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84) Staglation is a combination of ________ real GDP and a ________ price level.
A) increasing; rising
B) increasing; falling
C) decreasing; rising
D) decreasing; falling
E) no change in; rising
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
85) An inlationary gap is created when
A) real GDP is greater than potential GDP.
B) real GDP equal to potential GDP.
C) the inlation rate is less than potential inlation.
D) the price level exceeds the equilibrium price level.
E) potential GDP is greater than real GDP.
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
86) The economy is at full employment. If aggregate demand increases,
A) an inlationary gap is created and the AS curve shifts leftward as the money wage rate
rises.
B) an inlationary gap is created and the AD curve shifts leftward.
C) an inlationary gap is created and potential GDP increases to close the gap.
D) a recessionary gap is created and the AS curve shifts leftward as the money wage rate
falls.
E) a recessionary gap is created and the AS curve shifts leftward as the money wage rate
rises.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
81
13.4 Chapter Figures
The igure above shows the aggregate supply curve and potential GDP.
1) Based on the igure above, the aggregate supply curve shifts rightward and the potential
GDP line does not change when
A) the money wage rate rises.
B) the price level rises.
C) the money wage rate falls.
D) the price level falls.
E) both the price level and money wage rate rise by the same proportion.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
82
2) If potential GDP increases, then in the igure above the potential GDP line ________, and
the aggregate supply curve ________.
A) shifts rightward; does not shift
B) does not shift; shifts rightward
C) shifts rightward; shifts rightward
D) shifts rightward; shifts leftward
E) does not shift; does not shift
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
3) If the money wage rate and the price level both rise by the same proportion, then in the
igure above the potential GDP line ________, and the aggregate supply curve ________.
A) shifts rightward; does not shift
B) does not shift; shifts rightward
C) shifts rightward; shifts rightward
D) shifts rightward; shifts leftward
E) does not shift; shifts leftward
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
83
The igure above shows the aggregate demand curve.
4) The aggregate demand curve in the igure above shifts rightward if
A) potential GDP increases.
B) the money wage rate falls.
C) taxes are hiked.
D) government expenditure decreases.
E) the expected future proit increases so that investment increases.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
5) The aggregate demand curve in the igure above shifts rightward if
A) potential GDP increases.
B) the money wage rate falls.
C) taxes are cut.
D) government expenditure decreases.
E) the Federal Reserve raises the interest rate.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
84
6) The aggregate demand curve in the igure above shifts rightward if
A) potential GDP increases.
B) the money wage rate falls.
C) taxes are raised.
D) government expenditure increases.
E) the Federal Reserve raises the interest rate.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
7) The aggregate demand curve in the igure above shifts rightward if
A) potential GDP increases.
B) the money wage rate falls.
C) taxes are raised.
D) government expenditure decreases.
E) the Federal Reserve lowers the interest rate.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
85
The igure above shows aggregate demand curves.
8) Based on the igure above, the aggregate demand curve will shift from AD0 to AD1 when
A) potential GDP increases.
B) the price level falls.
C) the price level rises.
D) government expenditure decreases.
E) the Federal Reserve lowers the interest rate.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
9) Based on the igure above, the aggregate demand curve will shift from AD0 to AD2 when
A) potential GDP increases.
B) the price level falls.
C) the price level rises.
D) government expenditure decreases.
E) the Federal Reserve lowers the interest rate.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
10) Based on the igure above, the aggregate demand curve will shift from AD0 to AD2
when
A) potential GDP increases.
B) the price level falls.
C) taxes are lowered.
86
D) government expenditure increases.
E) the Federal Reserve raises the interest rate.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
11) Based on the igure above, the aggregate demand curve will shift from AD0 to AD2
when
A) potential GDP increases.
B) the price level falls.
C) the price level rises.
D) government expenditure decreases.
E) taxes are lowered.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
13.5 Integrative Questions
1) An increase in the price level ________ the aggregate quantity supplied and ________ the
aggregate quantity demanded.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; decreases
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Relective thinking
87
2) The ________, the ________ is the quantity of real GDP supplied and the ________ is the
quantity of real GDP demanded.
A) lower the price level; greater; smaller
B) higher the price level; greater; smaller
C) greater the demand for labor; smaller; greater
D) lower the supply of labor; greater; smaller
E) lower aggregate demand; greater; smaller
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Relective thinking
3) The aggregate supply curve shifts
A) rightward if potential GDP decreases.
B) rightward if the money wage rate falls.
C) rightward if the money wage rate rises.
D) leftward if potential GDP increases.
E) leftward if the aggregate demand curve shifts leftward.
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
4) During the late 1960s, U.S. defense spending increased as the United States fought in
Vietnam. This increase in government expenditure on goods and services most likely
created
A) a recessionary gap.
B) an inlationary gap.
C) a decrease in aggregate supply.
D) a decrease in aggregate demand because consumers' expenditures decreased.
E) an increase in potential GDP.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
88
5) A recession in the rest of the world means U.S.
A) aggregate supply decreases.
B) aggregate demand decreases.
C) potential GDP decreases.
D) exports increase.
E) potential GDP increases.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Relective thinking
6) ________ increases potential GDP.
A) A decrease in the money wage rate
B) A recessionary gap
C) A recession
D) An increase in the amount of human capital
E) An increase in aggregate demand
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Relective thinking
7) Unemployment increases when
A) an inlationary gap is created.
B) potential GDP increases.
C) the government decreases its expenditure on goods and services.
D) aggregate demand increases.
E) aggregate supply increases.
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Relective thinking
89
8) In the late 1920s, the U.S. economy experienced a decrease in investment, which
perhaps triggered the Great Depression. The decrease in investment
A) increased aggregate supply.
B) decreased aggregate supply.
C) increased aggregate demand.
D) decreased aggregate demand.
E) increased potential GDP.
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Analytical thinking
9) When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP,
the economy is sufering from ________, and the government policy to eliminate this gap will
________ real GDP and ________ the price level.
A) an inlationary gap; increase; increase
B) a recessionary gap; decrease; decrease
C) an inlationary gap; increase; decrease
D) a recessionary gap; increase; decrease
E) an inlationary gap; decrease; decrease
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Analytical thinking
10) When the macroeconomic equilibrium is such that real GDP is less than potential real
GDP, the economy is sufering from ________, and the government policy to eliminate this
gap will ________ real GDP and ________ the price level.
A) a recessionary gap; decrease; decrease
B) an inlationary gap; increase; decrease
C) a recessionary gap; increase; increase
D) an inlationary gap; decrease; increase
E) a recessionary gap; decrease; increase
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Analytical thinking
90
