Economics Chapter 10—Dynamic Change, Economic Fluctuations, and the AD-AS
Model
MULTIPLE CHOICE
1. Which of the following would be most likely to cause an increase in current aggregate demand in the
United States?
a.
increased fear that the U.S. economy was going into a recession
b.
an increase in the real interest rate
c.
sharp increase in the value of stocks owned by Americans
d.
a recession in Canada, Mexico, and Western Europe
2. Which of the following will most likely accompany an unanticipated increase in aggregate demand?
a.
an increase in real output
b.
an increase in unemployment
c.
a decrease in real GDP
d.
a decrease in the demand for resources
3. Which of the following reduced aggregate demand and thereby contributed to the crisis of 2008?
a.
a rise in the value of the U.S. dollar
b.
falling housing and stock prices
c.
an increase in the real rate of interest
d.
optimism about future economic conditions
4. 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.
an increase in the general level of prices
d.
an increase in the natural rate of unemployment
5. Which of the following will most likely increase aggregate supply in the long run?
a.
unfavorable weather conditions in agricultural areas
b.
an increase in the expected inflation rate
c.
higher real interest rates
d.
an increase in the rate of capital formation
6. From mid-year 2006 to year-end 2008, housing prices
a.
fell by approximately 30 percent, leading to a sharp reduction in aggregate demand.
b.
increased by approximately 30 percent leading to a sharp increase in aggregate demand.
c.
declined by a smaller about than in previous recessions.
d.
were unchanged, but a sharp decline in stock prices reduced aggregate demand.
7. An increase in the long-run aggregate supply curve indicates that
a.
the natural rate of unemployment has increased.
b.
unemployment has increased.
c.
the general level of prices has increased.
d.
potential real GDP has increased.
8. 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.
output less than the economy’s long-run potential
d.
a sharp increase in imports
9. When output is less than the economy’s long-run capacity, which of the following is most likely to
occur?
a.
an abnormally low rate of unemployment
b.
reductions in real interest rates and real resource prices
c.
a sharp increase in imports
d.
a government budget surplus
10. Suppose there was a sharp reduction in stock prices and a sharp increase in the world price of crude
oil. Within the framework of the AD/AS model, how would these two changes influence the U.S.
economy?
a.
The lower stock prices would increase SRAS, and the higher crude oil prices would reduce
AD; as a result, there would be downward pressure on the general level of prices.
b.
The lower stock prices would reduce SRAS, and the higher crude oil prices would increase
AD; as a result, there would be upward pressure on the general level of prices.
c.
The lower stock prices would increase AD, and the higher crude oil prices would increase
SRAS; as a result, output would tend to increase.
d.
The lower stock prices would reduce AD, and the higher crude oil prices would reduce
SRAS; as a result, output would tend to decline.
11. A recession abroad would
a.
increase U.S. net exports and increase aggregate demand.
b.
increase U.S. net exports and increase aggregate supply.
c.
reduce U.S. net exports and reduce aggregate demand.
d.
reduce U.S. net exports and increase aggregate demand.
12. If a country’s currency depreciates, which of the following will most likely happen?
a.
Net exports will fall and aggregate demand will increase.
b.
Net exports will rise and aggregate demand will increase.
c.
Net exports will fall and aggregate demand will decrease.
d.
Net exports will rise and aggregate demand will decrease.
13. If a country’s currency appreciates, which of the following will most likely happen?
a.
Net exports will fall and aggregate demand will increase.
b.
Net exports will rise and aggregate demand will increase.
c.
Net exports will fall and aggregate demand will decrease.
d.
Net exports will rise and aggregate demand will decrease.
14. If Asian economies suffer a serious economic slump, 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.
15. When the U.S. dollar appreciates,
a.
U.S. exports rise.
b.
U.S. imports decline.
c.
aggregate demand shifts leftward.
d.
aggregate demand shifts rightward.
16. A currency appreciation will be most likely to
a.
reduce net exports and therefore increase aggregate demand.
b.
raise net exports and therefore decrease aggregate demand.
c.
reduce net exports and therefore decrease aggregate demand.
d.
raise net exports and therefore increase aggregate demand.
