Question 1

Sticky wages occur because:

Accepted Answer

A)   employers must wait until the current contract ends to cut someone's pay.
B)   unions often negotiate wages for several years in advance.
C)   wages can only be changed at the end of contracts, as opposed to final good prices which can change anytime.
D)   All of these are true.E) A) and B)
F) None of the above

Question 2

In the short run, the aggregate supply curve:

Accepted Answer

A)   slopes upward.
B)   slopes downward.
C)   is perfectly elastic.
D)   is perfectly inelastic.E) A) and B)
F) All of the above

Question 3

If a natural disaster were to cause a negative long-run supply shock to the economy, once the economy adjusts, the new equilibrium will be at a:

Accepted Answer

A)   higher price level and lower level of output.
B)   lower price level and higher level of output.
C)   higher price level and higher level of output.
D)   lower price level and lower level of output.E) C) and D)
F) B) and C)

Question 4

Using Figure 1 above, if the aggregate demand curve shifts from AD2 to AD1 the result in the long run would be:

Accepted Answer

A)   P5 and Y1.
B)   P5 and Y2.
C)   P4 and Y1.
D)   P4 and Y2.E) C) and D)
F) B) and D)

Question 5

Increases in the overall price level:

Accepted Answer

A)   increases people's dollar-denominated wealth.
B)   generally has no effect on spending.
C)   result in people increasing their consumption.
D)   result in people reducing their consumption.E) A) and B)
F) A) and C)

Question 6

Which of the following is a component of aggregate demand?

Accepted Answer

A)   Consumption
B)   Investment
C)   Net exports
D)   All of these are components of aggregate demand.E) All of the above
F) A) and B)

Question 7

If the economy is in a recession, in an effort to move the economy to the long-run equilibrium, the government could:

Accepted Answer

A)   increase spending to increase aggregate demand.
B)   decrease spending to decrease aggregate demand.
C)   increase spending to decrease aggregate demand.
D)   decrease spending to increase aggregate demand.E) A) and B)
F) C) and D)

Question 8

If you were told the MPC was = 0.75 and the government engaged in a tax decrease of $400B, then the overall change in GDP would be:

Accepted Answer

A)   $400B.
B)   $1600B.
C)   $300B.
D)   $1200BE) A) and D)
F) All of the above

Question 9

The aggregate supply and aggregate demand model is used to explain the:

Accepted Answer

A)   overall health of the economy.
B)   overall effect of large markets within the economy.
C)   interaction of all sellers and all buyers within a particular market.
D)   way that unemployment may affect output, but not how price level does.E) None of the above
F) A) and B)

Question 10

Short-run decisions refer to the:

Accepted Answer

A)   hourly, daily, or weekly decisions that firms have to make.
B)   immediate decisions that firms have to make that affect the production process, not level of output.
C)   immediate decisions that firms have to make that affect level of output, but not the production process.
D)   decisions a firm has to make immediately to prepare for either entering or exiting an industry.E) A) and B)
F) B) and D)

Question 11

A decrease in the level of capital inside a nation would cause the:

Accepted Answer

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

Question 12

When the U.S. price level increases, economists predict a:

Accepted Answer

A)   movement down along the aggregate demand curve.
B)   shift straight up of the aggregate demand curve.
C)   shift to the right of the aggregate demand curve.
D)   decrease in expenditure.E) All of the above
F) B) and C)

Question 13

The long-run aggregate supply curve will shift to the right if the:

Accepted Answer

A)   potential output of the economy expands.
B)   economy loses productive capacity.
C)   economy experiences a supply shock.
D)   profit levels of firms increase.E) A) and B)
F) B) and C)

Question 14

A year-long drought that destroys most wheat crops for the season would shift the:

Accepted Answer

A)   aggregate demand curve only.
B)   aggregate demand curve, and the short-run aggregate supply curve would shift in response.
C)   short-run aggregate supply curve only.
D)   short-run aggregate supply curve and the long-run aggregate supply curve.E) A) and D)
F) None of the above

Question 15

Economic stagnation coupled with high inflation is commonly called:

Accepted Answer

A)   stagflation.
B)   inflagnation.
C)   stagnatory growth.
D)   inflationary stagnation.E) A) and D)
F) A) and C)

Question 16

In macroeconomics, the long run refers to:

Accepted Answer

A)   how long it takes for prices of inputs to fully adjust to changes in economic conditions.
B)   the time period when sticky wages are in place.
C)   how long it takes for output decisions to adjust to changes in economic conditions.
D)   how long it takes for fixed inputs to become variable.E) A) and B)
F) B) and C)

Question 17

When the economy is operating at a point where aggregate demand equals short-run aggregate supply, it must be true that:

Accepted Answer

A)   aggregate demand also equals long-run aggregate supply.
B)   the short-run level of output is not the same as long-run potential output.
C)   prices are higher than expected prices.
D)   None of these must be true.E) All of the above
F) B) and C)

Question 18

The aggregate demand curve slopes downward in part due to the:

Accepted Answer

A)   negative relationship between the price level and net exports.
B)   positive relationship between the price level and exports.
C)   negative relationship between the price level and imports.
D)   All of these are true.E) A) and C)
F) A) and B)

Question 19

When the price level increases people:

Accepted Answer

A)   feel less wealthy.
B)   feel more wealthy.
C)   have the same real value of assets, regardless of the change in the price level.
D)   experience a bubble forming in the economy overall.E) A) and C)
F) B) and C)

Question 20

One reason that explains why the short-run aggregate supply curve is upward sloping is:

Accepted Answer

A)   sticky wages.
B)   cartels keeping prices artificially high.
C)   the lag involved with public policy making.
D)   the changing profit levels experienced by firms.E) B) and C)
F) A) and D)

Exam 12: Aggregate Demand and Aggregate Supply

Economic stagnation coupled with high inflation is commonly called:

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In the short run, the aggregate supply curve:

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The aggregate demand curve slopes downward in part due to the:

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If a natural disaster were to cause a negative long-run supply shock to the economy, once the economy adjusts, the new equilibrium will be at a:

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The aggregate supply and aggregate demand model is used to explain the:

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When the price level increases people:

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The long-run aggregate supply curve will shift to the right if the:

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In macroeconomics, the long run refers to:

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Short-run decisions refer to the:

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Sticky wages occur because:

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Which of the following is a component of aggregate demand?

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One reason that explains why the short-run aggregate supply curve is upward sloping is:

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If you were told the MPC was = 0.75 and the government engaged in a tax decrease of $400B, then the overall change in GDP would be:

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A decrease in the level of capital inside a nation would cause the:

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If the economy is in a recession, in an effort to move the economy to the long-run equilibrium, the government could:

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Increases in the overall price level:

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A year-long drought that destroys most wheat crops for the season would shift the:

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Using Figure 1 above, if the aggregate demand curve shifts from AD2 to AD1 the result in the long run would be:

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When the U.S. price level increases, economists predict a:

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When the economy is operating at a point where aggregate demand equals short-run aggregate supply, it must be true that:

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