65)
If technological change occurs in the economy,
65)
A)
we will move up along the long–run aggregate supply curve.
B)
the long–run aggregate supply curve will shift to the left.
C)
we will move down along the long–run aggregate supply curve.
D)
the long–run aggregate supply curve will shift to the right.
Figure 14–1
66)
Refer to Figure 14–1. Suppose the economy is at point A. If investment spending increases in the
economy, where will the eventual long–run equilibrium be?
66)
A)
A
B)
B
C)
C
D)
D
Figure 14–2
67)
Refer to Figure 14–2. Given the economy is at point A in year 1, what is the inflation rate between
year 1 and year 2?
67)
A)
3.0%
B)
.9%
C)
1.8%
D)
2.7%
68)
Which of the following best describes the “wealth effect”?
68)
A)
When the price level falls, the real value of household wealth falls.
B)
When the price level falls, the nominal value of household wealth rises.
C)
When the price level falls, the nominal value of household wealth falls.
D)
When the price level falls, the real value of household wealth rises.
69)
An increase in the price level results in a(n) ________ in the quantity of real GDP demanded
because ________.
69)
A)
decrease; a higher price level increases consumption, investment, and net exports.
B)
decrease; a higher price level reduces consumption, investment, and net exports.
C)
increase; a higher price level increases consumption, investment, and net exports.
D)
increase; a higher price level reduces consumption, investment, and net exports.
70)
Workers expect inflation to rise from 3% to 5% next year. As a result this should
70)
A)
shift the short–run aggregate supply curve to the left.
B)
move the economy down along a stationary short–run aggregate supply curve.
C)
shift the short–run aggregate supply curve to the right.
D)
move the economy up along a stationary short–run aggregate supply curve.
71)
Short–run macroeconomic equilibrium occurs when
71)
A)
structural and frictional unemployment equals zero.
B)
aggregate demand and short–run aggregate supply intersect.
C)
the equilibrium lies on the long run supply curve.
D)
A and B
B
72)
Workers and firms both expect that prices will be 3% higher next year than they are this year. As a
result,
72)
A)
the purchasing power of wages will rise if wages increase by 3%.
B)
workers will be willing to take lower wages next year.
C)
aggregate demand will increase by 3%
D)
the short–run aggregate supply curve will shift to the left as wages increase.
D
73)
As labor productivity grew between 2002 and 2003, what was happening to employment?
73)
A)
Employment was growing at a faster pace than productivity.
B)
The natural rate of employment was maintained.
C)
Employment was growing, but productivity unemployment was rising.
D)
Employment grew less than labor productivity.
D
A
74)
The aggregate demand curve shows the relationship between the ________ and ________.
74)
A)
price level; quantity of real GDP demanded
B)
nominal interest rate; quantity of real GDP demanded
C)
inflation rate; quantity of real GDP demanded
D)
real interest rate: quantity of real GDP supplied
75)
Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium
in the short run?
75)
A)
Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of
GDP will rise.
B)
Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of
GDP will fall.
C)
Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of
GDP will fall.
D)
Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of
GDP will rise.
76)
Long–run macroeconomic equilibrium occurs when
76)
A)
structural and frictional unemployment equal zero.
B)
aggregate demand equals short run aggregate supply.
C)
output is above potential GDP.
D)
the aggregate demand curve intersects the short–run aggregate supply curve and both curves
intersect at a point on the long–run supply curve.
77)
According to the real business cycle model
77)
A)
increases in aggregate demand lower the price level.
B)
increases in aggregate demand do not affect GDP.
C)
increases in aggregate demand raise GDP.
D)
increases in aggregate demand lower GDP.
78)
If workers and firms have rational expectations, they form their expectations using
78)
A)
only information provided to them by the government.
B)
only information gathered from random sources.
C)
all the information available to them.
D)
only information from the past.
79)
There has been an increase in investment. As a result, real GDP will ________ in the short run, and
________ in the long run.
79)
A)
increase; decrease to its initial value
B)
increase; increases further
C)
decrease; increase to its initial level
D)
decrease; decrease further
A
80)
Which of the following is not a reason for the decline in aggregate demand that led to the recession
in 2001?
