Question 1

An increase in consumer confidence will:

Accepted Answer

A)   increase both prices and output in the short run.
B)   decrease prices in the long run, but output will remain the same.
C)   decrease both prices and output in the short run.
D)   increase output in the long run, but prices will remain the same.E) None of the above
F) A) and D)

Question 2

During a recession, analysts at the CBO project that the economy is operating $750 billion below potential output. Assuming the MPC is 0.6, by how much would the government have to cut taxes to restore potential output?

Accepted Answer

A)   $375 billion
B)   $300 billion
C)   $350 billion
D)   $500 billionE) A) and B)
F) All of the above

Question 3

Who will increase spending as the price level decreases?

Accepted Answer

A)   Domestic consumers
B)   Businesses
C)   Foreigners
D)   Each entity will increase their expenditures.E) A) and B)
F) A) and D)

Question 4

If prices were to _______, U.S. goods would become relatively less expensive than goods from other countries.

Accepted Answer

A)   increase in the United States only
B)   decrease in the United States only
C)   increase globally
D)   decrease globallyE) A) and D)
F) A) and C)

Question 5

An example of stimulus spending by the government might be:

Accepted Answer

A)   road building and infrastructure repair.
B)   the monthly payments a government agency makes to its employees.
C)   hiring seasonal government employees to help complete the census.
D)   the Federal Reserve engaging in open market sales of securities.E) A) and C)
F) A) and D)

Question 6

Which three macroeconomic variables together best describe the health of the economy?

Accepted Answer

A)   Housing starts, GDP, and inflation
B)   Output, inflation, and the exchange rate
C)   GDP, unemployment, and interest rates
D)   Output, prices, and employmentE) All of the above
F) A) and D)

Question 7

All else equal, a shift in the aggregate supply curve _______ price and _______ output.

Accepted Answer

A)   decreases; increases
B)   decreases; decreases
C)   increases; increases
D)   increases; decreasesE) A) and B)
F) A) and C)

Question 8

The relationship between the overall price level and total production by firms is shown in the:

Accepted Answer

A)   aggregate demand curve.
B)   aggregate supply curve.
C)   inflation rate.
D)   business cycle.E) None of the above
F) A) and C)

Question 9

The slope of the short-run aggregate supply curve indicates that:

Accepted Answer

A)   as overall price levels increase, firms are willing to produce more.
B)   as overall price levels decrease, firms are willing to produce more.
C)   firms are constrained to a certain level of output in the short run, regardless of the price.
D)   firms are constrained to a certain price in the short run, regardless of output.E) A) and C)
F) None of the above

Question 10

If the aggregate demand curve shifts to the right, the long-run equilibrium will occur at a _______ price level and _______ level of output.

Accepted Answer

A)   higher; higher
B)   higher; lower
C)   higher; the same
D)   lower; higherE) B) and C)
F) C) and D)

Question 11

A vertical supply curve reflects:

Accepted Answer

A)   aggregate supply in the short run.
B)   aggregate supply in the long run.
C)   an individual firm's supply curve.
D)   an individual industry's supply curve.E) A) and B)
F) A) and C)

Question 12

Which of the following would likely cause the aggregate demand curve to shift to the left?

Accepted Answer

A)   Decreased income taxes
B)   Decreased consumer confidence
C)   Increased government spending
D)   increased investor confidenceE) A) and B)
F) None of the above

Question 13

When the housing bubble popped in 2007, combined demand and supply side shocks:

Accepted Answer

A)   decreased output.
B)   increased investment.
C)   decreased unemployment.
D)   increased interest rates.E) A) and B)
F) All of the above

Question 14

If the aggregate demand curve shifts, moving the economy out of long-run equilibrium:

Accepted Answer

A)   the short-run aggregate supply curve will shift to bring the economy back into long-run equilibrium.
B)   the aggregate demand curve will eventually shift back into place once expectations are taken into account.
C)   the long-run aggregate supply curve will shift to bring the economy back into long-run equilibrium.
D)   the overall price level will change, so that the economy can move along the short-run aggregate supply curve and find a new equilibrium.E) B) and C)
F) A) and C)

Question 15

In 2009, the U.S. government passed a bill that increased government spending. In response, the aggregate demand curve most likely:

