155. In Figure 10-11, which of the following would most likely cause the movement from point E1 to point
E2?
a.
an increase in the expected inflation rate
b.
a decrease in the expected inflation rate
c.
a major technological advance
d.
a temporary reduction in oil prices
Figure 10-12
156. In Figure 10-12, which of the following would most likely cause the movement from point E1 to point
e2 for the United States?
a.
a severe drought in agricultural areas
b.
a major technological improvement
c.
business and consumer pessimism about the future direction of the economy
d.
a decrease in the expected inflation rate
Figure 10-13
157. In Figure 10-13, which of the following would most likely cause the movement from point e2 to point
E2?
a.
higher wages and resource prices
b.
lower interest rates
c.
an increase in aggregate demand
d.
a technological advance
Use the figure below to answer the following question(s).
Figure 10-14
158. The economy’s initial aggregate demand (AD0) and aggregate supply (SRAS0 and LRAS) curves are
illustrated in Figure 10-14. Which of the following is true?
a.
The profits of business firms are higher at I than J.
b.
H is a point of long-run equilibrium.
c.
Downward pressure on prices occurs at point G.
d.
Point F is consistent with long-run equilibrium.
159. At which of the following points in Figure 10-14 would short-run equilibrium occur immediately
following an adverse supply-side shock?
a.
F
b.
G
c.
H
d.
I
e.
J
Use the figure below to answer the following question(s).
Figure 10-15
160. The economy’s short-run (SRAS ) and long-run (LRAS) aggregate supply curves are shown in Figure
10-15, along with three alternative aggregate demand curves and the accompanying equilibrium
points. At which point will resource prices naturally tend to increase?
a.
A
b.
B
c.
C
d.
D
161. The economy’s short-run (SRAS ) and long-run (LRAS) aggregate supply curves are shown in Figure
10-15, along with three alternative aggregate demand curves and the accompanying equilibrium
points. At which point will resource prices naturally tend to decrease?
a.
A
b.
B
c.
C
d.
D
Use the figure below to answer the following question(s).
Figure 10-16
162. Suppose an economy is currently operating at output Y1 associated with AD1 and SRAS1, shown in
Figure 10-16. Initially, the output of this economy is
a.
above its potential, and the rate of unemployment is greater than the natural rate.
b.
below its potential, and the rate of unemployment is greater than the natural rate.
c.
above its potential, and the rate of unemployment is less than the natural rate.
d.
below its potential, and the rate of unemployment is less than the natural rate.
163. With the passage of time, which of the following will help direct this economy in Figure 10-16 toward
its potential long-run rate of output?
a.
lower interest rates that will stimulate AD and lower resource prices that will increase
SRAS
b.
higher interest rates that will reduce aggregate demand and higher resource prices that will
reduce SRAS
c.
lower interest rates and higher resource prices, both of which will stimulate aggregate
demand
d.
higher interest rates that will reduce SRAS and lower resource prices that will stimulate
aggregate demand
Use the figure below to answer the following question(s).
Figure 10-17
164. Suppose an economy is currently operating at output Y1 associated with AD1 and SRAS1, shown in
Figure 10-17. Initially, the output of this economy is
a.
above its potential, and the rate of unemployment is greater than the natural rate.
b.
below its potential, and the rate of unemployment is greater than the natural rate.
c.
above its potential, and the rate of unemployment is less than the natural rate.
d.
below its potential, and the rate of unemployment is less than the natural rate.
165. With the passage of time, which of the following will tend to direct this economy in Figure 10-17
toward its long-run sustainable rate of output?
a.
lower interest rates that will stimulate AD and lower resource prices that will increase
SRAS
b.
higher interest rates that will reduce aggregate demand and higher resource prices that will
reduce SRAS
c.
lower interest rates and higher resource prices, both of which will stimulate aggregate
demand
d.
higher interest rates that will reduce SRAS and lower resource prices that will stimulate
aggregate demand
Figure 10-18
166. As shown in Figure 10-18, and assuming the aggregate demand curve shifts from AD1 to AD2, the
full-employment level of real GDP is
a.
$10 billion.
b.
$4 billion.
c.
$100 billion.
d.
unable to be determined.
167. Based on Figure 10-18, when the aggregate demand curve is in the position AD1, the economy’s
position of long-run equilibrium corresponds to point
a.
E1.
b.
E2.
c.
E3.
d.
E1 or E2.
168. Given the shift of the aggregate demand curve from AD1 to AD2 in Figure 10-18, the real GDP and
price level (CPI) in long-run equilibrium will be
a.
$10 billion and 200.
b.
$4 billion and 150.
c.
$10 billion and 150.
d.
$10 billion and 100.
169. As shown in Figure 10-18, the economy’s point of short-run equilibrium, given by the shift of the
aggregate demand curve from AD1 to AD2, is
a.
E1.
b.
E2.
c.
E3.
d.
unable to be determined.
170. Beginning in Figure 10-18 from long-run equilibrium at point E1, the aggregate demand curve shifts to
AD2. The economy’s path to a new long-run equilibrium is represented by a movement from
a.
E3 to E1 to E2.
b.
E1 to E3 to E2.
c.
E2 to E1 to E2.
d.
E1 to E2 to E3.
171. Beginning from long-run equilibrium at point E1 in Figure 10-18, the aggregate demand curve shifts to
AD2. The real GDP and price level (CPI) in short-run equilibrium will be
a.
$10 billion and 200.
b.
$10 billion and 150.
c.