80)
A)
corporate accounting scandals
B)
a decline in government spending
C)
information technology spending decline
D)
stock market decline
B
81)
On the long–run aggregate supply curve,
81)
A)
an increase in the price level increases the level of potential GDP.
B)
an increase in the price level reduces the aggregate quantity of GDP supplied.
C)
an increase in the price level has no effect on the aggregate quantity of GDP supplied.
D)
an increase in the price level increases the aggregate quantity of GDP supplied.
C
82)
Rising productivity in 2003–2004 made it possible for firms to increase ________ without increasing
________.
82)
A)
sales; prices
B)
output; employment
C)
employment; output
D)
prices; sales
B
C
Figure 14–1
83)
Refer to Figure 14–1. Which of the points in the above graph are possible short–run equilibria but
not long–run equilibria? Assume that Y1 represents potential GDP.
83)
A)
A and B
B)
C and D
C)
A and C
D)
B and D
84)
During 2002 and 2003, ________ and ________ grew, while ________ grew very little.
84)
A)
GDP; productivity; unemployment
B)
employment; GDP; productivity
C)
GDP; productivity; employment
D)
productivity; employment; GDP
85)
If the economy receives an influx of new workers from immigration,
85)
A)
we will move up along the long–run aggregate supply curve.
B)
the long–run aggregate supply curve will shift to the right.
C)
the long–run aggregate supply curve will shift to the left.
D)
we will move down along the long–run aggregate supply curve.
86)
Spending on the war in Iraq is categorized as government purchases. How do increases in
spending on the war in Iraq affect the aggregate demand curve?
86)
A)
They move the economy up along a stationary aggregate demand curve.
B)
They shift the aggregate demand curve to the right.
C)
They move the economy down along a stationary aggregate demand curve.
D)
They shift the aggregate demand curve to the left.
87)
The impact of Hurricane Katrina on consumers in the economy was to make them very pessimistic
about their future incomes. How does increased pessimism affect the aggregate demand curve?
87)
A)
This shifts the aggregate demand curve to the left.
B)
This moves the economy down along a stationary aggregate demand curve.
C)
This shifts the aggregate demand curve to the right.
D)
This moves the economy up along a stationary aggregate demand curve.
88)
Which of the following is not an assumption made by the dynamic model of aggregate demand and
aggregate supply?
88)
A)
Aggregate demand shifts to the right during most periods.
B)
Potential real GDP increases continuously.
C)
The short–run aggregate supply curve shifts to the right except during periods when workers
and firms expect higher wages.
D)
Aggregate demand and potential real GDP decrease continuously.
89)
The proponents of rational expectations and monetarism think that the Federal Reserve should
adopt
89)
A)
a monetary aggregate target.
B)
an interest rate target.
C)
an inflation target.
D)
a constant monetary growth rule.
90)
Which of the following is one explanation as to why the aggregate demand curve slopes
downward?
90)
A)
Increases in the price level raise real wealth and lowers consumption spending.
B)
Increases in the price level lower the interest rate and decrease investment spending.
C)
Increases in the U.S. price level relative to the price level in other countries lowers net exports.
D)
Increases in the price level lower the interest rate and decrease consumption spending.
Figure 14–1
91)
Refer to Figure 14–1. Which of the points in the above graph are possible long–run equilibria?
91)
A)
B and D
B)
A and C
C)
A and D
D)
A and B
92)
According to Karl Marx, which of the following factors of production did not contribute anything of
value to production?
92)
A)
labor
B)
natural resources
C)
capital
D)
entrepreneurship
93)
If aggregate demand just increased, which of the following may have caused the increase?
93)
A)
an increase in the price level
B)
an increase in the interest rate
C)
an increase in imports
D)
an increase in government purchases
94)
The level of long–run aggregate supply is NOT affected by
94)
A)
changes in the number of workers.
B)
changes in the capital stock.
C)
changes in technology.
D)
changes in the price level.
95)
Which of the following would not be considered a positive addition to household wealth?
95)
A)
the equity in one’s home
B)
a credit card balance
C)
1000 shares of Microsoft stock
D)
the balance in your checking account
96)
An increase in the price level will
96)
A)
move the economy down along a stationary short–run aggregate supply curve.
B)
shift the short–run aggregate supply curve to the left.
C)
shift the short–run aggregate supply curve to the right.
D)
move the economy up along a stationary short–run aggregate supply curve.
