Question 1

The degree of responsiveness of aggregate output to a price change declines as the:

Accepted Answer

A)  rate of savings increases.
B)  economy approaches its potential output.
C)  GDP gap widens over time.
D)  the price elasticity of imports declines.
E)  the excess capacity of all the firms in the economy increases over time.F) A) and E)
G) C) and E)

Question 2

Other things equal, a decrease in government spending:

Accepted Answer

A)  increases the slope of the aggregate demand curve.
B)  increases the domestic interest rate.
C)  decreases aggregate expenditures.
D)  shifts the aggregate demand curve to the right.
E)  increases the equilibrium level of GDP.F) C) and E)
G) A) and E)

Question 3

A rightward shift in the aggregate supply curve with no change in the aggregate demand curve signals an economic expansion.

Accepted Answer

A) True 
 B)False

Question 4

If the national output cannot be increased unless the productive capacity or potential GDP increases, the aggregate supply curve is:

Accepted Answer

A)  downward-sloping.
B)  U-shaped.
C)  vertical.
D)  upward-sloping.
E)  horizontal.F) B) and E)
G) D) and E)

Question 5

Which of the following is true of cost-push inflation?

Accepted Answer

A)  Cost-push inflation is associated with an economic expansion.
B)  Cost-push inflation is rarely experienced in developed economies.
C)  Cost-push inflation is caused by a decrease in aggregate supply.
D)  Cost-push inflation is identical to demand-pull inflation.
E)  Cost-push inflation is the result of increased consumer spending.F) B) and E)
G) B) and D)

Question 6

An increase in the real value of assets is associated with a reduction in planned aggregate expenditures.

Accepted Answer

A) True 
 B)False

Question 7

If people expect the economy to do well in the future, they will increase their consumption today at every price level.

Accepted Answer

A) True 
 B)False

Question 8

A decrease in the price level will result in:

Accepted Answer

A)  a downward shift of the AD curve.
B)  an upward shift of the AD curve.
C)  a movement up the AD curve.
D)  a steeper slope of the AD curve.
E)  a movement down the AD curveF) None of the above
G) A) and E)

Question 9

In 2009, a nation reported total imports worth $250, 000 and total exports worth $225, 000.This implies the nation had net exports worth $25, 000 during this year.

Accepted Answer

A) True 
 B)False

Question 10

A decrease in the relative price of economics textbooks will raise the aggregate quantity of an economy's goods and services demanded.

Accepted Answer

A) True 
 B)False

Question 11

In the long-run, if the economy is operating at the full employment level, the equilibrium level of real GDP is determined solely by the:

Accepted Answer

A)  level of unemployment in the economy.
B)  rate of inflation in the economy.
C)  real interest rate in the economy.
D)  aggregate supply curve of the economy.
E)  aggregate demand curve of the economy.F) A) and E)
G) B) and E)

Question 12

Which of the following illustrates an optimistic expectation of the people about the economy?

Accepted Answer

A)  A movement to the right along the aggregate demand curve
B)  A rightward shift of the aggregate demand curve
C)  A leftward shift of the aggregate demand curve
D)  A movement to the left along the aggregate demand curve
E)  A flatter slope of the aggregate demand curveF) D) and E)
G) B) and D)

Question 13

The table given below reports the inflation rate in the U.S.and Canada for two years. Table 8.1
 Refer to Table 8.1.Assume the exchange rate is fixed at 1.4 CAD (Canadian dollars) = 1 USD (United States dollars) .Between year 1 and year 2, what happens to the U.S.aggregate demand curve?

Accepted Answer

A)  There is a movement to the right along the AD curve.
B)  The AD curve shifts to the right.
C)  The AD curve becomes relatively elastic.
D)  The AD curve shifts to the left.
E)  There is a movement to the left along the AD curve.F) C) and D)
G) A) and D)

Question 14

Suppose in Country X, wages of workers are increased in the beginning of a financial year, anticipating high inflation in the economy.However prices remain unchanged during the year.Everything else remaining constant, which of the following will be observed in this economy?

