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322 Miller Economics Today, 16th Edition
15) When the price level is below the level at which the aggregate demand curve crosses the long
run aggregate supply curve,
A) there will be no price level change.
B) there will be pressures that will lead to a shift of either the aggregate demand or the long
run aggregate supply curves.
C) actual real GDP would be less than total planned real expenditures, and the price level will
rise.
D) actual real GDP would exceed total planned real expenditures, and the price level will fall.
16) Economic growth will be associated with a constant price level when
A) the increase in aggregate demand exactly equals the increase in long run aggregate
supply.
B) the increase in aggregate demand is more than the increase in long run aggregate supply.
C) the increase in aggregate demand is less than the increase in long run aggregate supply.
D) the increase in aggregate demand is accompanied by a reduction in short run aggregate
supply.
17) Over the last twenty years, real GDP in the U.S. economy has increased and there has been
inflation. This indicates that
A) aggregate demand has increased while aggregate supply has been constant.
B) aggregate demand has been constant while aggregate supply has increased.
C) aggregate demand has increased more than aggregate supply.
D) aggregate demand has increased less than aggregate supply.
18) Economic growth takes place
A) only when both aggregate demand and aggregate supply increase.
B) when aggregate supply increases.
C) when aggregate demand decreases.
D) only if the price level is constant or rising.
19) The U.S. economy has had persistent inflation in recent decades. A possible explanation for the
inflation is that
A) there have been decreases in the growth rate while aggregate demand has remained
unchanged.
B) there have been increases in the growth rate while aggregate demand has remained
unchanged.
C) there have been decreases in aggregate demand while aggregate supply has remained
unchanged.
D) growth in aggregate demand has been greater than growth in aggregate supply.
20) In the long run, an increase in government spending, other things equal, generates
A) a higher real GDP in the long run.
B) a lower real GDP in the short run.
C) a higher price level.
D)
b
oth a higher real GDP and a lower price level.
21) Refer to the above figure. If the price level is 80,
A) the total planned real expenditures by individuals, businesses, and the government are
less than total planned production by firms.
B) the total planned real expenditures by individuals, businesses, and the government exceed
total planned production by firms.
C) the economy will have economic growth and the new equilibrium price level will be 80.
D) the aggregate demand curve will automatically shift leading to a stable equilibrium.
22) The intersection of aggregate demand and long run aggregate supply identify the price level at
which total planned
A) real expenditures equal actual nominal GDP.
B) real expenditures equal total planned production.
C) export spending equals total planned import spending.
D) government spending equals total planned tax revenues.
23) What would happen in an economy if total planned production exceeded total planned real
expenditures?
A) Inventories would be depleted, and firms would tend to lower prices.
B) Inventories would accumulate, and firms would tend to lower prices.
C) Inventories would be depleted, and firms would tend to raise prices.
D) Inventories would accumulate, and firms would tend to raise prices.
24) If the current price level is lower than the equilibrium price level, then it must be true that total
planned
A) government spending is less than total planned tax revenues.
B) government spending exceeds total planned tax revenues.
C) real expenditures are less than total planned production.
D) real expenditures exceed total planned production.
25) Consider the above figure. At a price level of 150,
A) total planned production exceeds total planned real expenditures.
B) total planned real expenditures exceed total planned real production.
C) inventories of unsold goods decline.
D) the price level would rise.
26) Consider the above figure. At a price level of 120,
A) total planned real expenditures exceed total planned production.
B) total planned production exceeds total planned expenditures.
C) prices would fall.
D) inventories would begin to accumulate.
27) In the above figure, the long run equilibrium price level is
A) 150. B) 130. C) 110. D) not displayed.
28) In the above figure, the long run equilibrium real GDP is
A) $10 trillion. B) $11 trillion. C) $12.trillion D) not displayed.
29) In the above figure, if the price level is 150,
A) total planned production exceeds total expenditures.
B) total expenditures exceed total planned expenditures.
C) total planned production equals total expenditures.
D) total planned production is less than total expenditures.
30) If consumers confidence in the economy rises,
A) aggregate demand will shift leftward and the price level will rise.
B) aggregate demand will shift leftward and the price level will fall.
C) aggregate demand will shift rightward and the price level will rise.
D) aggregate demand will shift rightward and the price level will fall.
31) A persistent decline in the price level resulting from economic growth in the presence of stable
aggregate demand is known as
A) demand side deflation. B) the interest rate effect.
C) secular deflation. D) the real balance effect.
32) If aggregate demand is stable and there is economic growth, the economy will experience
A) secular degeneration. B) secular deflation.
C) secular decline. D) secular depreciation.
33) A rightward shift of long run aggregate supply without any change in aggregate demand
A) will leave real GDP unchanged.
B) results in a lower price level.
