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c.
policymakers are unable to mitigate the severity of economic fluctuations.
d.
All of the above are correct.
56. Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase
in aggregate demand causes price expectations to
a.
rise. This rise in price expectations shifts the short-run aggregate supply curve to the right.
b.
rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.
c.
fall. This fall in price expectations shifts the short-run aggregate supply curve to the right.
d.
fall. This fall in price expectations shifts the short-run aggregate supply curve to the left.
57. Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the
following helps explain the logic of why the economy moves back to long-run equilibrium?
a.
as people revise their price-level expectations upward, firms and workers strike bargains for higher nominal
wages.
b.
as people revise their price-level expectations upward, firms and workers strike bargains for lower nominal
wages.
c.
as people revise their price-level expectations downward, firms and workers strike bargains for higher nominal
wages.
d.
as people revise their price-level expectations downward, firms and workers strike bargains for lower nominal
wages.
58. If output is above its natural rate, then according to sticky-wage theory
a.
workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate
supply curve right.
b.
workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate
supply curve left.
c.
workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate
supply curve right.
d.
workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate
supply curve left.
59. In the early 1930s in the United States, there was a
a.
large increase in output. In the early 1940s there was also a large increase in output.
b.
large increase in output. In the early 1940s there was a large decrease in output.
c.
large decrease in output. In the early 1940s there was a large increase in output.
d.
large decrease in output. In the early 1940s there was also a large decrease in output.
60. Which of the following has been suggested as a cause of the Great Depression?
a.
a decline in the money supply
b.
a decrease in stock prices
c.
the collapse of the banking system
d.
All of the above are correct.
61. Which of the following did not happen during the onset of the Great Depression?
a.
The money supply fell as households took money out of bank deposits.
b.
The Fed conducted expansionary monetary policy.
c.
Stock prices fell about 90 percent.
d.
Disruption of the banking system made it difficult for some firms to obtain funds for investment.
62. In the first few years of the Great Depression, unemployment rose to about
a.
10 percent, and prices rose about 14 percent.
b.
15 percent, and prices rose about 22 percent.
c.
20 percent, and prices fell about 14 percent.
d.
25 percent, and prices fell about 22 percent.
63. Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset
of the Great Depression?
a.
aggregate demand shifted right
b.
aggregate demand shifted left
c.
aggregate supply shifted right
d.
aggregate supply shifted left
64. Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened
to the price level and output, what would have had to happen to aggregate demand?
a.
It would have to have shifted left by less than aggregate supply.
b.
It would have to have shifted left by more than aggregate supply.
c.
It would have to have shifted right by less than aggregate supply.
d.
It would have to have shifted right by more than aggregate supply.
65. During World War II,
a.
government purchases of goods and services increased fivefold.
b.
the economy's production increased about 25 percent.
c.
unemployment fell to about 5%.
d.
All of the above are correct.
66. During World War II, the economy's production increased about
a.
25 percent and prices rose about 5 percent.
b.
50 percent and prices rose about 10 percent.
c.
75 percent and prices rose about 15 percent.
d.
100 percent and prices rose about 20 percent.
67. Which of the following alone can explain the change in the price level and output during World War II?
a.
aggregate demand shifted right
b.
aggregate demand shifted left
c.
aggregate supply shifted right
d.
aggregate supply shifted left
68. Suppose that during World War II the long-run aggregate supply curve shifted right. In order for price and output to
have changed in the direction they did, what would have to have happened to aggregate demand?
a.
It would have to have shifted left by less than aggregate supply shifted
b.
It would have to have to shifted left by more than aggregate supply shifted.
c.
It would have to have shifted right by less than aggregate supply shifted
d.
It would have to have to shifted right by more than aggregate supply shifted.
69. The economic boom of the early 1940s resulted mostly from
a.
increased government expenditures.
b.
falling prices of oil and other natural resources.
c.
an increase in the growth rate of the money supply.
d.
rapid developments in transportation, electronics, and communication.
70. Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic
contraction caused by a shift in aggregate supply could use policy to shift
a.
aggregate supply to the right.
b.
aggregate supply to the left.
c.
aggregate demand to the right.
d.
aggregate demand to the left.
71. Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient
speed and precision, they can offset the initial shift by shifting
a.
aggregate supply right.
b.
aggregate supply left.
c.
aggregate demand right.
d.
aggregate demand left.
72. When production costs rise,
a.
the short-run aggregate supply curve shifts to the right.
b.
the short-run aggregate supply curve shifts to the left.
c.
the aggregate demand curve shifts to the right.
d.
the aggregate demand curve shifts to the left.
73. In the short-run an increase in the costs of production makes
a.
output and prices rise.
b.
output rise and prices fall.
c.
output fall and prices rise.
d.
output and prices fall.
74. Which of the following shifts short-run aggregate supply left?
a.
an increase in price expectations
b.
an increase in the actual price level
c.
a decrease in the money supply
d.
a decrease in the price of oil
75. A decrease in the availability of an important major resource such as oil shifts
a.
aggregate supply right.
b.
aggregate supply left.
c.
aggregate demand right.
d.
aggregate demand left.
76. If there are floods or droughts or a decrease in the availability of raw materials
a.
aggregate supply shifts right.
b.
output falls in the short run.
c.
prices fall in the short run.
d.
None of the above is correct.
77. An increase in the price level and a reduction in output would result from
a.
a fall in stock prices.
b.
a decrease in the supply of an important resource.
c.
an increase in government expenditures.
d.
an increase in taxes.
78. An increase in the price level and a reduction in output would result from
a.
an increase in the money supply.
b.
an increase in government expenditures.
c.
a fall in stock prices.
d.
bad weather in farm states.
79. Stagflation exists when prices
a.
rise and unemployment falls.
b.
rise and unemployment rises.
c.
fall and unemployment rises.
d.
fall and unemployment falls.
80. Which of the following would cause stagflation?
a.
aggregate demand shifts right
b.
aggregate demand shifts left
c.
aggregate supply shifts right
d.
aggregate supply shifts left
81. Which of the following would cause stagflation?
a.
rising government expenditures
b.
rising oil prices
c.
a falling money supply
d.
technical progress
Figure 33-8.
82. Refer to Figure 33-8. Suppose the economy starts at Z. If changes occur that move the economy to a new short run
equilibrium of P1 and Y1 , then it must be the case that
a.
short run aggregate supply has decreased.
b.
short run aggregate supply has increased.
c.
aggregate demand has increased.
d.
aggregate demand has decreased.
83. Refer to Figure 33-8. Suppose the economy starts at Z. If changes occur that move the economy to a new short run
equilibrium of P3 and Y3 , then it must be the case that
a.
short run aggregate supply has decreased.
b.
short run aggregate supply has increased.
c.
aggregate demand has increased.
d.
aggregate demand has decreased.
84. Refer to Figure 33-8. Suppose the economy starts at Z. Stagflation would be consistent with the move to
a.
P1 and Y1 .
b.
P1 and Y3 .
c.
P3 and Y1 .
d.
P3 and Y3 .
Figure 33-9.
85. Refer to Figure 33-9. Suppose the economy starts where LRAS = AD1 = SRAS1. A decrease in short-run aggregate
supply would be consistent with the movement to
a.
P1, Y1.
b.
P2, Y1.
c.
P1, Y2.
d.
P3, Y2.
Figure 33-10.
86. Refer to Figure 33-10. If the economy starts at point A, a short-run fall in output would be consistent with a
movement to point
a.
A.
b.
B.
c.
C.
d.
D.
87. Refer to Figure 33-10. If the economy starts at point C, stagflation would be consistent with point
a.
A.
b.
B.
c.
C.
d.
D.