17. Which of the following will lead to an increase in aggregate demand in the United States?
a.
a higher price level
b.
an increase in the real interest rate
c.
an increase in wealth due to a substantial appreciation in the value of stocks
d.
a decrease in real income in Japan and Western Europe
18. Which of the following factors would increase aggregate demand in the goods and services market?
a.
an decrease in stock prices
b.
an increase in the real interest rate
c.
a decrease in real incomes abroad
d.
increased optimism on the part of consumers and businesses
19. If a reduction in stock prices reduces the real wealth of Americans, the
a.
aggregate demand curve will shift to the left.
b.
long-run aggregate supply will shift to the left.
c.
general price level will increase.
d.
aggregate demand curve will shift to the right.
20. Which of the following will most likely increase aggregate demand?
a.
a decrease in stock market prices
b.
a lower real interest rate
c.
a decrease in the expected inflation rate
d.
a decrease in real GDP
21. Other things constant, an increase in the real interest rate will
a.
cause consumers to reduce their purchases of durable items like appliances and
automobiles.
b.
induce businesses to increase their level of investment.
c.
make borrowing money more attractive.
d.
increase the natural rate of unemployment.
22. Other things constant, a reduction in the real interest rate will
a.
cause consumers to cut back on their purchases of durable items like automobiles.
b.
induce businesses to increase their level of investment.
c.
increase the natural rate of unemployment.
d.
increase the actual rate of unemployment.
23. What would be the effect of a decrease in the real interest rate and an increase in the expected inflation
rate?
a.
Both changes would decrease aggregate demand.
b.
Both changes would increase aggregate demand.
c.
Both changes would increase short-run aggregate supply.
d.
Both changes would increase long-run aggregate supply.
24. Which of the following would be most likely to cause a reduction in current aggregate demand in the
United States?
a.
increased fear of a recession
b.
an increase in the expected rate of inflation
c.
a sharp increase in the value of stocks owned by Americans
d.
a rapid increase in the growth of income in Canada, Mexico, and Western Europe
25. Within the framework of the AD/AS model, if consumers and investors become more pessimistic
about the future direction of the economy, this will lead to
a.
an increase in aggregate demand.
b.
a decrease in aggregate demand.
c.
an increase in long-run aggregate supply (LRAS shifts to the right).
d.
a reduction in the natural rate of unemployment.
26. Within the AD/AS model, if consumers and investors become more optimistic about the future
direction of the economy,
a.
aggregate demand will decrease.
b.
aggregate demand will increase.
c.
long-run aggregate supply will increase.
d.
long-run aggregate supply will decrease.
27. An increase in the consumer sentiment index indicates that consumers are
a.
becoming more optimistic about their future income and employment prospects.
b.
becoming less optimistic about their future income and employment prospects.
c.
expecting the inflation rate to rise in the near future.
d.
expecting the inflation rate to fall in the near future.
28. If the consumer sentiment index turns down sharply over a period of several months, which of the
following is most likely to occur in the near future?
a.
an increase in aggregate demand and expansion in real output
b.
a reduction in aggregate demand and a contraction in real output
c.
a reduction in aggregate demand and expansion in real output
d.
an increase in aggregate demand and a contraction in real output
29. Which one of the following factors will most likely cause an increase in aggregate demand?
a.
an increase in the expected inflation rate
b.
an increase in the real interest rate
c.
a decrease in net exports due to falling incomes abroad
d.
a technological development that decreases the cost of producing computer chips
30. Which of the following would be most likely to cause an increase in current aggregate demand in the
United States?
a.
increased fear that the U.S. economy was going into a recession
b.
an increase in the real interest rate
c.
a reduction in the expected rate of inflation
d.
rapid growth of real income in Canada and Western Europe
31. If Europe and Japan experience rapid growth in their incomes, other things constant, this will cause
a.
a decrease in the exports of the United States.
b.
an increase in the exports of the United States.
c.
a decrease in the national income of the United States.
d.
a decrease in aggregate demand in the United States.
32. How would aggregate demand change if foreign incomes increase and the exchange rate value of the
dollar increases?
a.
Neither change would affect aggregate demand.
b.
The increase in income would decrease aggregate demand; the increase in the exchange
rate would increase aggregate demand.
c.
The increase in income would increase aggregate demand; the increase in the exchange
rate would decrease aggregate demand.
d.
Both changes would decrease aggregate demand.
33. Which of the following will lead to a decrease in aggregate demand in the United States?
a.
a higher price level
b.
a decrease in the real interest rate
c.
rapid growth in real income in Japan and Western Europe
d.
an increase in the exchange rate value of the dollar
34. An increase in the exchange rate value of the U.S. dollar, relative to the Japanese yen, will cause U.S.
imports from Japan to
a.
increase and exports to Japan to decrease.
b.
increase and exports to Japan to increase.
c.
decrease and exports to Japan to decrease.
d.
decrease and exports to Japan to increase.