Accepted Answer

A)   shifted to the left.
B)   shifted to the right.
C)   remained unchanged, but the economy moved up along the curve to a higher quantity.
D)   remained unchanged, but the economy moved down along the curve to a lower quantity.E) B) and C)
F) A) and B)

Question 16

A decrease in the price of oil will shift the:

Accepted Answer

A)   short-run aggregate supply curve to the right.
B)   aggregate demand curve to the right.
C)   short-run aggregate supply curve to the left.
D)   long-run aggregate supply curve to the left.E) None of the above
F) C) and D)

Question 17

One major difference between the aggregate supply curve and an individual supply curve is the aggregate supply curve represents:

Accepted Answer

A)   production in the whole economy, rather than the production of just one good or service.
B)   production in an entire market, rather than the production of just one firm.
C)   the total amount of goods and services sold, rather than the total amount produced.
D)   the amount of goods and services produced and sold by each firm.E) All of the above
F) B) and C)

Question 18

If the government lowers taxes by $400 billion, and the MPC is −0.75, the change in GDP will be:

Accepted Answer

A)   $400 billion.
B)   $1,600 billion.
C)   $300 billion.
D)   $1,200 billion.E) All of the above
F) C) and D)

Question 19

In general, a _______ relationship exists between the price level and _______.

Accepted Answer

A)   negative; aggregate expenditure
B)   positive; long-run aggregate supply
C)   negative; short-run aggregate supply
D)   positive; aggregate demandE) All of the above
F) A) and D)

Question 20

If the government lowers taxes by $400 billion, and the MPC is 0.75, the change in GDP will be:

Accepted Answer

A)   $400 billion.
B)   $1,600 billion.
C)   $300 billion.
D)   $1,200 billion.E) A) and C)
F) None of the above

Exam 12: Aggregatedemand and Aggregate Supply

A decrease in the price of oil will shift the:

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During a recession, analysts at the CBO project that the economy is operating $750 billion below potential output. Assuming the MPC is 0.6, by how much would the government have to cut taxes to restore potential output?

Correct AnswerverifiedShow Answer

In 2009, the U.S. government passed a bill that increased government spending. In response, the aggregate demand curve most likely:

Correct AnswerverifiedShow Answer

If prices were to _______, U.S. goods would become relatively less expensive than goods from other countries.

Correct AnswerverifiedShow Answer

If the aggregate demand curve shifts to the right, the long-run equilibrium will occur at a _______ price level and _______ level of output.

Correct AnswerverifiedShow Answer

If the government lowers taxes by $400 billion, and the MPC is 0.75, the change in GDP will be:

Correct AnswerverifiedShow Answer

A vertical supply curve reflects:

Correct AnswerverifiedShow Answer

Which of the following would likely cause the aggregate demand curve to shift to the left?

Correct AnswerverifiedShow Answer

An increase in consumer confidence will:

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In general, a _______ relationship exists between the price level and _______.

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Who will increase spending as the price level decreases?

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If the aggregate demand curve shifts, moving the economy out of long-run equilibrium:

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Which three macroeconomic variables together best describe the health of the economy?

Correct AnswerverifiedShow Answer

The slope of the short-run aggregate supply curve indicates that:

Correct AnswerverifiedShow Answer

The relationship between the overall price level and total production by firms is shown in the:

Correct AnswerverifiedShow Answer

An example of stimulus spending by the government might be:

Correct AnswerverifiedShow Answer

All else equal, a shift in the aggregate supply curve _______ price and _______ output.

Correct AnswerverifiedShow Answer

When the housing bubble popped in 2007, combined demand and supply side shocks:

Correct AnswerverifiedShow Answer

One major difference between the aggregate supply curve and an individual supply curve is the aggregate supply curve represents:

Correct AnswerverifiedShow Answer

If the government lowers taxes by $400 billion, and the MPC is −0.75, the change in GDP will be:

Correct AnswerverifiedShow Answer

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If the aggregate demand curve shifts to the right, the long-run equilibrium will occur at a _ price level and _ level of output.

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In general, a _ relationship exists between the price level and _.

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All else equal, a shift in the aggregate supply curve _ price and _ output.

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