97)
Suppose the economy is at full employment and firms become more optimistic about the future
profitability of new investment. Which of the following will happen in the short run?
97)
A)
Output will decline.
B)
Unemployment will decline.
C)
Prices will decline.
D)
Aggregate demand will shift to the left.
98)
The short–run aggregate supply curve has a(n) ________ slope because as prices of ________ rise,
prices of ________ rise more slowly.
98)
A)
infinite; final goods and services; inputs
B)
positive; final goods and services; inputs
C)
infinite; inputs; final goods and services
D)
positive; inputs; final goods and services
99)
When the price of oil rises unexpectedly, the equilibrium price level ________ and the
unemployment rate ________ in the short run.
99)
A)
rises; rises
B)
falls; falls
C)
rises; falls
D)
falls; rises
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
100)
Explain using aggregate demand and aggregate supply, what happens in the short run if
the Federal Reserve raises interest rates in the economy. Be sure to explain what happens
to aggregate demand, the price level, the level of GDP, and unemployment. Assume that
the economy is at full employment before the interest rate increase.
100)
101)
In September of 2007, the Federal Reserve Board’s Open Market Committee voted to lower
interest rates for the first time that year. Explain how this policy affects the aggregate
demand curve.
101)
102)
Illustrate using the aggregate supply and demand model what happens in the long run
when the economy suffers a supply shock. Begin your analysis by assuming the economy
has suffered the supply shock in the short run, but has not yet adjusted to it in the long run.
102)
103)
Illustrate, using the aggregate demand graph, the impact of an increase in the price level
on aggregate demand.
103)
104)
President Bush lowered income taxes for individuals in 2001. Explain how this policy
affects the aggregate demand curve.
104)
105)
Explain how the economy moves back to full employment from recession. Be sure to detail
what happens to the short–run aggregate supply curve, unemployment, equilibrium GDP
and the price level.
105)
106)
Illustrate, using the aggregate demand graph, the impact of an increase in the interest rate.
106)
107)
Beginning with long–run equilibrium use the aggregate demand and aggregate supply
model to illustrate what happens in the short run when the economy suffers a negative
supply shock.
107)
108)
Starting from long–run equilibrium, use the static aggregate demand and aggregate supply
diagram to show what happens in both the long run and the short run when there is a
decline in wealth.
108)
109)
What are “sticky” prices, and how can contracts make them “sticky”?
109)
110)
Explain how “menu costs” affect the slope of the short–run aggregate supply curve.
110)
111)
Explain how the static aggregate demand and aggregate supply model gives us misleading
results about the price level, particularly with respect to decreases in aggregate demand.
Describe how the aggregate demand curve is different in the dynamic model as compared
to the static model. Describe how potential GDP is different in the dynamic model as
compared to the static model.
111)
112)
Use the dynamic model of aggregate demand and supply to illustrate a situation where the
economy is growing but experiencing inflation in the long run.
112)
113)
Explain how the aggregate demand and supply model can be made more dynamic.
113)
114)
Hurricane Katrina resulted in a decline in oil production infrastructure along the gulf
coast. As a result there was an unexpected decline in oil and natural gas supplies in 2005.
Suppose that this caused an increase in the price level and a decline in real GDP in 2006.
Also assume that potential real GDP continued to grow due to other factors. You can
assume the aggregate demand curve did not change. Show the macroeconomic
equilibrium for 2005 and 2006 using the dynamic aggregate supply and demand model.
114)
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
115)
At a short–run macroeconomic equilibrium, real GDP is always equal to potential GDP.
115)
116)
Stagflation occurs when aggregate supply decreases.
116)
117)
The dynamic aggregate demand and aggregate supply model assumes that potential GDP is
constant across time.
117)
118)
The short–run aggregate supply curve is vertical.
118)
119)
An increase in imports increases aggregate demand.
119)
120)
When potential GDP increases, long–run aggregate supply also increases.
120)
121)
An increase in the price level shifts aggregate demand to the left.
121)
122)
A decrease in government spending will result in a decrease in the price level and a decrease in real
GDP in the long run.
122)
123)
New classical macroeconomic theory emphasizes the role of “sticky” prices in the economy.
123)
124)
Monetarists believe that the quantity of money should be increased at a constant rate.
124)