35. If the exchange rate value of the dollar depreciates relative to other currencies, we would expect
a.
U.S. exports to decrease.
b.
U.S. exports to increase.
c.
U.S. imports to increase.
d.
aggregate demand in the United States to decrease.
36. Which of the following shifts both short-run and long-run aggregate supply to the left?
a.
a decrease in the actual rate of inflation
b.
a decrease in the expected rate of inflation
c.
a decrease in the capital stock
d.
a drought in the Midwest agricultural areas.
37. Which of the following shifts short-run, but not long-run aggregate supply to the right?
a.
a decrease in the actual rate of inflation
b.
a decrease in the expected rate of inflation
c.
a decrease in the capital stock
d.
a drought in the Midwest agricultural areas.
38. In the aggregate demand/aggregate supply model, an increase in a country’s sustainable potential
output is represented by
a.
an increase in aggregate demand.
b.
a decrease in aggregate demand.
c.
an increase in long-run aggregate supply.
d.
an increase in the general level of prices.
39. Which of the following will most likely cause an increase in the long-run aggregate supply curve?
a.
a reduction in the general level of prices
b.
an increase in the general level of prices
c.
an improvement in technology that substantially reduces the cost of generating energy
d.
an increase in taxes that makes it more expensive for Americans to import crude oil
40. Which of the following will most likely increase long-run aggregate supply?
a.
an increase in the rate of investment
b.
an increase in resource prices
c.
an increase in the minimum wage
d.
an increase in the expected inflation rate
41. If an improvement in the quality of education in the United States increases the productivity of labor,
this will
a.
increase aggregate demand and decrease aggregate supply.
b.
increase short-run aggregate supply and reduce aggregate demand.
c.
decrease aggregate demand and increase short-run aggregate supply.
d.
increase both long-run and short-run aggregate supply.
42. An improvement in technology would shift which of the following curve(s)?
a.
aggregate demand and short-run aggregate supply
b.
only the short-run aggregate supply
c.
only the aggregate demand
d.
short-run and long-run aggregate supply
43. Other things constant, an increase in resource prices will
a.
increase aggregate demand.
b.
decrease aggregate demand.
c.
decrease short-run aggregate supply.
d.
increase short-run aggregate supply.
44. Which of the following will most likely increase short-run aggregate supply?
a.
unfavorable weather conditions in the nation’s agricultural areas
b.
an increase in income tax rates
c.
an increase in the expected inflation rate
d.
a reduction in resource prices
45. If business decision makers expect that the inflation rate will increase in the near future,
a.
long-run aggregate supply will increase.
b.
long-run aggregate supply will decrease.
c.
short-run aggregate supply will increase.
d.
short-run aggregate supply will decrease.
46. A supply shock is a surprise occurrence that
a.
shifts the long-run aggregate supply curve to the right.
b.
either increases or decreases short-run aggregate supply and output.
c.
temporarily increases aggregate demand.
d.
temporarily reduces aggregate demand.
47. Which of the following is the best example of a supply shock?
a.
an increase in the availability of capital and machinery due to normal changes in business
investment
b.
a decrease in the productivity of the labor force due to a decline in the average educational
level of workers
c.
a decline in agricultural output due to a summer drought
d.
an increase in output as a result of an expansion in employment
48. An abnormally large grain crop due to highly favorable weather conditions in the Midwest is an
example of
a.
a technological improvement that will increase long-run aggregate supply.
b.
a supply shock that will increase short-run aggregate supply.
c.
an unexpected development that will reduce the natural rate of unemployment.
d.
an unexpected development that will lead to excess supply and widespread
unemployment.
49. A large grain crop resulting from favorable weather conditions would shift which of the following
curves?
a.
only aggregate demand
b.
aggregate demand and short-run aggregate supply
c.
only short-run aggregate supply
d.
only long-run aggregate supply
50. Suppose the economy is initially in long-run equilibrium and then it experiences a supply shock in the
form of sharply higher energy prices. Which of the following is true?
a.
The short-run aggregate supply curve shifts leftward and the long-run supply curve shifts
rightward.
b.
The short-run aggregate supply curve shifts rightward and there is a movement along the
aggregate demand curve.
c.
The short-run aggregate supply curve does not shift and the long-run aggregate supply
curve shifts rightward.
d.
