978-1259723223 Test Bank TBChap032 Part 8

Diffic ult y: 02 Medium

264.

Refer to the accompanying figure. The massive increase in government spending during

World War II moved the economy in the span of a few short years from mass unemployment

and price stability to “overfull” employment. This situation can be best illustrated in the

figure as a

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Topic: Changes in Equilibrium

Type: Graph

265.

Refer to the figure. If the economy is operating at full employment when its aggregate

demand curve is AD2, then a further increase in consumption and investment spending will

cause

266.

A decrease in aggregate supply means

267.

Cost-push inflation is characterized by a(n)

268.

With cost-push inflation in the short run, there will be

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Test Bank: II

Topic: Changes in Equilibrium

269.

The economy experiences an increase in the price level and a decrease in real domestic

output. Which of the following is a likely explanation?

270.

The economy experiences an increase in the price level and an increase in real

domestic output. Which is a likely explanation?

271.

The economy experiences a decrease in the price level and an increase in real domestic

output. Which is a likely explanation?

272.

Refer to the graph. If aggregate supply shifts from AS1 to AS2, then the price level will

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pull inflation, cost-push inflation, and recession.

Test Bank: II

Topic: Changes in Equilibrium

Type: Graph

273.

Refer to the graph. When output increases from Q1 and the price level decreases from P1,

this change will

274.

Refer to the graph. A shift from AS1 to AS2 would be consistent with what economic event

in U.S. history?

275.

The U.S. economy was able to achieve full employment with relative price level

stability between 1996 and 2000 because

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C.

aggregate demand increased and aggregate supply increased.

D. aggregate demand decreased and aggregate supply increased.

276.

Deflation refers to a situation where

277.

Disinflation refers to a situation where

278.

Aggregate demand decreases and real output falls but the price level remains the same.

Which of the following factors most likely contributes to downward price inflexibility in the

immediate short run?

279.

Collective bargaining agreements that prohibit wage cuts for the duration of the

contract contribute to

280.

Menu costs will

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Blooms: Understand

Diffic ult y: 02 Medium

Learning Objective: 32-06 Describe how the AD-AS model explains periods of demand-

pull inflation, cost-push inflation, and recession.

Test Bank: II

Topic: Changes in Equilibrium

281.

Wage contracts, efficiency wages, and the minimum wage are explanations for why

282.

In the mid-1970s, changes in oil prices greatly affected U.S. inflation. When oil prices

rose, the U.S. experienced

283.

The so-called ratchet effect refers to the characteristic in the economy where product

prices, wages, and per-unit production cost are flexible when

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B.

AD increases but not when AD decreases.

C.

AS increases but not when AS decreases.

D.

AD shifts but not when AS shifts.

284.

Refer to the graph. The ratchet effect would suggest that

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Learning Objective: 32-06 Describe how the AD-AS model explains periods of demand-

pull inflation, cost-push inflation, and recession.

Test Bank: II

Topic: Changes in Equilibrium

Type: Graph

285.

Government actions that were taken in order to stimulate the economy during the Great

Recession of 2007–09 included the following, except

286.

Which of the following is not a reason why the stimulus package that the government

implemented during the Great Recession of 2007–09 did not have as strong an impact on

GDP

and unemployment as expected?

True / False Questions

287.

The aggregate demand curve shows that when the price level rises, the quantity of real