C) increases the price level without any change in real GDP.
D) increases the price level along with an increase in real GDP.
34) An economy experiences real growth over time with stable aggregate demand. This would
likely result in
A) increasing prices. B) decreasing prices.
C) secular inflation. D) increased unemployment.
35) Which of the following is consistent with secular deflation?
A) a persistently decreasing price level caused by several periods of economic growth with
stable AD
B) a persistently increasing price level caused by several periods of economic growth with
decreasing AD
C) a persistently decreasing price level caused by increases in government expenditures
D) a persistently decreasing price level caused by money being withdrawn from the economy
36) If persistent inflation was due to declines in long run aggregate supply, what pattern would be
observed?
A) Increases in the price level would occur simultaneously with decreases in real GDP.
B) Increases in the price level would occur simultaneously with increases in real GDP.
C) Only prices of goods would increase; prices of services would remain constant.
D) Only prices of services would increase; prices of goods would remain constant.
37) In an economy in which aggregate demand is stable and a period of sustained and significant
productivity growth occurs, there will be
A) secular deflation. B) secular inflation.
C) a constant price level. D) a shift of aggregate supply to the left.
38) What could cause a decrease in the price level and simultaneously an increase in GDP similar to
the 1920s in the United States?
A) an increase in interest rates B) a decrease in consumer confidence
C) an increase in productivity D) a decrease in interest rates
39) Long run equilibrium will occur at the price level at which
A) the long run aggregate demand and short run aggregate supply curves intersect.
B) the aggregate demand and short run aggregate supply curves intersect.
C) the aggregate demand and long run aggregate supply curves intersect.
D) the short run aggregate supply and long run aggregate supply curves intersect.
40) Explain how an economy can experience long run economic growth and deflation at the same
time.
41) How can a country experience economic growth and stable prices?
330 Miller Economics Today, 16th Edition
10.5 Causes of Inflation
1) Over the past several decades, what has been true about price levels in the United States?
A) Inflation rates have been consistently negative.
B) The nation has experienced persistent deflation.
C) Price levels have been very stable.
D) Inflation rates have been consistently positive.
2) Supply side inflation could be caused by which of the following?
A) An increase in aggregate demand
B) A decrease in aggregate demand
C) An increase in long run aggregate supply
D) A decrease in long run aggregate supply
3) If there are steady decreases in aggregate supply, the economy will experience
A) a slow decrease in price levels. B) demand side inflation.
C) an expansionary gap. D) supply side inflation.
4) What has caused persistent inflation in the United States?
A) The nation s long run aggregate supply curve has shifted to the left.
B) Supply side inflation
C) A decrease in labor productivity
D) None of the above
5) Whenever the general level of prices rises because of continual increases in aggregate demand,
we say that the economy is experiencing
A) supply side inflation. B) monetary stagflation.
C) demand side inflation. D) aggregate supply shock.
6) Demand side inflation occurs when
A) increases in aggregate demand are not matched by increases in aggregate supply.
B) increases in aggregate supply outstrip increases in aggregate demand.
C) aggregate demand falls more rapidly than aggregate supply.
D) long run aggregate demand rises faster than short run aggregate supply.
7) In looking back over the past 40 years, which of the following has the U.S. economy
experienced?
A) Persistent deflation
B) Consistent inflation at a slow constant rate
C) Persistent inflation
D) Years of both inflation and deflation
8) Which of the following factors could cause the economy to experience supply side inflation?
A) Increased security about jobs and future income.
B) Government laws which say that the average work week must be reduced by one hour
every year.
C) Increase the number of immigrants allowed into the country.
D) Develop new technology to increase productivity.
9) Supply side inflation can be caused by
A) a continual increase in aggregate supply while aggregate demand remains unchanged.
B) a continual decrease in aggregate supply while aggregate demand remains unchanged.
C) a continual decrease in aggregate supply while aggregate demand has significant
decreases.
D) a continual increase in aggregate demand while aggregate supply remains unchanged.
10) Which of the following is the main cause of the persistent inflation that we have experienced in
the United States?
A) Supply side inflationary factors.
B) Demand side inflationary factors.
C) A combination of supply and demand side inflationary factors.
D) Supply side secularity factors.
11) A reduction the amount of oil (a resource) will tend to cause which of the following?
A) a reduction in output and a reduction in the price level
B) a reduction in output with no change in the price level
C) a reduction in output and an increase in the price level
D) an increase in the price level and no change in output if accompanied by an increase in the
money supply
12) If there is persistent inflation,
A) long run aggregate supply is growing at a faster rate than aggregate demand.
B) long run aggregate supply is growing at a slower rate than aggregate demand.
C) there is an excess of total planned expenditures.
D) long run aggregate supply is constant.
