Economics of Money, Banking, and Financial Markets, 11e (Mishkin)
Chapter 22 Aggregate Demand and Supply Analysis
22.1 Aggregate Demand
1) The aggregate demand curve is the total quantity of an economy’s
A) intermediate goods demanded at different inflation rates.
B) intermediate goods demanded at a particular inflation rate.
C) final goods and services demanded at a particular inflation rate.
D) final goods and services demanded at different inflation rates.
2) The total quantity of an economy’s final goods and services demanded at different inflation
rates is
A) the aggregate supply curve.
B) the aggregate demand curve.
C) the Phillips curve.
D) the aggregate expenditure function.
3) One way to derive aggregate demand is by looking at its four component parts, which are
A) consumer expenditures, planned investment spending, government spending, and net exports.
B) consumer expenditures, actual investment spending, government spending, and net exports.
C) consumer expenditures, planned investment spending, government spending, and gross
exports.
D) consumer expenditures, planned investment spending, government spending, and taxes.
4) By analyzing aggregate demand through its component parts, we can conclude that,
everything else held constant, a decline in the inflation rate causes
A) an increase in real interest rates, an increase in investment spending, and a decline in
aggregate output demand.
B) a decline in real interest rates, a decrease in investment spending, and an increase in aggregate
output demand.
C) a decline in real interest rates, an increase in investment spending, and an increase in
aggregate output demand.
D) an increase in real interest rates, a decline in investment spending, and a decline in aggregate
output demand.
5) By looking at aggregate demand via its component parts, we can conclude that the aggregate
demand curve is downward sloping because
A) a lower inflation rate causes the real interest rate to fall, and stimulates planned investment
spending.
B) a lower inflation rate causes the real interest rate to rise, and stimulates planned investment
spending.
C) a higher inflation rate causes the real interest rate to fall, and stimulates planned investment
spending.
D) a higher inflation rate causes the real interest rate to rise, and stimulates planned investment
spending.
6) Which of the followings is NOT true about the word “autonomous” that economists use?
A) Changes in autonomous components are associated with movements along a curve.
B) Changes in autonomous components are associated with shifts of a curve.
C) The autonomous component of a variable is exogenous.
D) The autonomous component of a variable is independent of other variables in the model.
7) Which of the followings is NOT true about the word “autonomous” that economists use?
A) Changes in autonomous components are associated with shifts of a curve.
B) The autonomous component of a variable is exogenous.
C) The autonomous component of a variable is independent of other variables in the model.
D) The autonomous component of a variable is induced by other variables in the model.
8) Everything else held constant, an autonomous monetary policy easing ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
9) Everything else held constant, an autonomous monetary policy tightening ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
10) Everything else held constant, when financial frictions increase, the real cost of borrowing
________ so that planned investment spending ________ at any given inflation rate.
A) increases; falls
B) decreases; falls
C) decreases; rises
D) increases; rises
11) Everything else held constant, an increase in financial frictions ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
12) Everything else held constant, an increase in government spending ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
13) Everything else held constant, a decrease in government spending ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
14) Everything else held constant, a decrease in net taxes ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
15) Everything else held constant, an increase in net taxes ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
16) Everything else held constant, a balanced budget increase in government spending (that is, an
increase in government spending that is matched by an identical increase in net taxes) will
A) increase aggregate demand, but not by as much as if just government spending increases.
B) increase aggregate demand by more than if just government spending increases.
C) not affect aggregate demand.
D) decrease aggregate demand.
17) Everything else held constant, an increase in net exports ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
18) Everything else held constant, a decrease in net exports ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
19) Everything else held constant, an increase in planned investment expenditure ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
20) Everything else held constant, a decrease in planned investment expenditure ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
21) Everything else held constant, aggregate demand increases when
A) taxes are cut.
B) government spending is reduced.
C) animal spirits decrease.
D) the money supply is reduced.
22) Everything else held constant, aggregate demand increases when
A) net exports decrease.
B) taxes increase.
C) planned investment spending increases.
D) the money supply decreases.
23) Everything else held constant, which of the following does NOT cause aggregate demand to
increase?
A) an increase in net exports
B) an increase in government spending
C) an increase in taxes
D) an increase in consumer optimism
24) Explain through the component parts of aggregate demand why the aggregate demand curve
slopes down with respect to the inflation rate. Be sure to discuss two channels through which
changes in inflation rates affect demand.
22.2 Aggregate Supply
1) The aggregate supply curve is the total quantity of
A) raw materials offered for sale at different inflation rates.
B) final goods and services offered for sale at the current inflation rate.
C) final goods and services offered for sale at different inflation rates.
D) intermediate and final goods and service offered for sale at different inflation rates.
2) The aggregate supply curve shows the relationship between
A) the level of inputs and aggregate output.
B) the inflation rate and the level of inputs.
C) the wage rate and the level of employment.
D) the inflation rate and the level of aggregate output supplied.
3) The long-run rate of unemployment to which an economy always gravitates is the
A) normal rate of unemployment.
B) natural rate of unemployment.
C) neutral rate of unemployment.
D) inflationary rate of unemployment.
4) The long-run aggregate supply curve is
A) a vertical line through the non-inflationary rate of output.
