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In response to a decrease in output,the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in aggregate supply.

A) True
B) False

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Suppose the economy is in long-run equilibrium.Premier Aviary succeeds in getting a major new highway project for his province.At the same time,Premier Green succeeds in getting major new restrictions on logging enacted for her province.In the short run,what would we expect to happen?


A) Real GDP will rise, and the price level might rise, fall, or stay the same.
B) Real GDP will fall, and the price level might rise, fall, or stay the same.
C) The price level will rise, and real GDP might rise, fall, or stay the same.
D) The price level will fall, and real GDP might rise, fall, or stay the same.

E) None of the above
F) A) and D)

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Why is the aggregate-supply curve upward sloping in the short run?


A) because people buy less when prices go up
B) because prices adjust fast to balance supply and demand
C) because wages adjust fast to stabilize standards of living
D) because some producers believe that only the price of their product has changed

E) A) and B)
F) A) and C)

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Which of the following shifts the short-run,but not the long-run,aggregate supply right?


A) a decrease in the price level
B) a decrease in the expected price level
C) a decrease in the capital stock
D) a decrease in the savings rate

E) All of the above
F) B) and C)

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Which of the following shifts aggregate demand to the left?


A) The price level rises.
B) The price level falls.
C) The dollar depreciates.
D) The prices of stock fall.

E) A) and B)
F) A) and C)

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In the 1970s people had become accustomed to high inflation.In 1979,the Bank of Canada decided to fight inflation and decreased the money supply growth rates.Many people thought that the Bank of Canada's action would cause a recession.Is this thinking consistent with the aggregate demand and aggregate supply model? Explain.According to monetary misperceptions theory,what should have happened to output if the inflation rate fell relative to what people expected? Explain.

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The decrease in the money supply would s...

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Which of the following best describes the effects of an increase in the price level?


A) Dollars are worth more, so people spend more.
B) Dollars are worth more, so people spend less.
C) Dollars are worth less, so people spend more.
D) Dollars are worth less, so people spend less.

E) A) and C)
F) A) and B)

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Most economists believe that classical theory explains the world in the short run,but not the long run.

A) True
B) False

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A change in the money supply changes only nominal variables in the long run.

A) True
B) False

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Which of the following could create an increase in the price level and a decrease in real GDP in the short run?


A) an increase in the money supply
B) an increase in government expenditures
C) a fall in stock prices
D) bad weather in farm provinces

E) A) and C)
F) C) and D)

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In which of the following situations does investment spending decrease?


A) when the price level rises, causing interest rates to rise
B) when the price level rises, causing interest rates to fall
C) when the price level falls, causing interest rates to rise
D) when the price level falls, causing interest rates to fall

E) C) and D)
F) B) and C)

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What are the effects of a decrease in the price level?


A) Wealth falls, people lend less, interest rates fall, and the dollar appreciates.
B) Wealth falls, people lend less, interest rates rise, and the dollar depreciates.
C) Wealth rises, people lend more, interest rates rise, and the dollar appreciates.
D) Wealth rises, people lend more, interest rates fall, and the dollar depreciates.

E) A) and B)
F) All of the above

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If the government increased the money supply in response to a decrease in aggregate supply,unemployment would return towards its natural rate,but prices would rise even more.

A) True
B) False

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An aggregate-supply curve is described by the equation Y=80 + 0.5P.The expected price level is 100.How much is the long-run level of output?

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The standard form of a short-run aggrega...

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Which of the following would cause prices to rise and real GDP to fall in the short run?


A) an increase in the expected price level
B) an increase in the capital stock
C) an increase in the quantity of labour available
D) an increase in money supply

E) None of the above
F) A) and C)

Correct Answer

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Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the minimum wage.In the short run,what would we expect to happen?


A) the price level to rise, and real GDP to fall
B) the price level to fall, and real GDP to remain unchanged
C) the price level to remain unchanged, and real GDP to fall
D) the price level to fall, and the real GDP to rise the same

E) A) and B)
F) C) and D)

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According to the sticky-wage theory,which of the following is consistent with a more-than-expected increase in the price level?


A) Real wages rise, so firms will hire more workers.
B) Real wages rise, so firms will hire fewer workers.
C) Real wages fall, so firms will hire more workers.
D) Real wages fall, so firms will hire fewer workers.

E) B) and D)
F) A) and D)

Correct Answer

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An increase in which of the following (assuming the increase was not due to a price level change) shifts aggregate demand to the right?


A) interest rates
B) taxes
C) government surplus
D) net exports

E) None of the above
F) A) and C)

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All explanations for the upward slope of the short-run aggregate-supply curve suppose that output supplied increases when the price level increases more than expected.

A) True
B) False

Correct Answer

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Which of the following has NOT been suggested as a cause of the Great Depression?


A) rapidly rising asset prices
B) a decline in the money supply
C) a decrease in stock prices
D) the collapse of the banking system

E) B) and C)
F) A) and B)

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