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100. For an oil-importing country such as the United States, the immediate effect of a supply shock caused
by an increase in the price of imported oil would tend to be
a.
an increase in real output and a decrease in the general level of prices.
b.
a decrease in real output and an increase in the general level of prices.
c.
a decrease in both the general level of prices and real output.
d.
an increase in both the general level of prices and real output.
101. Which of the following will most likely result from an unanticipated decrease in aggregate supply due
to unfavorable weather conditions in agricultural areas?
a.
a decrease in inflation
b.
a decrease in unemployment
c.
a decrease in the general level of prices
d.
an increase in the general level of prices
102. How will an increase in the world price of crude oil influence the economy of an oil-importing country
such as the United States?
a.
Aggregate supply will decrease, leading to a decrease in real GDP.
b.
Aggregate supply will increase, leading to an increase in real GDP.
c.
Aggregate supply will increase, leading to an increase in prices and smaller GDP.
d.
A change in the price of an imported good will not affect the domestic economy of an
oil-importing country.
103. An increase in the general level of prices in the goods and services market that is accompanied by a
short-run reduction in real GDP is most likely caused by
a.
an unanticipated decrease in aggregate demand.
b.
an unanticipated increase in aggregate demand.
c.
a favorable supply shock that shifts SRAS to the right.
d.
an unfavorable supply shock that shifts SRAS to the left.
104. If the general level of prices is higher than business decision makers anticipated when they entered
into long-term contracts for raw materials and other resources, which of the following is most likely to
occur?
a.
a recession
b.
output less than the economy's long-run potential
c.
a sharp reduction in imports
d.
an unemployment rate that is less than the economy's natural rate of unemployment
105. Which of the following is most likely to result in a temporary spurt in the growth of real output that
cannot be maintained in the long run?
a.
an anticipated increase in aggregate demand
b.
an unanticipated increase in aggregate demand
c.
an increase in long-run aggregate supply (LRAS)
d.
an increase in resource prices relative to product prices
106. In the aggregate demand/aggregate supply model, when the output of an economy is less than its
long-run potential, the economy will experience
a.
declining real wages and interest rates that will stimulate employment and real output.
b.
rising interest rates that will stimulate aggregate demand and restore full employment.
c.
a budget surplus that will stimulate demand and, thereby, help restore full employment.
d.
rising real wages and real interest rates that will restore equilibrium at a higher price level.
107. Within the AD/AS model, an unanticipated increase in short-run aggregate supply will cause real
output to
a.
increase and the general level of prices to fall.
b.
decrease and the general level of prices to rise.
c.
increase and the general level of prices to rise.
d.
decrease and the general level of prices to fall.
108. Which of the following is most likely to throw an economy into a recession?
a.
a reduction in the real interest rate
b.
an unanticipated increase in short-run aggregate supply
c.
an unanticipated increase in aggregate demand
d.
an unanticipated reduction in aggregate demand
109. When an economy is experiencing an economic boom and operating beyond its long-run capacity,
a.
strong demand for investment funds will push interest rates upward.
b.
weak demand for resources will push the prices of resources downward.
c.
weak demand for investment funds will cause the real interest rate to decline.
d.
the unemployment rate will be greater than its natural rate.
110. When an economy is in a recession,
a.
strong demand for investment funds will push interest rates upward.
b.
strong demand for resources will push the prices of resources upward.
c.
the real interest rate will tend to rise.
d.
the unemployment rate will rise above its natural rate.
111. If an unanticipated reduction in aggregate demand throws a market economy into a recession,
a.
market forces will cause the economy to spiral downward and a lengthy period of
depressed conditions is the expected result.
b.
lower real resource prices and interest rates will act as a stabilizing force and direct the
economy back to its full employment potential.
c.
higher real resource prices and interest rates will help to direct a market economy back to
its full employment potential.
d.
the natural rate of unemployment will rise until it is once again equal to the actual rate of
unemployment.