B) a vertical line through the current level of output.
C) a vertical line through the natural rate level of output.
D) a horizontal line through the current level of output.
5) The long-run aggregate supply curve is a vertical line passing through
A) the natural rate of output.
B) the natural-rate price level.
C) the actual rate of unemployment.
D) the expected rate of inflation.
6) ________ flexible wages and prices imply that the short-run aggregate supply curve is
________.
A) More; flatter
B) Less; steeper
C) less; vertical
D) More; steeper
7) Everything else held constant, when actual output exceeds the natural rate of output ________
aggregate supply ________.
A) short-run; decreases
B) short-run; increases
C) long-run; increases
D) long-run; decreases
8) Everything else held constant, if workers expect an increase in inflation, ________ aggregate
supply ________.
A) long-run; increases
B) long-run; decreases
C) short-run; decreases
D) short-run; increases
9) Everything else held constant, a change in workers’ expectations about inflation will cause
________ to change.
A) aggregate demand
B) short-run aggregate supply
C) the production function
D) long-run aggregate supply
10) Which of the following increases aggregate supply in the short-run, everything else held
constant?
A) an increase in the price of crude oil
B) a successful wage push by workers
C) expectations of a higher inflation
D) a technological improvement that increases worker productivity
22.3 Shifts in Aggregate Supply Curves
1) The long-run aggregate supply curve shifts to the right when there is
A) a decrease in the total amount of capital in the economy.
B) a decrease in the total amount of labor supplied in the economy.
C) a decrease in the available technology.
D) a decline in the natural rate of unemployment.
2) The long-run aggregate supply curve shifts to the right when there is
A) an increase in the total amount of capital in the economy.
B) an increase in the available technology.
C) a decrease in the natural rate of unemployment.
D) A and B.
E) A, B, and C.
3) The short-run aggregate supply curve shifts to the right when
A) output gap is higher.
B) output gap is lower.
C) expected inflation is higher.
D) expected inflation is lower.
4) Which of the followings does NOT shift the short-run aggregate supply curve?
A) supply shocks.
B) persistent positive output gap.
C) changes in expected inflation.
D) an increase in output gap.
22.4 Equilibrium in Aggregate Demand and Supply Analysis
1) The fact that an economy always returns to the natural rate level of output is known as
A) the excess demand hypothesis.
B) the price-adjustment mechanism.
C) the self-correcting mechanism.
D) the natural rate of unemployment.
2) Assuming the economy is starting at the natural rate of output and everything else held
constant, the effect of ________ in aggregate ________ is a rise in both inflation and output in
the short-run, but in the long-run the only effect is a rise in inflation.
A) a decrease; supply
B) a decrease; demand
C) an increase; supply
D) an increase; demand
3) Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate
of output and everything else held constant, the development of a new, more productive
technology will cause ________ in the unemployment rate in the short run and ________ in
inflation in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change
4) Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate
of output and everything else held constant, the development of a new, more productive
technology will cause ________ in the unemployment rate in the long run and ________ in
inflation in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) no change; a decrease
D) no change; no change
5) Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate
of output and everything else held constant, the development of a new, more productive
technology will cause ________ in the unemployment rate and ________ in the inflation in the
long run.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change
22.5 Changes in Equilibrium: Aggregate Demand Shocks
1) Suppose the economy is producing at the natural rate of output. An increase in consumer and
business confidence will cause ________ in real GDP in the short run and ________ in inflation
in the short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
2) Suppose the economy is producing at the natural rate of output. An increase in consumer and
business confidence will cause ________ in real GDP in the long run and ________ in inflation
in the long run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
3) Suppose the economy is producing at the natural rate of output. A decrease in consumer and
business confidence will cause ________ in real GDP in the short run and ________ in inflation
in the short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
4) Suppose the economy is producing at the natural rate of output. A decrease in consumer and
business confidence will cause ________ in real GDP in the long run and ________ in inflation
in the long run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
5) Suppose the economy is producing at the natural rate of output. An open market purchase of
bonds by the Fed will cause ________ in real GDP the the short run and ________ in inflation in
the short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
6) Suppose the economy is producing at the natural rate of output. An open market purchase of
bonds by the Fed will cause ________ in real GDP in the long run and ________ in inflation in
the long run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
7) Suppose the economy is producing at the natural rate of output. An open market sale of bonds
by the Fed will cause ________ in real GDP in the short run and ________ in inflation in the
short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
8) Suppose the economy is producing at the natural rate of output. An open market sale of bonds
by the Fed will cause ________ in real GDP in the long run and ________ in inflation in the
long run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
9) Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the
U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the
short run, everything else held constant. (Assume the depreciation causes no effects in the supply
side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
10) Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the
U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the
long run, everything else held constant. (Assume the depreciation causes no effects in the supply
side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
11) Suppose the U.S. economy is producing at the natural rate of output. An appreciation of the
U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the
short run, everything else held constant. (Assume the appreciation causes no effects in the supply
side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
12) Suppose the U.S. economy is producing at the natural rate of output. An appreciation of the
U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the
long run, everything else held constant. (Assume the appreciation causes no effects in the supply
side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease