government expenditure increases.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
67) If oil prices increase, then in the short run, real GDP will ________ and the price level
will ________.
A) increase; rise
B) increase; fall
C) decrease; rise
D) decrease; fall
E) not change; rise
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
68) In the short-run, an increase in the price of raw materials will ________ the price level
and ________ real GDP.
A) raise; increase
B) raise; decrease
C) raise; not change
D) lower; increase
E) lower; decrease
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
75
69) By itself, a supply shock, such as a hike in the price of oil, can
A) cause real GDP to permanently decrease year after year.
B) not result in persisting inlation.
C) be inlationary as long as there is no policy response.
D) result in persisting inlation if aggregate supply persistently increases.
E) result in a persisting wage-price spiral.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
70) A combination of recession and inlation is called
A) an expansion.
B) staglation.
C) a business cycle.
D) depression.
E) a recession.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
71) Staglation is deined as a period when real GDP ________ and the price level ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) is constant; rises rapidly
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
76
72) A combination of declining real GDP and rising price level is referred to as
A) an expansion.
B) a trough.
C) staglation.
D) delation.
E) a depression.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
73) Reasons that the recession of 2008-2009 did not become a depression include:
i. The Fed bailed out troubled inancial institutions.
ii. The government aggressively balanced its budget.
iii. The government increased its expenditures, which increased aggregate demand.
A) i only
B) ii only
C) iii only
D) i and iii
E) i and ii
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
74) As a result of OPEC ________ oil prices in 1973 and 1980, real GDP in United States
________.
A) increasing; increased
B) increasing; decreased
C) decreasing; increased
D) decreasing; decreased
E) increasing; did not change
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
77
75) Oil price hikes
A) increase aggregate supply.
B) decrease aggregate supply.
C) increase aggregate demand.
D) decrease aggregate demand.
E) increase potential GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
76) When OPEC nearly tripled the price of oil in late 1973,
A) U.S. real GDP increased as proits by oil producers increased.
B) U.S. real GDP did not change although the price level rose.
C) the U.S. price level fell because production became too expensive.
D) the U.S. price level rose and real GDP decreased.
E) both U.S. real GDP and the price level increased.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
77) At the beginning of 2015, a country is at full-employment. During 2015, oil-producing
countries decrease oil production leading to much higher oil prices. The higher oil prices
can
A) increase aggregate demand and lead to an expansion.
B) increase aggregate supply and lead to an expansion.
C) decrease aggregate demand and lead to a staglation.
D) decrease aggregate supply and lead to a staglation.
E) decrease aggregate demand and lead to a higher price level.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
78
78) Potential GDP increased from 4.7 trillion to 16.6 trillion between 1970 and 2013
resulting in economic growth. Also, during this time ________ occurred because ________.
A) inlation; aggregate demand decreased by more than potential GDP
B) staglation; aggregate demand increased by more than potential GDP
C) delation; aggregate demand increased by more than potential GDP
D) inlation; aggregate demand increased by more than potential GDP
E) inlation; aggregate demand increased by less than potential GDP
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: New
AACSB: Analytical thinking
79) In reality, AD rarely ________; however, the economy performs as though it does when it
________.
A) decreases; luctuates with potential GDP
B) increases; decreases at a pace much slower than potential GDP
C) stagnates; increases at a pace much faster than potential GDP
D) decreases; increases at a pace much slower than potential GDP
E) decreases; increases at a pace much faster than potential GDP
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: New
AACSB: Analytical thinking
80) The 2008-2009 recession must have been a result of ________ because otherwise the
combination of the ________ cannot be explained.
A) a decrease in AD and an increase in AS; fall in the price level and the decrease in real
GDP
B) a decrease in AD and an increase in AS; rise in the price level and the decrease in real
GDP
C) an increase in AD and AS; rise in the price level and the decrease in real GDP
D) a decrease in AD and AS; rise in the price level and the decrease in real GDP
E) a decrease in AD and AS; decrease in the price level and the decrease in real GDP
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: New
AACSB: Analytical thinking
79
81) If the quantity of real GDP supplied equals the quantity of real GDP demanded, then
A) nominal GDP must equal real GDP.
B) real GDP must equal potential GDP.
C) real GDP must be greater than potential GDP.
D) real GDP might be greater than, equal to, or less than potential GDP.
E) real GDP must be less than potential GDP.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
82) An increase in investment ________ aggregate demand, the aggregate demand curve
shifts ________ and the economy is in the ________ phase of the business cycle.
A) decreases; rightward; expansion
B) increases; rightward; expansion
C) decreases; leftward; recession
D) increases; rightward; recession
E) increases; leftward; recession
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
83) If the price of oil rises, the
A) AD curve shifts rightward, real GDP increases, and the price level rises.
B) AS curve shifts leftward, the price level rises, and real GDP decreases.
C) AD curve and the AS curve shift leftward, real GDP decreases, and the price level rises.
D) AD curve and the AS curve shift rightward, the price level rises, and real GDP
decreases.
E) AS curve shifts leftward, the price level rises, and real GDP increases.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
80