The short-run aggregate supply curve shifts rightward but the long-run aggregate supply
curve does not shift.
e.
The short-run aggregate supply curve shifts leftward and there is a movement along the
aggregate demand curve.
51. Suppose the economy is in long-run equilibrium. In a short span of time, there is a large influx of
skilled immigrants, a major new discovery of oil, and a major new technological advance in electricity
production. In the short run, we would expect
a.
the price level to rise and real GDP to fall.
b.
the price level to fall and real GDP to rise.
c.
the price level and real GDP both to stay the same.
d.
All of the above are possible.
52. If the economy is simultaneously in long-run and short-run equilibrium, which of the following is
true?
a.
Aggregate quantity supplied is greater than potential output.
b.
Aggregate quantity demanded is less than potential output.
c.
Aggregate quantity demanded is equal to potential output.
d.
The aggregate demand curve is horizontal at the potential output level.
53. When economic growth (a gradual shift of LRAS to the right) expands the production possibilities of
an economy,
a.
a higher rate of real output can be achieved in the short run, but it cannot be sustained in
the long run.
b.
a larger output can be attained even if unemployment remains at its natural rate.
c.
the general level of prices will rise if the money supply is held constant.
d.
the equilibrium in the goods and services market will be disrupted.
54. Over the last 60 years, the average annual growth of real GDP in the United States has been
approximately
a.
1 percent.
b.
3 percent.
c.
5 percent.
d.
9 percent.
55. During the past 50 years, the production possibilities of the United States have expanded, increasing
both short-run and long-run aggregate supply. Other things constant, this would lead to
a.
an expansion in output and an increase in prices.
b.
an expansion in output and a decrease in prices.
c.
no change in either output or prices.
d.
no change in output and a decrease in prices.
56. An increase in capital formation that expands long-run aggregate supply will
a.
increase output and decrease prices.
b.
increase both output and prices.
c.
decrease both output and prices.
d.
decrease output and increase prices.
57. Within the AD/AS model, an increase in capital formation that permits the economy to achieve a
larger output will
a.
increase long-run aggregate supply.
b.
increase short-run aggregate supply, but long-run aggregate supply will be unaffected.
c.
increase aggregate demand.
d.
decrease aggregate demand.
58. When an economy experiences long-run economic growth, a larger output can be achieved
a.
only if there is a reduction in the natural rate of unemployment.
b.
only if the economy’s actual unemployment is less than the natural rate.
c.
if prices increase.
d.
even though unemployment remains at its natural rate.
59. 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 shift farther.
d.
None of the above cases would produce rising prices and growing real GDP over time.
60. 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
61. Which of the following would be most likely to shift the long-run aggregate supply curve (LRAS) to
the right?
a.
favorable weather conditions that increased the size of this year’s grain harvest
b.
an increase in resource prices relative to product prices
c.
an increase in labor productivity as the result of improved computer technology and
expansion of the Internet
d.
an increase in the cost of security as the result of terrorist activities
62. Suppose the economy is in long-run equilibrium. In a short span of time, there is a pessimistic revision
of expectations about future business conditions and an unexpected rise in the value of the dollar. In
the short run, we would expect
a.
the price level and real GDP both to rise.
b.
the price level and real GDP both to fall.
c.
the price level and real GDP both to stay the same.
d.
All of the above are possible.
63. The expected price level is important because
a.
it is the equilibrium price level in the short run
b.
it determines the actual price level in the short run
c.
it determines the actual price level in the long run
d.
firms and resource owners make long-term agreements based on the expected price level
64. The usual results of an adverse supply shock are
a.
a rise in prices and a fall in output.
b.
a fall in prices and a rise in output.
c.
increased growth and lower inflation.
d.
a rise in prices and a rise in output.
65. Suppose we observe an economy experiencing an economic expansion and high inflation. This means
the expansion is attributed to
a.
an anticipated increase in aggregate demand.
b.
an increase in long-run aggregate supply.
c.
an unanticipated decrease in aggregate demand.
d.
an unanticipated decrease in aggregate supply.
66. 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.
67. 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.
68. Which of the following would cause prices to rise and real GDP to fall in the short run?
a.
an increase in the expected price level
b.
an increase in the capital stock
c.
an increase in the quantity of labor available
d.
All of the above are correct.
69. An economic contraction 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.
70. Suppose the economy is initially in long-run equilibrium and aggregate demand rises. In the long run
prices
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.
are higher and output is the same as the original long-run equilibrium.
d.
are the same and output is lower than in the original long-run equilibrium.
