1. If output is above its natural rate, then according to sticky-wage theory
a.
workers and firms will strike bargains for lower wages. In response to the lower wages firms will produce less
at any given price level.
b.
workers and firms will strike bargains for lower wages. In response to the lower wages firms will produce
more at any given price level.
c.
workers will strike bargains for higher wages. In response to the higher wages firms will produce less at any
given price level.
d.
workers and firms will strike bargains for higher wages. In response to the higher wages firms will produce
more at any given price level.
2. The price level rises in the short run if
a.
aggregate demand or aggregate supply shifts right.
b.
aggregate demand shifts right or aggregate supply shifts left.
c.
aggregate demand shifts left or aggregate supply shifts right.
d.
aggregate demand or aggregate supply shifts right.
3. If aggregate demand shifts left, then in the short run
a.
b.
c.
d.
4. Which of the following would cause prices and real GDP to rise in the short run?
a.
short-run aggregate supply shifts right
b.
short-run aggregate supply shifts left
c.
aggregate demand shifts right
d.
aggregate demand shifts left
5. Which of the following would cause prices to fall and output to rise in the short run?
a.
short-run aggregate supply shifts right
b.
short-run aggregate supply shifts left
c.
aggregate demand shifts right
d.
aggregate demand shifts left
6. Which of the following would cause prices and real GDP to rise in the short run?
a.
an increase in the expected price level
b.
an increase in the money supply
c.
a decrease in the capital stock
d.
an increase in taxes.
7. If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level
a.
and output are higher than in the original long-run equilibrium.
b.
and output are lower than in the original long-run equilibrium.
c.
is lower and output is the same as the original long-run equilibrium.
d.
is the same and output is lower than in the original long-run equilibrium.
8. Recessions in Canada and Mexico would cause
a.
the U.S. price level and real GDP to rise.
b.
the U.S. price level and real GDP to fall.
c.
the U.S. price level to rise and real GDP to fall.
d.
the U.S. price level to fall and real GDP to rise.
9. Economic expansions in Europe and China would cause
a.
the U.S. price level and real GDP to rise.
b.
the U.S. price level and real GDP to fall.
c.
the U.S. price level to rise and real GDP to fall.
d.
the U.S. price level to fall and real GDP to rise.
10. In which case can we be sure that real GDP and the price level rise in the short run?
a.
foreign economies expand and taxes increase.
b.
foreign economies expand and taxes decrease.
c.
foreign economies contract and taxes decrease.
d.
foreign economies contract and taxes increase.
11. In which case can we be sure real GDP rises in the short run?
a.
foreign economies expand and government purchases rise.
b.
foreign economies expand and government purchases fall.
c.
foreign economies contract and government purchases fall.
d.
foreign economies contract and government purchases rise.
12. In which case can we be sure real GDP rises in the short run?
a.
government purchases increase and taxes rise.
b.
government purchases increase and taxes fall.
c.
government purchases decrease and taxes rise.
d.
government purchases decrease and taxes fall.
13. If the government repeals an investment tax credit and increases income taxes,
a.
real GDP rises, and the price level could rise, fall, or stay the same.
b.
real GDP falls, and the price level could rise, fall, or stay the same.
c.
real GDP and the price level rise.
d.
real GDP and the price level fall.
14. An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level
a.
falls, shifting aggregate demand right.
b.
rises, shifting aggregate demand left.
c.
falls, shifting aggregate supply right.
d.
rises, shifting aggregate supply left.
15. If aggregate demand shifts right then in the short run
a.
firms will increase production. In the long run increased price expectations shift the short-run aggregate supply
curve to the right.
b.
firms will increase production. In the long run increased price expectations shift the short-run aggregate supply
curve to the left.
c.
firms will decrease production. In the long run increased price expectations shift the short-run aggregate
supply curve to the right.
d.
firms will decrease production. In the long run increased price expectations shift the short-run aggregate
supply curve to the left.
16. An economic expansion caused by a shift in aggregate demand causes prices to
a.
rise in the short run, and rise even more in the long run.
b.
rise in the short run, and fall back to their original level in the long run.
c.
fall in the short run, and fall even more in the long run.
d.
fall in the short run, and rise back to their original level in the long run.
Consider the exhibit below for the following questions.
Figure 33-4
17. Refer to Figure 33-4. A decrease in taxes would move the economy from C to
a.
B in the short run and the long run.
b.
D in the short run and the long run.
c.
B in the short run and A in the long run.
d.
D in the short run and C in the long run.