13) Secular deflation
A) has been a serious problem during the last three decades in the United States.
B) although present, has not been a problem during the last three decades in the United
States.
C) has not been present in the United States since 1959.
D) cannot exist in a capitalistic economy.
14) Which of the following is the most likely explanation for inflation in the United States?
A) increases in aggregate supply B) decreases in aggregate supply
C) increases in aggregate demand D) decreases in aggregate demand
15) In the long run, persistent inflation in the United States is caused by
A) leftward shifts in both the long run aggregate supply curve and in the aggregate demand
curve.
B) rightward shifts in the long run aggregate supply curve and the leftward shift of the
aggregate demand curve.
C) a faster rightward shift of the aggregate demand curve than the rightward shift of the
long run aggregate supply curve.
D) leftward shifts in the aggregate demand curve while the position of the long run supply
curve is unchanged.
16) For supply side inflation to occur in the long run,
A) the aggregate demand curve has to shift to the left.
B) the aggregate demand curve has to shift to the right.
C) the long run aggregate supply curve has to shift to the right.
D) the long run aggregate supply curve has to shift to the left.
17) Which of the following can cause supply side inflation?
A) an increase in human capital B) increases in the money supply
C) tax cuts D) none of the above
18) Suppose that an economy is initially producing at the full employment level of output. Now
suppose there is a reduction in the money supply. Other things being equal we can expect
A) supply side inflation. B) demand side inflation.
C) cost pull inflation. D) deflation.
19) What will be the result in a growing economy if increases in aggregate demand outpace
rightward shifts of the long run aggregate supply curve?
A) secular deflation
B) inflation accompanied by declines in real GDP
C) inflation accompanied by increases in real GDP
D) a decline in consumption spending
20) Refer to the above figure. Suppose the economy s initial equilibrium is represented by the
intersection of LRAS1and AD1. Suppose there is a persistent reduction in labor force
participation, which reduces total planned production at any given price level. The resulting
change in the economy s long run equilibrium position would be represented by a
A) movement from A to C. B) movement from A to B.
C) movement from B to C. D) movement from C to A.
21) Refer to the above figure. A movement from B to C would be NOT be the result of
A) an increase in foreign income levels. B) an increase in government spending.
C) an increase in worker productivity. D) an increase in consumption spending.
22) Refer to the above figure. A movement from B to D would be a result of
A) an increase in the quantity of money in circulation.
B) an increase in labor productivity.
C) an increase in government expenditures.
D) an increase in the marginal income tax rate.
23) Refer to the above figure. Suppose the economy s initial equilibrium is represented by the
intersection of LRAS1and AD1. Now there is an increase in labor productivity which increases
total planned production at any given price level and aggregate demand remains stable. The
resulting change in the economy s long run equilibrium position would be represented by a
A) movement from B to D. B) movement from C to D.
C) movement from C to B. D) movement from A to B.
24) When the economy is in long run equilibrium, the price level adjusts so as to equate which two
values with one another?
A) import and export spending
B) the inflation rate and the unemployment rate
C) government spending and tax revenues
D) total planned real expenditures and total planned production
25) What pattern would you observe in an economy in which aggregate demand is increasing but in
which long run aggregate supply remained the same?
A) secular deflation
B) inflation accompanied by no change in real GDP
C) inflation accompanied by declines in real GDP
D) a decline in consumption spending
26) Steadily improving improvements in technology, other things being equal, will result in
A) no change in the price level and steadily increasing output.
B) persistent deflation
C) steadily rising price level (inflation) and steadily increasing output.
D) a steadily falling price level with no change in output.
27) When the aggregate demand curve shifts ________ than the long run aggregate supply shifts
rightward, the result will be inflation.
A) rightward at a slower rate B) leftward at a slower rate
C) rightward at a faster rate D) leftward at the same rate
28) What would likely happen to the long run aggregate supply curve if the U.S. federal
government increases marginal tax rates on wages?
A) The LRAS curve would shift rightward.
B) The LRAS curve would shift leftward.
C) The LRAS curve would remain stable while the AD curve would shift leftward.
D) The LRAS curve would remain stable while the AD curve would shift rightward.
29) Which of the following would unambiguously generate inflation?
A) a decrease in aggregate demand accompanied by an increase in aggregate supply
B) an increase in aggregate demand accompanied by an increase in aggregate supply
C) a decrease in aggregate demand accompanied by a decrease in aggregate supply
D) an increase in aggregate demand accompanied by a decrease in aggregate supply
30) If long run economic growth is not accompanied by a change in aggregate demand, the result
will be
A) persistent inflation. B) secular deflation.
C) devaluation of the dollar. D) appreciation of the dollar.
31) What causes demand side inflation? What causes supply side inflation?
32) What are three causes of supply side inflation?
