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True / False
1. According to classical macroeconomic theory, changes in the money supply change nominal but not real variables.
a.
True
b.
False
2. According to classical macroeconomic theory, changes in the money supply change real GDP but not the price level.
a.
True
b.
False
3. Because economists understand what things change GDP, they can predict recessions with a fair amount of accuracy.
a.
True
b.
False
4. Recessions occur at irregular intervals and are almost impossible to predict with much accuracy.
a.
True
b.
False
5. The recessions associated with the business cycle come at regular intervals.
a.
True
b.
False
6. Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together.
a.
True
b.
False
7. Like real GDP, investment fluctuates, but it fluctuates much less than real GDP.
a.
True
b.
False
8. When output rises, unemployment falls.
a.
True
b.
False
9. An increase in the money supply causes output to rise in the long run.
a.
True
b.
False
10. Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their
real values.
a.
True
b.
False
11. Most economists believe that classical theory describes the world in the short run but not in the long run.
a.
True
b.
False
12. A change in the money supply changes only nominal variables in the long run.
a.
True
b.
False
13. Most economist agree that money changes real GDP in both the short and long run.
a.
True
b.
False
14. The explanations for the slopes of the aggregate demand and short-run aggregate supply curves are the same as the
explanations for the slopes of demand and supply curves for specific goods and services.
a.
True
b.
False
15. The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the
government, and customers abroad want to buy at each price level.
a.
True
b.
False
16. The aggregate demand and aggregate supply model helps us to understand both short-run economic fluctuations and
how the economy moves from the short to the long run.
a.
True
b.
False
17. A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the
aggregate demand curve slopes downward.
a.
True
b.
False
18. The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.
a.
True
b.
False
19. Other things the same, a decrease in the price level makes the interest rate decrease, which leads to a depreciation of
the dollar in the market for foreign-currency exchange.
a.
True
b.
False
20. Other things the same, as the price level falls, the exchange rate rises. A rise in the exchange rate leads to a decrease in
net exports.
a.
True
b.
False
21. The exchange-rate effect is the idea that a higher U.S. price level causes the value of the dollar to increase in foreign
exchange markets, and this effect contributes to the downward slope of the aggregate-demand curve.
a.
True
b.
False
22. The downward slope of the aggregate demand curve is based on logic that as the price level rises, consumption,
investment, and net exports all fall.
a.
True
b.
False
23. Aggregate demand shifts to the left if the money supply increases.
a.
True
b.
False
24. A decrease in the money supply causes the interest rate to rise so that investment falls.
a.
True
b.
False
25. An increase in the money supply causes the interest rate to fall, investment spending to rise, and aggregate demand to
shift right.
a.
True
b.
False
26. If speculators bid up the value of the dollar in the market for foreign-currency exchange, U.S. aggregate demand
would shift to the left.
a.
True
b.
False
27. The effect of a change in the value of the dollar in the foreign exchange market due to a change in the price level helps
explain the slope of aggregate demand, but does not shift it. The effects of a change in the value of the dollar in the
foreign exchange market due to speculation is shown by shifting the aggregate demand curve.
a.
True
b.
False
28. An increase in the money supply shifts the long-run aggregate supply curve to the right.
a.
True
b.
False
29. Technological progress shifts the long-run aggregate supply curve to the right.
a.
True
b.
False
30. Other things the same, technological progress raises the price level.
a.
True
b.
False
31. Because the price level does not affect the long-run determinants of real GDP, the long-run aggregate-supply is
vertical.
a.
True
b.
False
32. We can explain continued increases in both output and the price level by supposing that only aggregate demand
shifted right over time.
a.
True
b.
False
33. If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some
firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the
quantity of goods and services they produce.
a.
True
b.
False
34. When the price level rises unexpectedly, some businesses may mistake part of the increase for an increase in the price
of their product relative to others and so decrease their production.
a.
True
b.
False
35. All explanations for the upward slope of the short-run aggregate supply curve suppose that the quantity of output
supplied increases when the actual price level exceeds the expected price level.
a.
True
b.
False
36. The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that wages are sticky
in the short run.
a.
True
b.
False
37. An increase in the expected price level shifts the short-run aggregate supply curve to the right.
a.
True
b.
False
38. An increase in the actual price level does not shift the short-run aggregate supply curve, but an expected increase in
the price level shifts the short-run aggregate supply curve to the left.
a.
True
b.
False
39. Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.
a.
True
b.
False
40. Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending
which shifts the aggregate-demand curve to the left.
a.
True
b.
False
41. Increased optimism about the future leads to rising prices and falling unemployment in the short run.
a.
True
b.
False
42. In response to a decrease in output, the economy would revert to its original level of prices and output whether the
decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.
a.
True
b.
False
43. If aggregate demand shifts right, then eventually price level expectations rise. The increase in price level expectations
causes the short-run aggregate-supply curve to shift to the left.
a.
True
b.
False
44. If aggregate demand shifts right, then eventually price level expectations rise. This increase in price level expectations
causes the aggregate demand curve to shift to the left back to its original position.
a.
True
b.
False
45. If aggregate demand and aggregate supply both shift right, we can be sure that the price level is higher in the short run.
a.
True
b.
False
46. In the long-run, an increase in aggregate demand increases the price level, but not real GDP.
a.
True
b.
False
47. Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate
supply left.
a.
True
b.
False
48. The primary purpose of the aggregate demand and aggregate supply model is to demonstrate the classical dichotomy.
a.
True
b.
False
49. Increased output and prices in the United States in the early 1940s were mostly the result of increased government
expenditures.
a.
True
b.
False
50. During World War II government expenditures increased almost five-fold and output almost doubled.
a.
True
b.
False
51. The recession of 2008-2009 was in many ways the worst macroeconomic event in more than half a century.
a.
True
b.
False
52. The recession of 2008-2009 was associated with a fall in housing prices which shifted aggregate demand to the left.
a.
True
b.
False
53. Policymakers who influence aggregate demand can potentially mitigate the severity of economic fluctuations.
a.
True
b.
False
54. Stagflation results from continued decreases in aggregate demand.
a.
True
b.
False
55. If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment
would return towards its natural rate, but prices would rise even more.
a.
True
b.
False
56. John Maynard Keynes advocated policies that would increase aggregate demand as a way to decrease unemployment
caused by recessions.
a.
True
b.
False
57. The theory of short-run economic fluctuations is uncontroversial.
a.
True
b.
False
58. The model of aggregate demand and aggregate supply is nothing more than a large version of the model of market
demand and market supply.
a.
True
b.
False
59. The term business cycle implies that economic fluctuations follow a regular, predictable pattern.
a.
True
b.
False
60. A change in the supply of labor, all else remaining the same, will shift the short-run aggregate-supply curve.
a.
True
b.
False
61. A decrease in the money supply will shift the long-run aggregate-supply curve to the left.
a.
True
b.
False