18. Refer to Figure 33-4. If the economy starts at A, a decrease in the money supply moves the economy
a.
to A in the long run.
b.
to C in the long run.
c.
back to A in the long run.
d.
to D in the long run.
19. Refer to Figure 33-4. If the economy is at A and there is a fall in aggregate demand, in the short run the economy
a.
stays at A.
b.
moves to B.
c.
moves to C.
d.
moves to D.
20. Refer to Figure 33-4. If the economy starts at A and there is a fall in aggregate demand, the economy moves
a.
back to A in the long run.
b.
to B in the long run.
c.
to C in the long run.
d.
to D in the long run.
21. Refer to Figure 33-4. If the economy starts at A and moves to D in the short run, the economy
a.
moves to A in the long run.
b.
moves to B in the long run.
c.
moves to C in the long run.
d.
stays at D in the long run.
22. Refer to Figure 33-4. The economy would be moving to long-run equilibrium if it started at
a.
A and moved to B.
b.
C and moved to B.
c.
D and moved to C.
d.
None of the above is correct.
23. Refer to Figure 33-4. If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would
move the economy from
a.
A to B.
b.
C to D.
c.
B to A.
d.
D to C.
24. Refer to Figure 33-4. In the short run, a favorable shift in aggregate supply would move the economy from
a.
A to B.
b.
B to C.
c.
C to D.
d.
D to A.
Figure 33–5.
25. Refer to Figure 33–5. The appearance of the long-run aggregate-supply (LRAS) curve
a.
is consistent with the concept of monetary neutrality.
b.
is consistent with the idea that point A represents a long-run equilibrium and a short-run equilibrium when the
relevant short-run aggregate-supply curve is SRAS1.
c.
indicates that Y1 is the natural rate of output.
d.
All of the above are correct.
26. Refer to Figure 33–5. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2
a.
could be caused by an outbreak of war in the Middle East.
b.
could be caused by a decrease in the expected price level.
c.
causes the economy to experience an increase in the unemployment rate.
d.
causes the economy to experience stagflation.
27. Refer to Figure 33–5. In Figure 33–5,
a.
Point B represents a short-run equilibrium and a long-run equilibrium.
b.
Point B represents a short-run equilibrium, and Point A represents a long-run equilibrium.
c.
Point B represents a long-run equilibrium, and Point A represents a short-run equilibrium.
d.
Point B represents a long-run equilibrium, and Point C represents a short-run equilibrium.
28. Refer to Figure 33–5. Starting from point B and assuming that aggregate demand is held constant, in the long run the
economy is likely to experience
a.
a falling price level and a falling level of output, as the economy moves to point C.
b.
a falling price level and a rising level of output, as the economy moves to point A.
c.
a rising price level and a falling level of output, as the economy moves to point A.
d.
a rising price level and a rising level of output, as the economy moves to point C.
Figure 33–6.
29. Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a recession?
a.
LRAS1
b.
LRAS2
c.
LRAS3
d.
Both LRAS1 and LRAS3
30. Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a short-run economic
expansion?
a.
LRAS1
b.
LRAS2
c.
LRAS3
d.
Both LRAS1 and LRAS3
Figure 33–7.
31. Refer to Figure 33-7. If the economy starts at Y, then a recession occurs at
a.
V.
b.
W.
c.
X.
d.
Z.
32. Refer to Figure 33-7. Suppose the economy starts at Y. If aggregate demand increases from AD2 to AD3, then the
economy moves to
a.
V.
b.
W.
c.
X.
d.
Z.
33. Refer to Figure 33-7. Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy
moves to
a.
V in the long run.
b.
W in the long run.
c.
X in the long run.
d.
Z in the long run.
The Stock Market Boom of 2015
Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for
some time.
34. Refer to Stock Market Boom 2015. Which curve shifts and in which direction?
a.
aggregate demand shifts right
b.
aggregate demand shifts left
c.
aggregate supply shifts right
d.
aggregate supply shifts left.
35. Refer to Stock Market Boom 2015. In the short run what happens to the price level and real GDP?
a.
b.
c.
d.
36. Refer to Stock Market Boom 2015. What happens to the expected price level and what impact does this have on
wage bargaining?
a.
The expected price level falls. Bargains are struck for higher wages.
b.
The expected price level falls. Bargains are struck for lower wages.
c.
The expected price level rises. Bargains are struck for higher wages.
d.
The expected price level rises. Bargains are struck for lower wages.