71. If the U.S. price level increased relative to price levels in foreign countries, what would be the impact
on domestic aggregate supply and aggregate demand curves?
a.
the aggregate supply curve would shift outward and the aggregate demand curve would
remain unchanged
b.
the aggregate supply curve would shift inward and the aggregate demand curve would
remain unchanged
c.
the aggregate demand curve would shift outward and the aggregate supply curve would
remain unchanged
d.
the aggregate demand curve would shift inward and the aggregate supply curve would
remain unchanged
e.
the domestic aggregate demand and supply curves would remain unchanged
72. If the U.S. price level decreased relative to price levels in foreign countries, what would be the impact
on domestic aggregate supply and aggregate demand curves?
a.
the aggregate supply curve would shift outward and the aggregate demand curve would
remain unchanged
b.
the aggregate supply curve would shift inward and the aggregate demand curve would
remain unchanged
c.
the aggregate demand curve would shift outward and the aggregate supply curve would
remain unchanged
d.
the aggregate demand curve would shift inward and the aggregate supply curve would
remain unchanged
e.
the domestic aggregate demand and supply curves would remain unchanged
73. Suppose this year’s inflation rate is 4 percent, which is greater than the 2 percent everyone expected.
Which of the following is true?
a.
real GDP will increase
b.
the unemployment rate will probably rise
c.
potential output will remain the same
d.
the short-run aggregate supply curve will shift to the right
e.
there will be a leftward movement along a given short-run aggregate supply curve
74. The long-run equilibrium price level is the price level the economy is expected to reach when the
a.
economy produces its potential output
b.
Fed has stabilized interest rates
c.
federal budget is balanced
d.
discount rate equals the prime rate
e.
inflation rate is zero
75. The situation in which actual output exceeds potential output
a.
is impossible because all resources are employed to produce potential output
b.
is possible only in times of high unemployment
c.
is possible only if the unemployment rate is negative
d.
is possible only in the long run
e.
creates pressure for inflation
76. Under which of the following conditions will a change in government purchases have the greatest
effect on the economy in the short run?
a.
The aggregate demand curve is relatively flat.
b.
The aggregate demand curve is relatively steep.
c.
The short-run aggregate supply curve is relatively flat.
d.
The aggregate demand curve is vertical.
e.
The short-run aggregate supply curve is vertical.
77. Which of the following will most likely occur as the result of an unanticipated increase in aggregate
demand?
a.
an increase in output and a move to a higher price level
b.
an increase in prices and a long-run increase in output
c.
an increase in long-run aggregate supply (LRAS shifts to the right)
d.
a decrease in the natural rate of unemployment
78. Which of the following will most likely accompany an unanticipated increase in aggregate demand?
a.
a decrease in prices
b.
a decrease in resource prices
c.
a decrease in real GDP
d.
an increase in real GDP
79. An unanticipated decline in the real interest rate in the loanable funds market will cause the
a.
aggregate demand curve to shift to the right.
b.
aggregate demand curve to shift to the left.
c.
long-run aggregate supply curve to shift to the left.
d.
natural rate of unemployment to fall.
80. If there is an unanticipated increase in aggregate demand, which of the following is most likely to
occur?
a.
a reduction in the price level
b.
an increase in the rate of unemployment
c.
an increase in employment
d.
an expansion in the federal budget deficit
81. If the long-run equilibrium of an economy is disrupted by an unanticipated increase in aggregate
demand (such as might result from unexpectedly strong demand for exports due to the rapid growth of
incomes abroad),
a.
the price of resources will decrease.
b.
the natural rate of unemployment will decrease.
c.
actual unemployment will temporarily fall below the natural rate.
d.
prices will decrease.
82. When the economy is operating at an output beyond its full-employment potential, the
a.
actual level of unemployment will exceed the natural rate of unemployment.
b.
actual level of unemployment will equal the natural rate of unemployment.
c.
strong demand for resources will place upward pressure on resource prices.
d.
aggregate demand will increase until full employment is restored.
83. Which of the following will most likely occur in the United States as the result of an unexpected rapid
growth in real income in Canada and Mexico?
a.
an increase in aggregate demand and output in the short run
b.
an reduction in aggregate demand and output in the short run
c.
a reduction in the price level
d.
a decrease in the natural rate of unemployment in the United States
84. An increase in the general level of prices in the goods and services market that is accompanied by a
short-run expansion in output 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.
