Question 1

The labels for the axes of the aggregate demand graph should be

Accepted Answer

A)  quantity of a product on the vertical axis and the price of a product on the horizontal axis.
B)  price of a product on the vertical axis and quantity of a product on the horizontal axis.
C)  real domestic output on the vertical axis and the price level on the horizontal axis.
D)  real domestic output on the horizontal axis and the price level on the vertical axis.E) A) and D)
F) A) and C)

Question 2

Other things equal, an increase in productivity will shift the short-run aggregate supply curve rightward.

Accepted Answer

A) True 
 B)False

Question 3

The real-balances effect on aggregate demand suggests that a

Accepted Answer

A)  lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending.
B)  lower price level will decrease the real value of many financial assets and therefore cause an increase in spending.
C)  lower price level will increase the real value of many financial assets and therefore cause an increase in spending.
D)  higher price level will increase the real value of many financial assets and therefore cause an increase in spending.E) None of the above
F) C) and D)

Question 4

Suppose that technological advancements stimulate $20 billion in additional investment spending.If the MPC = 0.6, how much will the change in investment increase aggregate demand?

Accepted Answer

A)  $12 billion
B)  $20 billion
C)  $33.3 billion
D)  $50 billionE) C) and D)
F) A) and C)

Question 5

An increase in net exports will shift the AD curve to the

Accepted Answer

A)  left by a multiple of the change in net exports.
B)  left by the same amount as the change in net exports.
C)  right by the same amount as the change in net exports.
D)  right by a multiple of the change in net exports.E) B) and C)
F) A) and D)

Question 6

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

Accepted Answer

A)  aggregate demand curve would shift to the right.
B)  aggregate supply curve would shift to the left.
C)  aggregate supply curve would shift to the right.
D)  aggregate demand curve would shift to the left.E) All of the above
F) B) and C)

Question 7

The determinants of aggregate supply

Accepted Answer

A)  are consumption, investment, government, and net export spending.
B)  explain why real domestic output and the price level are directly related.
C)  explain the three distinct ranges of the aggregate supply curve.
D)  include resource prices and resource productivity.E) A) and B)
F) B) and D)

Question 8

The immediate-short-run aggregate supply curve represents circumstances where

Accepted Answer

A)  both input and output prices are fixed.
B)  both input and output prices are flexible.
C)  input prices are fixed, but output prices are flexible.
D)  input prices are flexible, but output prices are fixed.E) A) and C)
F) C) and D)

Question 9

The short-run version of aggregate supply assumes that

Accepted Answer

A)  product prices are fixed, while resource prices are flexible.
B)  product prices are flexible, while resource prices are fixed.
C)  both input and product prices are flexible.
D)  both input and product prices are fixed.E) None of the above
F) All of the above

Question 10

Menu costs will

Accepted Answer

A)  increase the amount of training of workers.
B)  result in price wars between businesses.
C)  increase the legal minimum wage.
D)  make prices inflexible downwarD.Learning Objective: 32-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.E) None of the above
F) A) and B)

Question 11

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units.Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3.The per-unit cost of production in this economy is

Accepted Answer

A)  $0.05.
B)  $0.10.
C)  $0.50.
D)  $1.00.E) C) and D)
F) B) and C)

Question 12

The aggregate expenditures model and the immediate-short-run aggregate supply have similar assumptions regarding the economy's price level.

Accepted Answer

A) True 
 B)False

Question 13

When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may

Accepted Answer

A)  not be possible due to the minimum wage law.
B)  increase the cost of raising money capital.
C)  reduce the demands for their products.
D)  set off a price war.E) C) and D)
F) None of the above

Question 14

Which of the following is not a reason why the stimulus package that the government implemented during the Great Recession of 2007-09 did not have as strong an impact on GDP and unemployment as expected?

Accepted Answer

A)  Households had very high debt levels.
B)  Consumers raised their saving rates.
C)  The stimulus package caused prices to fall in many sectors.
D)  The effects of the stimulus package were diffuse and spread thinly among many sectors.E) B) and C)
F) A) and B)

Question 15

The shape of the immediate-short-run aggregate supply curve implies that

Accepted Answer

A)  total output depends on the volume of spending.
B)  increases in aggregate demand are inflationary.
C)  output prices are flexible, but input prices are not.
D)  government cannot bring an economy out of a recession by increasing spending.E) A) and B)
F) A) and D)

Question 16

The real-balance effect explains a shift in aggregate demand, while the wealth effect explains a movement along the AD curve.

Accepted Answer

A) True 
 B)False

Question 17

The interest-rate effect is one of the determinants of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 18

Graphically, demand-pull inflation is shown as a

Accepted Answer

A)  rightward shift of the AD curve along an upsloping AS curve.
B)  leftward shift of the AS curve along a downsloping AD curve.
C)  leftward shift of the AS curve along an upsloping AD curve.
D)  rightward shift of the AD curve along a downsloping AS curve.E) A) and C)
F) B) and C)

Question 19

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may

Accepted Answer

A)  reduce per-unit production costs.
B)  reduce worker morale and work effort and thus lower productivity.
C)  increase the firms' cost of raising financial capital.
D)  reduce the demands for their products.E) A) and B)
F) A) and C)

Question 20

The immediate-short-run aggregate supply curve is

Accepted Answer

A)  downsloping.
B)  upsloping.
C)  vertical.
D)  horizontal.E) C) and D)
F) A) and D)

Exam 32: Aggregate Demand and Aggregate Supply

The shape of the immediate-short-run aggregate supply curve implies that

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When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may

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The labels for the axes of the aggregate demand graph should be

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The aggregate expenditures model and the immediate-short-run aggregate supply have similar assumptions regarding the economy's price level.

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The real-balances effect on aggregate demand suggests that a

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The real-balance effect explains a shift in aggregate demand, while the wealth effect explains a movement along the AD curve.

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Which of the following is not a reason why the stimulus package that the government implemented during the Great Recession of 2007-09 did not have as strong an impact on GDP and unemployment as expected?

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The interest-rate effect is one of the determinants of aggregate demand.

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Other things equal, an increase in productivity will shift the short-run aggregate supply curve rightward.

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The immediate-short-run aggregate supply curve represents circumstances where

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When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may

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The determinants of aggregate supply

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Suppose that technological advancements stimulate $20 billion in additional investment spending.If the MPC = 0.6, how much will the change in investment increase aggregate demand?

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The immediate-short-run aggregate supply curve is

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Graphically, demand-pull inflation is shown as a

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Menu costs will

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An increase in net exports will shift the AD curve to the

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The short-run version of aggregate supply assumes that

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An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units.Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3.The per-unit cost of production in this economy is

Correct AnswerverifiedShow Answer

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

Correct AnswerverifiedShow Answer

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