Question 1

Potential output is

Accepted Answer

A)  the level of real GDP that exists when the economy is experiencing only cyclical and structural unemployment.
B)  the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded.
C)  the level of real GDP that exists when the actual rate of unemployment is zero.
D)  the level of real GDP that exists when the economy is experiencing only frictional and cyclical unemployment.E) B) and C)
F) A) and C)

Question 2

A change in the price level produces an immediate shift of the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 3

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called

Accepted Answer

A)  monetary policy.
B)  fiscal policy.
C)  congressional policy.
D)  Federal Government policy.E) B) and C)
F) C) and D)

Question 4

All other things unchanged, a lower exchange rate

Accepted Answer

A)  increases exports, imports, and aggregate demand.
B)  decreases exports, imports, and aggregate demand.
C)  increases exports, decreases imports, increases net exports and aggregate demand.
D)  decreases exports, increases imports, decreases net exports and aggregate demand.E) A) and B)
F) A) and C)

Question 5

Use the following to answer questions 
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1 a while a nonintervention policy would return real GDP to its potential at a price level of Pd. B) A stabilization policy would return real GDP to its potential at a price level of Pd while a nonintervention policy would return real GDP to its potential at a price level of Pa. C) Both policies would return real GDP to its potential at a price level of Pa. D) Both policies would return real GDP to its potential at a price level of Pd." class="answers-bank-image d-inline" rel="preload" >
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) 
Suppose the economy is initially in short-run equilibrium at B.Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own.What is the difference between the two policy choices, if any?

Accepted Answer

A)  A stabilization policy would return real GDP to its potential at a price level of Pa while a nonintervention policy would return real GDP to its potential at a price level of Pd.
B)  A stabilization policy would return real GDP to its potential at a price level of Pd while a nonintervention policy would return real GDP to its potential at a price level of Pa.
C)  Both policies would return real GDP to its potential at a price level of Pa.
D)  Both policies would return real GDP to its potential at a price level of Pd.E) A) and B)
F) B) and D)

Question 6

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

Accepted Answer

A)  The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases.
B)  The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.
C)  The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease.
D)  The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases.E) A) and C)
F) A) and B)

Question 7

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

Accepted Answer

A)  To fund the government spending, more money must be printed.The resulting increase in money supply lowers interest rates which in turn stimulates consumption and investment spending.
B)  The initial change in spending will cause an increase in real GDP and it also becomes income to someone else.As a result, the government's tax revenue increases which in turn allows the government to further increase its spending.
C)  The government spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption.
D)  The initial change in government spending creates a supply of jobs and stimulates production of domestically produced goods and services.The resulting increases in wages and investment demand leads to increased real GDP.E) All of the above
F) None of the above C

Question 8

Public policy to eliminate a recessionary gap could involve an increase in taxes.

Accepted Answer

A) True 
 B)False

Question 9

Use the following to answer questions 
Exhibit: Aggregate Demand 
-All other things unchanged, an increase in personal income tax rates will

Accepted Answer

A)  shift the aggregate demand curve to the right.
B)  shift the aggregate demand curve to the left.
C)  make the aggregate demand curve flatter.
D)  make the aggregate demand curve steeper.E) A) and C)
F) A) and D)

Question 10

Use the following to answer questions 
Exhibit: The Aggregate Demand/Aggregate Supply Model 2 1; real GDP = Yp B) Price level = P1; real GDP = Y1 C) Price level = P2; real GDP = Y2 D) Price level = P3; real GDP = Yp" class="answers-bank-image d-inline" rel="preload" >
-(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) 
What are the prevailing price level and the output level in the economy?

Accepted Answer

A)  Price level = P1; real GDP = Yp
B)  Price level = P1; real GDP = Y1
C)  Price level = P2; real GDP = Y2
D)  Price level = P3; real GDP = YpE) B) and D)
F) All of the above

Question 11

How will a recession in the economies of our foreign trading partners affect U.S.aggregate demand?

Accepted Answer

A)  It will have no effect on our aggregate demand.
B)  U.S.aggregate demand will increase.
C)  U.S.aggregate demand will decrease.
D)  It depends on whether the U.S.offers financial aid to these countries.E) C) and D)
F) All of the above

Question 12

The economy's potential output corresponds to the level of

Accepted Answer

A)  natural employment.
B)  frictional unemployment.
C)  structural unemployment.
D)  cyclical unemployment.E) A) and C)
F) A) and B)

Question 13

To eliminate an inflationary gap, policy-makers may pursue

Accepted Answer

A)  an expansionary policy that reduces the price level.
B)  a contractionary policy that decreases aggregate demand.
C)  a non-intervention policy that leaves aggregate demand unaffected and increases aggregate supply.
D)  an intervention policy that increases aggregate supply and decreases aggregate demand.E) C) and D)
F) All of the above B

Question 14

Use the following to answer questions 
Exhibit: Aggregate Demand 
-(Exhibit: Aggregate Demand) 
What could have caused a movement from point A to point D?