85. The short-run effect of a sudden increase in stock prices will be
a.
an increase in output and a decrease in prices.
b.
an increase in both output and prices.
c.
a decrease in both output and prices.
d.
a decrease in output and an increase in prices.
86. If an unanticipated increase in aggregate demand results in an output beyond the economy’s long-run
capacity, long-run equilibrium will eventually be restored by
a.
an increase in the economy’s productive capacity (LRAS shifts to the right).
b.
higher resource prices, an increase in SRAS, and a decrease in the general level of prices.
c.
higher resource prices, a decrease in SRAS, and an increase in the general level of prices.
d.
a decrease in the natural rate of unemployment.
87. Within the AD/AS model, how does an economy adjust to an output beyond its long-run capacity as a
result of an unanticipated increase in aggregate demand?
a.
Wage rates and resource prices will fall, causing a decrease in aggregate demand and the
restoration of equilibrium at a higher price level.
b.
Long-run aggregate supply will increase, leading to a new equilibrium at a lower price
level.
c.
Resource prices and real interest rates will rise causing output to fall back to its long-run
sustainable rate.
d.
Lower real interest rates will stimulate demand and restore equilibrium at the initial price
level.
88. Once decision makers fully adjust to an increase in the general price level,
a.
the actual rate of unemployment will exceed the natural rate of unemployment.
b.
the actual rate of unemployment will be less than the natural rate of unemployment.
c.
the rate of output will exceed the economy’s long-run capacity.
d.
output will return to the full-employment level.
89. Within the framework of the AD/AS model, in the long run, output
a.
will exceed the economy’s long-run capacity.
b.
will be less than the economy’s long-run capacity.
c.
will converge toward the economy’s long-run capacity.
d.
must equal approximately 95 percent of the economy’s long-run capacity.
90. How will an unanticipated decrease in aggregate demand influence equilibrium output in the goods
and services market?
a.
Output will increase, and the general level of prices will fall.
b.
Output will increase, and the general level of prices will rise.
c.
Output will decrease, and the general level of prices will rise.
d.
Output will decrease, and the general level of prices will fall.
91. Which of the following will most likely occur in the short run if long-run equilibrium 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
92. Which of the following will most likely accompany an unanticipated reduction in aggregate demand?
a.
an increase in the general price level
b.
an increase in unemployment
c.
an increase in real GDP
d.
an increase in resource prices
93. If there is an unanticipated decrease in aggregate demand, which of the following is most likely to
occur?
a.
an increase in the price level
b.
a reduction in employment
c.
an increase in the growth rate of real GDP
d.
an increase in consumption
94. When the economy is operating at an output rate less than full-employment capacity,
a.
a strong demand for resources will cause resource prices to rise.
b.
actual unemployment will be less than the natural rate of unemployment.
c.
the rate of inflation will tend to rise.
d.
weak demand for investment will place downward pressure on real interest rates.
95. When the economy is operating at an output rate below its full-employment level, the
a.
actual level of unemployment will exceed the natural rate of unemployment.
b.
current rate of output will tend to persist into the future.
c.
strong demand for resources will cause resource prices to rise.
d.
actual unemployment rate will be less than the natural rate of unemployment.
96. Which of the following will most likely accompany an unanticipated increase in short-run aggregate
supply?
a.
an increase in real GDP
b.
an increase in the general level of prices
c.
an increase in the actual rate of unemployment
d.
an increase in the natural rate of unemployment
97. Resource prices will fall and short-run aggregate supply will increase if
a.
current output exceeds the economy’s full-employment level.
b.
current output is less than the economy’s full-employment level.
c.
the actual rate of unemployment is less than the natural rate of unemployment.
d.
exports exceed imports.
98. During 2003-2007, the price of crude oil increased substantially on the world market. Other things
constant, how will an unanticipated increase in oil prices influence the general level of prices and real
output of oil-importing nations such as the United States and Japan?
a.
Both real output and the general level of prices will decrease.
b.
Both real output and the general level of prices will increase.
c.
Real output will increase, and the general level of prices will decrease.
d.
Real output will decrease, and the general level of prices will increase.
99. The short-run effects of a favorable supply shock will include
a.
an increase in the general level of prices and a decrease in real output.
b.
an increase in the general level of prices and an increase in real output.
c.
a decrease in the general level of prices and a decrease in real output.
d.
a decrease in the general level of prices and an increase in real output.