112. The stability of consumption over the business cycle and the ability of changes in the real interest rate
to redirect aggregate demand indicate that
a.
government policy can improve the performance of the economy.
b.
market economies are inherently unstable.
c.
a market economy has a self-correcting mechanism that will help guide it toward full
employment.
d.
recessions will be lengthy, and high rates of unemployment will persist for a period of
time even after the economy recovers.
113. Which of the following will most likely occur as the result of an unanticipated increase in aggregate
demand that pushes output beyond long-run capacity?
a.
an increase in the natural rate of unemployment
b.
an increase in the real interest rate
c.
a decrease in the real interest rate
d.
a decrease in the general level of prices
114. Within the AD/AS model, if consumers increase their savings and cut back on their spending, the
a.
natural rate of unemployment will increase.
b.
real interest rate will decrease and, thereby, cushion the reduction in consumption
spending.
c.
real interest rate will increase because of the higher rate of saving.
d.
long-run aggregate supply will decrease to restore equilibrium.
115. When output is greater than the economy's long-run capacity, which of the following is most likely to
occur?
a.
a reduction in the general level of prices
b.
an abnormally high rate of unemployment
c.
increases in real interest rates and real resource prices
d.
a reduction in imports
116. If an economy operates at a short-run equilibrium output that exceeds its long-run capacity, which of
the following will be most likely to direct the economy toward full employment?
a.
Improvements in technology will shift the LRAS curve to the right.
b.
Resource prices will increase, causing the SRAS curve to shift to the left.
c.
The unemployment rate will increase, causing the economy's aggregate supply curve to
shift to the right.
d.
Interest rates will decline, shifting the aggregate demand curve to the right.
117. Which of the following adjustments will most likely occur when output exceeds the economy's
long-run capacity?
a.
Prices will decline, bringing actual output into balance with its potential.
b.
The natural rate of unemployment will increase and, thereby, restore equilibrium.
c.
Higher resource prices and costs will reduce short-run aggregate supply until output falls
to the economy's long-run capacity.
d.
Lower interest rates will increase the economy's long-run capacity and restore equilibrium.
118. When an economy is temporarily operating at an output that is beyond its full-employment rate,
a.
excess supply in resource markets will eventually lead to lower resource prices, which will
decrease costs and direct the economy toward full employment.
b.
excess demand in resource markets will lead to higher resource prices, which will increase
costs and direct the economy toward full employment.
c.
lower wages and prices will quickly restore full employment.
d.
only restrictive fiscal policy will direct the economy back to full employment.
119. When the output of an economy exceeds the economy's full-employment capacity,
a.
aggregate supply will increase until the economy can produce the output at the existing
price level.
b.
the actual rate of unemployment will be less than the natural rate.
c.
wage rates and resource prices will tend to fall.
d.
interest rates will decline and help direct the economy back to full employment.
120. Within the AD/AS model, which one of the following adjustments will cause the economy to return to
its long-run capacity when output is temporarily greater than the economy's long-run potential?
a.
Lower wage rates and resource prices reduce short-run aggregate supply.
b.
Lower interest rates increase aggregate demand and, thereby, stimulate output.
c.
Higher wage rates and resource prices reduce short-run aggregate supply.
d.
A decrease in prices reduces aggregate demand.
121. If the economy is operating at an output level beyond its full-employment capacity, which of the
following would most likely direct the economy back to long-run equilibrium?
a.
improvements in technology
b.
a decrease in the real rate of interest
c.
an increase in resource prices
d.
a decrease in resource prices
122. Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the
full-employment rate of output,
a.
the natural rate of unemployment will increase.
b.
long-run aggregate supply will increase.
c.
lower resource prices and declining interest rates will direct the economy back to full
employment.
d.
higher resource prices and rising interest rates will direct the economy back to full
employment.
123. If an unanticipated decrease in aggregate demand results in an output below the economy's long-run
capacity, long-run equilibrium will eventually be restored by
a.
an increase in the rate of inflation.
b.
lower resource prices and lower real interest rates.
c.
higher resource prices and higher real interest rates.
d.
a decrease in the natural rate of unemployment.
124. Which of the following would reduce the ability of the self-correcting mechanism to direct an
economy out of a recession quickly?
a.
a decrease in the real rate of interest
b.
resource prices that are inflexible in a downward direction
c.
an increase in aggregate demand
d.
a low level of savings
125. If a market economy has a self-correcting mechanism, when output is lower than potential or
full-employment output,
a.
changes will occur that will automatically guide the economy back to full employment.
b.
resource prices will increase.
c.
prolonged unemployment such as was experienced during the Great Depression will
occur.
d.
the economy will fall into a more severe recession.
126. The economic boom between 2002 and 2006 was primarily a result of
a.
a reduction in stock prices along with rising oil prices.
b.
a sharp reduction in the real price of resources and wages.
c.
an increase in both housing and stock prices.
d.
an increase in both resource prices and interest rates.
127. What impact did the change in housing prices during 2002 to 2005 have within the framework of the
AD/AS model?
a.
Declining housing prices reduced aggregate demand shifting AD leftward.
b.
Rising housing prices increased aggregate demand shifting AD rightward.
c.
Rising housing prices led to increased construction shifting LRAS leftward.
d.
Declining housing prices caused SRAS to shift leftward.
128. What impact did the soaring oil prices of 2007 and the first half of 2008 have on the economy?
a.
They increased SRAS, causing real output and employment to increase.
b.
They reduced SRAS, causing real output and employment to increase.
c.
They increased SRAS, causing real output and employment to decline.
d.
They reduced SRAS, causing real output and employment to decline.
129. Which of the following contributed to the crisis of 2008?
a.
a doubling of the price of imported oil during 2007-2008
b.
a sharp increase in the price of housing during 2008
c.
inclement weather in 2008
d.
falling resource prices and a reduction in the cost of production
130. During an economic expansion, housing and stock prices generally
a.
fall, leading to a reduction in aggregate demand.
b.
fall, leading to an increase in aggregate demand.
c.
rise, leading to a reduction in aggregate demand.
d.
rise, leading to an increase in aggregate demand.
131. Which of the following contributed to the sharp economic downturn during 2008?
a.
rising housing and stock prices
b.
falling housing and stock prices
c.
rising housing prices but falling stock prices
d.
falling housing prices but rising stock prices
132. Which of the following was a contributing factor to the instability of 2002 to 2008?
a.
ideal weather from 2002 to 2006, followed by a severe drought in 2007 and 2008
b.
falling housing prices leading to an expansion, followed by rising housing prices leading to
a sharp economic downturn
c.
an increase in housing prices leading to an expansion, followed by a collapse in housing
prices and a sharp economic downturn
d.
falling stock prices leading to an expansion, followed by rising stock prices leading to a
sharp economic downturn
Use the figure below to answer the following question(s).
Figure 10-1
133. At which point in Figure 10-1 is the economy at long-run equilibrium?
a.
A
b.
B
c.
C
d.
D
134. At which point in Figure 10-1 is the economy experiencing an economic boom?
a.
A
b.
B
c.
C
d.
D
135. At which point in Figure 10-1 is the economy experiencing an economic recession?
a.
A
b.
B
c.
C
d.
D
Use the figure below to answer the following question(s).
Figure 10-2
136. At which point in Figure 10-2 is the economy at long-run equilibrium?
a.
J
b.
F
c.
G
d.
H
137. At which point in Figure 10-2 is the economy experiencing an economic boom?
a.
G
b.
I
c.
F
d.
H
138. At which point in Figure 10-2 is the economy experiencing an economic recession?
a.
J
b.
I
c.
F
d.
H
Figure 10-3
139. Starting from long-run equilibrium at point A in Figure 10-3, at which of the following points would
short-run equilibrium occur immediately following an unanticipated increase in stock prices?
a.
A
b.
B
c.
C
d.
D
Use the figure below to answer the following question(s).
Figure 10-4
140. Starting from long-run equilibrium at point F in Figure 10-4, at which of the following points would
short-run equilibrium occur following a drought in the Midwestern states?
a.
I
b.
F
c.
G
d.