37. Refer to Stock Market Boom 2015. In the long run, the change in price expectations created by the stock market
boom shifts
a.
long-run aggregate supply right.
b.
long-run aggregate supply left.
c.
short-run aggregate supply right.
d.
short-run aggregate supply left.
38. Refer to Stock Market Boom 2015. How is the new long-run equilibrium different from the original one?
a.
the price level and real GDP are higher
b.
the price level and real GDP are lower.
c.
the price level is higher and real GDP is the same.
d.
the price level is the same and real GDP is higher.
Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and
increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
39. Refer to Optimism. Which curve shifts and in which direction?
a.
aggregate demand shifts right
b.
aggregate demand shifts left
c.
aggregate supply shifts right.
d.
aggregate supply shifts left.
40. Refer to Optimism. In the short run what happens to the price level and real GDP?
a.
b.
c.
d.
41. Refer to Optimism. What happens to the expected price level and what’s the result for wage bargaining?
a.
The expected price level falls. Bargains are struck for higher wages.
b.
The expected price level falls. Bargains are struck for lower wages.
c.
The expected price level rises. Bargains are struck for higher wages.
d.
The expected price level rises. Bargains are struck for lower wages.
42. Refer to Optimism. In the long run, the change in price expectations created by optimism shifts
a.
long-run aggregate supply right.
b.
long-run aggregate supply left.
c.
short-run aggregate supply right.
d.
short-run aggregate supply left.
43. Refer to Optimism. How is the new long-run equilibrium different from the original one?
a.
both price and real GDP are higher
b.
both price and real GDP are lower.
c.
the price level is the same and GDP is higher.
d.
the price level is higher and real GDP is the same.
Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of
confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some
time.
44. Refer to Pessimism. Which curve shifts and in which direction?
a.
aggregate demand shifts right
b.
aggregate demand shifts left
c.
aggregate supply shifts right.
d.
aggregate supply shifts left.
45. Refer to Pessimism. In the short run what happens to the price level and real GDP?
a.
Both the price level and real GDP rise.
b.
Both the price level and real GDP fall.
c.
The price level rises and real GDP falls.
d.
The price level falls and real GDP rises.
46. Refer to Pessimism. What happens to the expected price level and what’s the result for wage bargaining?
a.
The expected price level rises. Bargains are struck for higher wages.
b.
The expected price level rises. Bargains are struck for lower wages.
c.
The expected price level falls. Bargains are struck for higher wages.
d.
The expected price level falls. Bargains are struck for lower wages.
47. Refer to Pessimism. In the long run, the change in price expectations created by pessimism shifts
a.
long-run aggregate supply right.
b.
long-run aggregate supply left.
c.
short-run aggregate supply right.
d.
short-run aggregate supply left.
48. Refer to Pessimism. How is the new long-run equilibrium different from the original one?
a.
both price and real GDP are higher.
b.
both price and real GDP are lower.
c.
the price level is the same and GDP is lower.
d.
the price level is lower and real GDP is the same.
Financial Crisis
Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less
able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending
should remain depressed for some time.
49. Refer to Financial Crisis. What happens to the price level and real GDP in the short run?
a.
both the price level and real GDP rise
b.
the price level rises and real GDP falls
c.
the price level falls and real GDP rises
d.
both the price level and real GDP fall
50. Refer to Financial Crisis. If nominal wages are sticky, which of the following helps explains the change in output?
a.
real wages fall, so firms choose to produce less
b.
real wages fall, so firms choose to produce more
c.
real wages rise, so firms choose to produce less
d.
real wages rise, so firms choose to produce more
51. Refer to Financial Crisis. In the long run, if the Fed does not respond, the change in price expectations created by the
crisis shifts
a.
aggregate demand right.
b.
aggregate demand left.
c.
short-run aggregate supply right.
d.
short-run aggregate supply left.
52. Which of the following would increase the price level?
a.
an increase in the money supply.
b.
an increase in taxes.
c.
a decrease in the expected price level.
d.
a decrease in the natural rate of unemployment.
53. The long-run effect of an increase in household consumption is to raise
a.
both real output and the price level.
b.
real output and lower the price level.
c.
real output and leave the price level unchanged.
d.
the price level and leave real output unchanged.
54. Which of the following would increase output in the short run?
a.
an increase in stock prices makes people feel wealthier
b.
government spending increases
c.
firms chose to purchase more investment goods
d.
All of the above are correct.
55. Which of the following is a lesson concerning shifts in aggregate demand?
a.
they contribute to fluctuations in output.
b.
in the long-run they change real output, but not the price level.