$10 billion and 100.
d.
$4 billion and 150.
172. Beginning from a point of short-run equilibrium at point E2 in Figure 10-18, the economy’s movement
to a new position of long-run equilibrium from that point would best be described as
a.
a movement along the AD2 curve with a shift in the SRAS1 curve to SRAS2.
b.
a movement along the SRAS2 curve with a shift in the AD2 curve.
c.
a shift in the LRAS curve to an intersection at E3.
d.
no shift of any kind.
173. If European economies experience strong economic growth, U.S. net exports will
a.
increase and AD will shift rightward.
b.
increase and AD will shift leftward.
c.
decrease and AD will shift leftward.
d.
decrease and AD will shift rightward.
174. Which of the following would be most likely to cause a reduction in current aggregate demand in the
United States?
a.
Increased business optimism about the future.
b.
The economies of key trading partners fall into a recession.
c.
A sharp increase in the value of stocks owned by Americans.
d.
An increase in the expected rate of inflation.
175. Which of the following will most likely cause an increase (shift to the right) in both the long-run and
short-run aggregate supply curves?
a.
an increase in the national debt
b.
an increase in income tax rates
c.
a decrease in the economy’s rate of investment and capital formation
d.
a technological improvement in robotics that substantially increases labor productivity
176. Which of the following will most likely occur in the short run when the long-run equilibrium of an
economy is disturbed by an unanticipated decrease in aggregate demand?
a.
a decrease in output and a higher price level
b.
an increase in output and a higher price level
c.
a decrease in output and a lower price level
d.
an increase in output while prices remain unchanged
177. A rise in the price of oil would be most likely to cause which of the following in the United States?
a.
an economic boom
b.
an economic slowdown or recession
c.
a decrease in the general level of prices
d.
an increase in aggregate demand
178. 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.
179. 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.
180. If a market economy was in a recession, which of the following would help direct it back toward the
full employment rate of output?
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
181. Which of the following will cause an increase in aggregate demand within the AS/AD model?
a.
a decrease in prices
b.
a decrease in the real interest rate
c.
a decrease in consumer optimism as measured by the consumer sentiment index
d.
a decrease in foreign incomes abroad
182. Starting from long-run equilibrium at point A, which of the following points would occur immediately
following an unanticipated decrease in stock prices?
a.
A
b.
B
c.
C
d.
D
183. Which is most likely to cause a temporary spurt in the growth of GDP that cannot be maintained in the
long run?
a.
An unanticipated increase in aggregate demand.
b.
An anticipated increase in aggregate demand.
c.
An increase in long run aggregate supply (LRAS).
d.
An increase in wage rates
184. If the general level of prices is lower 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.
An economic boom.
b.
Highly attractive profit margins.
c.
An actual rate of unemployment that is greater than the natural rate of unemployment
d.
A sharp increase in imports.
185. With regard to the business cycle, most modern economists believe that
a.
once a recession starts, market forces are incapable of preventing the economy from
plunging deeper and deeper into a depression.
b.
market economies will experience lengthy periods of recession pretty much regardless of
what policy makers do.
c.
the economy’s self-corrective mechanism will quickly restore full employment regardless
of the choices made by policy makers.
d.
lower real interest rates and reductions in real resource prices will help direct an economy
out of recession.
186. During an economic contraction, 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.
187. During the crisis of 2008 housing prices ________ and stock prices ________. (Fill in the blank)
a.
rose sharply; fell sharply
b.
fell sharply; rose sharply
c.
fell sharply; fell sharply
d.
rose sharply; rose sharply
ESSAY
188. Explain how each of the following factors would influence aggregate demand in the United States. Be
sure to explain which component of aggregate demand would be affected.
a.
a stock market crash
b.
an increase in the personal income tax rate
c.
a decrease in the real interest rate
d.
an increase in government purchases
e.
a decline in income in Canada
demand, to decline.
lowering consumption and aggregate demand.
business purchases of investment goods, causing aggregate demand to increase.
d.
An increase in government purchases would directly increase aggregate demand.
189. Show the short-run impact of the following factors on GDP using a graph of the aggregate goods and
services market. Assume the economy was originally in long-run equilibrium.
a.
a stock market crash
b.
a decrease in the real interest rate
c.
a flood that destroys most agricultural crops
d.
a decrease in resource prices
e.
an increase in the labor force
f.
an increase in the expected inflation rate
both real GDP and prices in the short run.
decrease in real GDP in the short run.
in prices and an increase in real GDP in the short run.
real GDP in the short run.
190. Construct a graph of the aggregate goods and services market for an economy experiencing the
following.
a.
a recession
b.
full employment
c.
an economic boom
full-employment level.
191. Which will cause a larger short-run increase in prices: an anticipated or unanticipated increase in
aggregate demand? Will they cause the same increase in prices in the long run?
192. Suppose there is an unexpected increase in real interest rates. Using the AD/AS model, describe the
effects of this policy in the long run and the short run, assuming everything else equal.
193. For the following changes in the economy, indicate whether short-run aggregate supply or long-run
aggregate supply will be affected. Indicate the direction of the change.
a.
an improvement in manufacturing technology
b.
an increase in the world price of antimony (a chemical that the U.S. imports)
c.
a bumper potato crop in the southern “potato belt”
a.
Both long-run and short-run aggregate supply will increase.
b.
Short-run aggregate supply will decrease.
c.
Short-run aggregate supply will increase.
194. How does the self-correcting mechanism act to pull the economy out of a recession?