H
141. Starting from long-run equilibrium at point F in Figure 10-4, at which of the following points would
short-run equilibrium occur following a decrease in resource prices?
a.
I
b.
F
c.
G
d.
H
Use the figure below to answer the following question(s).
Figure 10-5
142. Figure 10-5 indicates that the output of the economy is
a.
greater than the economy's long-run capacity.
b.
equal to the economy's long-run capacity.
c.
less than the economy's long-run capacity.
d.
consistent with long-run equilibrium.
143. Given the aggregate demand and aggregate supply conditions depicted in Figure 10-5, which of the
following is the most likely occurrence?
a.
an increase in resource prices that will stimulate aggregate demand and direct the economy
to long-run equilibrium
b.
a decrease in resource prices that will reduce costs and shift SRAS to the right, directing
the economy to long-run equilibrium
c.
a continuation of this price level and output in the long run
d.
a shift in LRAS to the left as the result of an increase in the expected inflation rate
Use the figure below to answer the following question(s).
Figure 10-6
144. Given the aggregate demand and aggregate supply curves for the economy depicted in Figure 10-6, the
economy's current output and price level are
a.
output y1 and price level P2.
b.
output y2 and price level P1.
c.
output y1 and price level P3.
d.
output y2 and price level P3.
145. In the short-run equilibrium depicted in Figure 10-6, the economy's output is
a.
equal to potential GDP.
b.
less than potential GDP.
c.
greater than potential GDP.
d.
equal to the economy's full-employment output.
Use the figure below to answer the following question(s).
Figure 10-7
146. Given the aggregate demand and aggregate supply curves for the economy depicted in Figure 10-7, the
economy's output and price level are
a.
output y1 and price level P1.
b.
output y2 and price level P2
c.
output y1 and price level P3.
d.
output y2 and price level P1.
147. At what output level would the actual rate of unemployment equal the economy's natural rate of
unemployment in Figure 10-7?
a.
y1
b.
y2
c.
at any output greater than y2
d.
at any output less than y1
Use the figure below to answer the following question(s).
Figure 10-8
148. The economy depicted in Figure 10-8 is in
a.
short-run equilibrium at less than the full-employment output level.
b.
short-run equilibrium at an output level beyond full employment.
c.
long-run equilibrium at point a.
d.
long-run equilibrium at point b.
149. If the economy were operating at point a in Figure 10-8, the real rate of interest would tend to
a.
decrease and move the economy toward point c.
b.
decrease and move the economy toward point b.
c.
increase and move the economy toward point c.
d.
increase and move the economy toward point b.
Use the figure below to answer the following question(s).
Figure 10-9
150. The output of the economy depicted in Figure 10-9 is
a.
equal to the full-employment output level.
b.
less than the full-employment output level.
c.
greater than the full-employment output level.
d.
sustainable in the long run.
151. Currently, the economy depicted in Figure 10-9 is in
a.
long-run equilibrium at point b.
b.
short-run equilibrium at point c.
c.
long-run equilibrium at point a.
d.
short-run equilibrium at point a.
152. If the economy were operating at point a in Figure 10-9, resource prices would tend to
a.
decrease and move the economy toward point c.
b.
decrease and move the economy toward point b.
c.
increase and move the economy toward point c.
d.
increase and move the economy toward point b.
Use the figure below to answer the following question(s).
Figure 10-10
153. Figure 10-10 indicates the output of the economy, y1, is
a.
less than the economy's long-run capacity.
b.
equal to the economy's long-run capacity.
c.
greater than the economy's long-run capacity.
d.
unattainable, even in the short run.
154. Given the aggregate demand and aggregate supply conditions depicted in Figure 10-10, which of the
following will tend to occur?
a.
an increase in resource prices, which will shift SRAS to the left
b.
a decrease in resource prices, which will shift SRAS to the left
c.
an increase in the real rate of interest, which will shift aggregate demand to the left
d.
a decrease in the real rate of interest, which will shift aggregate demand to the left
e.
Both b and c are correct.
Use the figure below to answer the following question(s).
Figure 10-11