Accepted Answer

A)  The cost of labor, that is the real wage will decline
B)  The current profits of the firm will rise
C)  Aggregate supply in the economy will increase
D)  Annual production in the economy will remain unaffected
E)  The aggregate supply curve will move to the leftF) C) and E)
G) A) and B)

Question 15

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3  Consider Figure 8.3.Which of the following is most likely to have led to the movement from point B to point E?

Accepted Answer

A)  Declining net exports
B)  Increased investment spending.
C)  A decline in the domestic price level.
D)  An improvement in the quality of labor.
E)  An increase in the real wage rates.F) A) and B)
G) A) and E)

Question 16

Which of the following could lead to a decline in aggregate supply?

Accepted Answer

A)  The discovery of new mineral deposits in Arizona
B)  Higher real wage rates in the U.S.
C)  Lower personal income in France
D)  Cutbacks in government borrowing
E)  Rapid depreciation of the Swiss francF) A) and B)
G) A) and D)

Question 17

Increased household spending reduces aggregate expenditures.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is an incorrect statement?

Accepted Answer

A)  Macroeconomic equilibrium occurs at the intersection of the aggregate demand and aggregate supply curves.
B)  The aggregate supply curve indicates a positive relationship between the price level and GDP.
C)  Other things equal, a downward shift of the aggregate demand curve implies that the economy is entering a contractionary phase.
D)  Aggregate demand and aggregate supply determine the equilibrium price and quantity of any given good.
E)  The aggregate demand curve indicates a negative relationship between the price level and GDP.F) C) and D)
G) None of the above

Question 19

Business cycles are linked to the interaction between:

Accepted Answer

A)  the foreign exchange rate and the balance of payments account.
B)  the aggregate demand and aggregate supply curves.
C)  the demand and supply curves for a particular good.
D)  the substitution and the wealth effect.
E)  the long-run aggregate supply curve and the aggregate resource curve.F) A) and C)
G) A) and D)

Question 20

Which of the following is most likely to lead to an economic contraction?

Accepted Answer

A)  A decrease in the average price level
B)  An increase in aggregate supply
C)  A decrease in aggregate demand
D)  A decrease in taxes
E)  An increase in transaction demand for moneyF) A) and B)
G) D) and E)

Exam 11: Macroeconomic Equilibrium: Aggregate Demand and Supply

Suppose in Country X, wages of workers are increased in the beginning of a financial year, anticipating high inflation in the economy.However prices remain unchanged during the year.Everything else remaining constant, which of the following will be observed in this economy?

Correct AnswerverifiedShow Answer

A decrease in the relative price of economics textbooks will raise the aggregate quantity of an economy's goods and services demanded.

Correct AnswerverifiedShow Answer

If people expect the economy to do well in the future, they will increase their consumption today at every price level.

Correct AnswerverifiedShow Answer

If the national output cannot be increased unless the productive capacity or potential GDP increases, the aggregate supply curve is:

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The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3 Consider Figure 8.3.Which of the following is most likely to have led to the movement from point B to point E?

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An increase in the real value of assets is associated with a reduction in planned aggregate expenditures.

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Which of the following could lead to a decline in aggregate supply?

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Increased household spending reduces aggregate expenditures.

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Which of the following illustrates an optimistic expectation of the people about the economy?

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Business cycles are linked to the interaction between:

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In 2009, a nation reported total imports worth $250, 000 and total exports worth $225, 000.This implies the nation had net exports worth $25, 000 during this year.

Correct AnswerverifiedShow Answer

The table given below reports the inflation rate in the U.S.and Canada for two years. Table 8.1 Refer to Table 8.1.Assume the exchange rate is fixed at 1.4 CAD (Canadian dollars) = 1 USD (United States dollars) .Between year 1 and year 2, what happens to the U.S.aggregate demand curve?

Correct AnswerverifiedShow Answer

In the long-run, if the economy is operating at the full employment level, the equilibrium level of real GDP is determined solely by the:

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Which of the following is true of cost-push inflation?

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Which of the following is an incorrect statement?

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A decrease in the price level will result in:

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A rightward shift in the aggregate supply curve with no change in the aggregate demand curve signals an economic expansion.

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The degree of responsiveness of aggregate output to a price change declines as the:

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Which of the following is most likely to lead to an economic contraction?

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Other things equal, a decrease in government spending:

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