Accepted Answer

A)  Technological advancement
B)  An increase in the inflation rate
C)  An increase in household wealth
D)  A recession in foreign countriesE) A) and B)
F) A) and C) C

Question 15

A change in the aggregate quantities of goods and services demanded at each price level is called a

Accepted Answer

A)  change in aggregate demand.
B)  change in the aggregate quantity of goods and services demanded.
C)  determinant of aggregate demand.
D)  revealed expenditure on aggregate demand.E) None of the above
F) A) and B)

Question 16

Suppose the U.S.government decides to increase its imports from Turkey.All other things unchanged,

Accepted Answer

A)  U.S.aggregate demand increases and Turkey's aggregate demand decreases.
B)  U.S.aggregate demand decreases and Turkey's aggregate demand increases.
C)  U.S.aggregate demand and Turkey's aggregate demand increase.
D)  U.S.aggregate demand is not affected but Turkey's aggregate demand increases.E) B) and C)
F) A) and D)

Question 17

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

Accepted Answer

A)  some firms will immediately pass the higher prices to consumers.
B)  because of adjustment costs associated with changing prices, some firms will not raise their prices immediately which may temporarily boost their sales.
C)  firms will raise their output prices by more than the increase in the average price level to make up for the shortfall in sales.
D)  consumers are unwilling to pay higher prices resulting in a decrease in aggregate demand.E) B) and D)
F) A) and D)

Question 18

As an inflationary gap is eliminated through an economy's self-correcting adjustments process,

Accepted Answer

A)  the equilibrium price level increases and the equilibrium real output decreases.
B)  the equilibrium price level decreases and the equilibrium real output increases.
C)  the equilibrium price level and the equilibrium real output increase.
D)  the equilibrium price level and the equilibrium real output decrease.E) C) and D)
F) B) and C)

Question 19

Suppose households become more future-oriented and decide to save more at each income level.All other things unchanged, this will

Accepted Answer

A)  shift the aggregate demand curve to the right.
B)  shift the aggregate demand curve to the left.
C)  not affect aggregate but rather aggregate supply because firms will now produce less.
D)  shift both the aggregate demand curve and the aggregate supply curve to the left.E) None of the above
F) B) and C)

Question 20

According to the wealth effect, if the average price level rises, the value of consumers'

Accepted Answer

A)  real wealth, nominal wealth, and consumption spending fall.
B)  nominal wealth and consumption spending fall.
C)  real wealth and consumption spending fall.
D)  nominal wealth and saving fall.E) B) and D)
F) A) and B)

Exam 7: Aggregate Demand and Aggregate Supply

Potential output is

Correct Answer
verified

A change in the price level produces an immediate shift of the short-run aggregate supply curve.

Correct Answer
verified

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called

Correct Answer
verified

All other things unchanged, a lower exchange rate

Correct Answer
verified

Correct Answer
verified

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

Correct Answer
verified

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

Correct Answer
verified
C

Public policy to eliminate a recessionary gap could involve an increase in taxes.

Correct Answer
verified

Use the following to answer questions Exhibit: Aggregate Demand -All other things unchanged, an increase in personal income tax rates will

Correct Answer
verified

Use the following to answer questions Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) What are the prevailing price level and the output level in the economy?

Correct Answer
verified

How will a recession in the economies of our foreign trading partners affect U.S.aggregate demand?

Correct Answer
verified

The economy's potential output corresponds to the level of

Correct Answer
verified

To eliminate an inflationary gap, policy-makers may pursue

Correct Answer
verified
B

Use the following to answer questions Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) What could have caused a movement from point A to point D?

Correct Answer
verified
C

A change in the aggregate quantities of goods and services demanded at each price level is called a

Correct Answer
verified

Suppose the U.S.government decides to increase its imports from Turkey.All other things unchanged,

Correct Answer
verified

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

Correct Answer
verified

As an inflationary gap is eliminated through an economy's self-correcting adjustments process,

Correct Answer
verified

Suppose households become more future-oriented and decide to save more at each income level.All other things unchanged, this will

Correct Answer
verified

According to the wealth effect, if the average price level rises, the value of consumers'

Correct Answer
verified

Exam 7: Aggregate Demand and Aggregate Supply

Potential output is

Correct AnswerverifiedShow Answer

A change in the price level produces an immediate shift of the short-run aggregate supply curve.

Correct AnswerverifiedShow Answer

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called

Correct AnswerverifiedShow Answer

All other things unchanged, a lower exchange rate

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

Correct AnswerverifiedShow Answer

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

Correct AnswerverifiedC

Public policy to eliminate a recessionary gap could involve an increase in taxes.

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Aggregate Demand -All other things unchanged, an increase in personal income tax rates will

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) What are the prevailing price level and the output level in the economy?

Correct AnswerverifiedShow Answer

How will a recession in the economies of our foreign trading partners affect U.S.aggregate demand?

Correct AnswerverifiedShow Answer

The economy's potential output corresponds to the level of

Correct AnswerverifiedShow Answer

To eliminate an inflationary gap, policy-makers may pursue

Correct AnswerverifiedB

Use the following to answer questions Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) What could have caused a movement from point A to point D?

Correct AnswerverifiedC

A change in the aggregate quantities of goods and services demanded at each price level is called a

Correct AnswerverifiedShow Answer

Suppose the U.S.government decides to increase its imports from Turkey.All other things unchanged,

Correct AnswerverifiedShow Answer

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

Correct AnswerverifiedShow Answer

As an inflationary gap is eliminated through an economy's self-correcting adjustments process,

Correct AnswerverifiedShow Answer

Suppose households become more future-oriented and decide to save more at each income level.All other things unchanged, this will

Correct AnswerverifiedShow Answer

According to the wealth effect, if the average price level rises, the value of consumers'

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified