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1. Which of the following is not a determinant of the long-run level of real GDP?
a.
the price level.
b.
the amount of capital used by firms.
c.
available stock of human capital.
d.
available technology
2. The long-run aggregate supply curve
a.
is vertical.
b.
is a graphical representation of the classical dichotomy.
c.
indicates monetary neutrality in the long run.
d.
All of the above are correct.
3. The classical dichotomy and monetary neutrality are represented graphically by
a.
an upward-sloping long-run aggregate-supply curve.
b.
a vertical long-run aggregate-supply curve.
c.
an upward-sloping short-run aggregate-curve.
d.
a downward-sloping aggregate-demand curve.
4. Which of the following is correct?
a.
The short-run, but not the long-run, aggregate supply curve is consistent with the idea that nominal variables
do not affect real variables.
b.
The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables
do not affect real variables.
c.
The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real
variables.
d.
Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables
affect real variables.
5. The position of the long-run aggregate supply curve
a.
is determined by resource usage and technology.
b.
is at the point where the unemployment rate is zero.
c.
shifts to the right when the money supply increases.
d.
is at the point where the economy would cease to grow.
6. Refer to Figure 33-3. The natural rate of output occurs at
a.
Y1.
b.
Y2.
c.
Y3.
d.
both Y1 and Y3.
7. The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a
long-run change
a.
in the price level and output.
b.
in the price level, but not output.
c.
in output, but not the price level.
d.
in neither the price level nor output.
8. The long-run aggregate supply curve would shift left if the amount of labor available
a.
increased or Congress made a substantial increase in the minimum wage.
b.
decreased or Congress abolished the minimum wage.
c.
increased or Congress abolished the minimum wage.
d.
decreased or Congress made a substantial increase in the minimum wage.
9. The long-run aggregate supply curve shifts right if
a.
immigration from abroad increases.
b.
the capital stock increases.
c.
technology advances.
d.
All of the above are correct.
10. The long-run aggregate supply curve shifts left if
a.
the capital stock increases.
b.
there is a natural disaster.
c.
the government removes some environmental regulations that limit production methods.
d.
None of the above is correct.
11. Which of the following shifts long-run aggregate supply right?
a.
an increase in either technology or the human capital stock.
b.
an increase in human capital but not technology.
c.
an increase in technology, but not the human capital stock.
d.
neither an increase in technology nor the human capital stock.
12. The discovery of a large amount of previously-undiscovered oil in the U.S. would shift
a.
the long-run aggregate-supply curve to the right.
b.
the long-run aggregate-supply curve to the left.
c.
the aggregate-demand curve to the left.
d.
None of the above is correct.
13. The long-run aggregate supply curve would shift right if the government were to
a.
reduce the minimum-wage.
b.
make unemployment benefits more generous.
c.
raise taxes on investment spending.
d.
All of the above are correct.
14. Which of the following shifts the long-run aggregate supply curve to the left?
a.
either an increase in the price of imported natural resources or a reduction in trade restrictions.
b.
neither an increase in the price of imported natural resources or a reduction in trade restrictions.
c.
an increase in the price of imported natural resources and an increase in trade restrictions.
d.
an increase in trade restrictions and a decrease in the price of imported natural resources.
15. In countries that have high minimum wages and require a lengthy and costly process to get permission to open a
business
a.
Reducing either the minimum wage or the time and cost to open a business would have no effect on the long-
run aggregate supply curve.
b.
Reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate
supply curve to the right.
c.
Reducing the minimum wage would shift long-run aggregate supply to the right. Reducing the time and cost to
open a business would have no affect on the long-run aggregate supply curve.
d.
Reducing the minimum wage would have no affect on the long-run aggregate supply curve. Reducing the time
and cost to open a business would shift the long-run aggregate supply curve to the right.
16. The long-run aggregate supply curve shifts right if
a.
technology improves.
b.
the price level decreases.
c.
the money supply increases.
d.
All of the above are correct.
17. The long-run aggregate supply curve shifts right if
a.
the price level rises.
b.
the price level falls.
c.
the capital stock increases.
d.
the capital stock decreases.
18. Which of the following shifts the long-run aggregate supply curve to the right?
a.
both an increase in the capital stock and technological improvements
b.
an increase in the capital stock but not technological improvements
c.
an increase in the capital stock but not technological improvements
d.
neither an increase in the capital stock nor an technological improvements
19. The long-run aggregate supply curve shifts right if
a.
either immigration from abroad increases or technology improves.
b.
immigration from abroad increases, but not if technology improves.
c.
technology improves, but not if immigration from abroad increases.
d.
None of the above are correct.
20. Which of the following would shift the long-run aggregate supply curve right?
a.
both an increase in the capital stock and an increase in the price level
b.
an increase in the capital stock, but not an increase in the price level
c.
an increase in the money supply, but not an increase in the capital stock
d.
neither an increase in the money supply nor an increase in the capital stock
21. Which of the following would shift long-run aggregate supply to the right?
a.
increased immigration from abroad
b.
a decrease in the price of an imported natural resource
c.
opening the economy to international trade
d.
All of the above are correct.
22. A candidate for political office announces the following policies which, she says, economics clearly demonstrates will
lead to higher output in the long run: 1. increase immigration from abroad 2. make trade more open between the US and
other countries.
a.
1 and 2 both shift long-run aggregate supply right.
b.
1 and 2 both shift long-run aggregate supply left.
c.
1 shifts long-run aggregate supply right, 2 shifts long-run aggregate supply left.
d.
1 shifts long-run aggregate supply left, 2 shifts long-run aggregate supply right.
23. Other things the same, if the long-run aggregate supply curve shifts right, prices
a.
and output both increase.
b.
and output both decrease.
c.
increase and output decreases.
d.
decrease and output increases.
24. Other things the same, if the long-run aggregate supply curve shifts left, prices
a.
and output both increase.
b.
and output both decrease.
c.
increase and output decreases.
d.
decrease and output increases.
25. Other things the same, if technology increases, then in the long run
a.
both output and prices are higher.
b.
output is higher and prices are lower.
c.
output is lower and prices are higher.
d.
both output and prices are lower.
26. Which of the following, other things the same, would make the price level decrease and real GDP increase?
a.
long-run aggregate supply shifts right
b.
long-run aggregate supply shifts left
c.
aggregate demand shifts right
d.
aggregate demand shifts left
27. According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads
to
a.
decreases in both the price level and real GDP.
b.
an increase in real GDP and an increase in the price level.
c.
a decrease in the price level but does not change real GDP.
d.
an increase in the price level but does not change real GDP.
28. In the long run, an increase in the stock of human capital
a.
and increases in the money supply both make the price level rise.
b.
and increases in the money supply both make the price level fall.
c.
makes the price level rise, while increases in the money supply make prices fall.
d.
makes the price level fall, while increases in the money supply make prices rise.
29. Other things the same, continued increases in technology lead to
a.
continued increases in the price level and real GDP.
b.
continued decreases in the price level and real GDP.
c.
continued increases in real GDP and continued increases in the price level.
d.
continued increases in real GDP and continued decreases in the price level.
30. Other things the same, continued increases in the money supply lead to
a.
continued increases in the price level and real GDP.
b.
continued increases in the price level but not continued increases in real GDP.
c.
continued increases in real GDP but not continued increases in the price level.
d.
a one-time permanent increase in both prices and real GDP.
31. Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP
growth and inflation can be explained by
a.
continuing technological progress alone.
b.
continuing increases in the money supply alone.
c.
continued technological progress and continuing increases in the money supply.
d.
None of the above can explain continuing real GDP growth and inflation.
32. Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. To
explain this
a.
it is only necessary that long-run aggregate supply shifts right over time.
b.
it is only necessary that aggregate demand shifts right over time.
c.
both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must be
shifting farther.
d.
None of the above cases would produce rising prices and growing real GDP over time.
33. Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. This
can be explained
a.
only by technological progress.
b.
only by money supply growth.
c.
by technological progress and money supply growth.
d.
None of the above is correct.
34. Other things the same, continued technological progress and continued increases in the money supply would
unambiguously lead to
a.
rising prices only.
b.
rising real GDP only.
c.
rising prices and rising real GDP.
d.
neither rising prices nor rising real GDP.
35. The aggregate supply curve is upward sloping in
a.
the short and long run.
b.
neither the short nor long run.
c.
the long run, but not the short run.
d.
the short run, but not the long run.
36. The aggregate supply curve is
a.
vertical in the long run and slopes upward in the short run.
b.
upward sloping in the long run and vertical in the short run.
c.
vertical in the short run and in the long run.
d.
upward sloping in the short run and in the long run.
37. Wages tend to be sticky
a.
because of contracts, social norms, and notions of fairness.
b.
because of contracts, but not social norms or notions of fairness.
c.
because of social norms and notions of fairness, but not contracts.
d.
None of the above are correct.
38. The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than
expected,
a.
production is more profitable and employment rises.
b.
production is more profitable and employment falls.
c.
production is less profitable and employment rises.
d.
production is less profitable and employment falls.
39. The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,
a.
production is more profitable and employment rises.
b.
production is more profitable and employment falls.
c.
production is less profitable and employment rises.
d.
production is less profitable and employment falls.
40. The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,
a.
relative to prices wages are higher and employment rise.
b.
relative to prices wages are higher and employment falls.
c.
relative to prices wages are lower and employment rises.
d.
relative to prices wages are lower and employment falls.
41. Sticky nominal wages can result in
a.
lower profits for firms when the price level is lower than expected.
b.
a decrease in real wages when the price level is lower than expected.
c.
a short-run aggregate-supply curve that is vertical.
d.
a long-run aggregate-supply curve that is upward-sloping.
42. The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will
increase if
a.
the price level is higher than expected making production more profitable.
b.
the price level is higher than expected making production less profitable.
c.
the price level is lower than expected making production more profitable.
d.
the price level is higher than expected making production less profitable.
43. If the price level rises above what was expected and nominal wages are fixed, then
a.
production becomes less profitable so firms will hire fewer workers.
b.
production becomes less profitable so firms will hire more workers.
c.
production becomes more profitable so firms will hire fewer workers.
d.
production becomes more profitable so firms will hire more workers.
44. If wages are sticky, then a greater than expected increase in the price level
a.
raises the real costs of production, so the short-run aggregate supply curve shifts left.
b.
raises the real costs of production, so the aggregate quantity of goods and services declines.
c.
reduces the real costs of production, so the short-run aggregate supply curve shifts right.
d.
reduces the real costs of production, so the aggregate quantity of goods and services rises.
45. Which of the following can explain the upward slope of the short-run aggregate supply curve?
a.
nominal wages are slow to adjust to changing economic conditions
b.
as the price level falls, the exchange rate falls
c.
an increase in the money supply lowers the interest rate
d.
an increase in the interest rate increases investment spending
46. Other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, then
a.
employment and production rise.
b.
employment rises and production falls.
c.
employment falls and production rises.
d.
employment and production fall.
47. Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then
a.
employment and production rise.
b.
employment rises and production falls.
c.
employment falls and production rises.
d.
employment and production fall.
48. Other things the same, if prices fell when firms and workers were expecting them to rise, then
a.
employment and production would rise.
b.
employment would rise and production would fall.
c.
employment would fall and production would rise.
d.
employment and production would fall.
49. If there are sticky wages, and the price level is greater than what was expected, then
