Question 1

In the long run, output is determined by:

Accepted Answer

A)   the state of technology.
B)   the size of the capital stock.
C)   the size of the labor force.
D)   all of the above.E) B) and C)
F) A) and D)

Question 2

The short run aggregate supply curve assumes that in the short- run:

Accepted Answer

A)   the inflation rate is zero, that is, the economy is stagflated.
B)   the unemployment rate is equal to the natural rate of unemployment.
C)   the economy does not experience supply shocks.
D)   prices are slow to adjust.E) A) and D)
F) B) and C)

Question 3

In the long- run, an increase in the money supply will cause output:

Accepted Answer

A)   to remain the same.
B)   to increase.
C)   to fluctuate up and down.
D)   to decrease.E) None of the above
F) A) and C)

Question 4

The short run aggregate supply curve is upward sloping and very steep.

Accepted Answer

A) True 
 B)False

Question 5

A large technological improvement will shift the aggregate supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 6

Why are the prices of some intermediate inputs sticky in the short run? What causes the stickiness in the prices of labor?

Accepted Answer

Firms usually have formal and informal a...

Question 7

Comment on the following statement: "An economy's aggregate demand curve is derived by horizontally summing the market demand curves for all the products consumed in the economy."

Accepted Answer

The statement is False. An economy's agg...

Question 8

If the economy is in long run equilibrium at full employment, the level of overall economic activity:

Accepted Answer

A)   is positively affected by changes in the price level.
B)   is only affected by changes in aggregate demand.
C)   is not affected by changes in the price level.
D)   is negatively affected by changes in the price level.E) None of the above
F) C) and D)

Question 9

In the short run, the primary determinant of output of firms is the:

Accepted Answer

A)   level of demand.
B)   future price.
C)   availability of inputs.
D)   level of prices.E) A) and B)
F) B) and D)

Question 10

The marginal propensity to consume can never be equal to zero.

Accepted Answer

A) True 
 B)False

Question 11

If the economy is in equilibrium at full employment, an increase in aggregate demand will:

Accepted Answer

A)   increase the price level and leave the level of output unchanged in the short run.
B)   decrease both the price level and the level of output in the short run.
C)   decrease the price level and leave the level of output unchanged in the short run.
D)   increase both the price level and the level of output in the short run.E) A) and C)
F) A) and D)

Question 12

When the general price level rises:

Accepted Answer

A)   investment falls as a result of the consumption link effect.
B)   consumption increases as a result of the multiplier effect.
C)   investment rises as a result of the wealth effect.
D)   consumption falls as a result of the wealth effect.E) B) and C)
F) A) and C)

Question 13

Recall Application 2, "Two Approaches to Determining the Causes of Recessions," to answer the following questions:
-According to the application, a recession is likely to be caused by a decrease in aggregate supply if:

Accepted Answer

A)   prices change but output does not change in the long run.
B)   both prices and output do not change in the long run.
C)   both prices and output change in the long run.
D)   prices do not change but output changes in the long run.E) All of the above
F) A) and D)

Question 14

If the marginal propensity to consume is 0.8, the value of the multiplier is:

Accepted Answer

A)   0.8.
B)   5.
C)   1.25.
D)   2.E) A) and D)
F) A) and C)

Question 15

Figure 9.6
-Refer to Figure 9.6. In the short run, an improvement in the technology will move the equilibrium to:

Accepted Answer

A)   point H.
B)   point D.
C)   point E.
D)   point F.E) All of the above
F) C) and D)

Question 16

Wages are classified as custom prices, because they do not adjust very quickly.

Accepted Answer

A) True 
 B)False

Question 17

When the economy is in a boom, the intersection between the:

Accepted Answer

A)   short run AS and the AD occurs at an output level lower than potential output.
B)   long run AS and the AD occurs at an output level higher than potential output.
C)   short run AS and the AD occurs at an output level higher than potential output.
D)   long run AS and the AD occurs at an output level lower than potential output.E) A) and B)
F) None of the above

Question 18

The aggregate demand curve would shift to the left if:

Accepted Answer

A)   the cost of energy was to decrease.
B)   taxes were increased.
C)   the money supply was increased.
D)   government spending was increased.E) B) and C)
F) A) and B)

Question 19

When we draw the aggregate demand curve, _______ should be on the x- axis and _______ should be on the y- axis.

Accepted Answer

A)   real GDP; inflation
B)   real GDP; the price level
C)   quantity; price
D)   price; quantityE) B) and C)
F) None of the above

Question 20

Figure 9.2
-Refer to Figure 9.2. Suppose the economy is at Point A, a decrease in the price level causes a movement to Point:

Accepted Answer

A)   E.
B)   B.
C)   D.
D)   C.E) All of the above
F) B) and D)

Exam 9: Aggregate Demand and Aggregate Supply

The marginal propensity to consume can never be equal to zero.

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A large technological improvement will shift the aggregate supply curve to the right.

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Wages are classified as custom prices, because they do not adjust very quickly.

Correct AnswerverifiedShow Answer

Comment on the following statement: "An economy's aggregate demand curve is derived by horizontally summing the market demand curves for all the products consumed in the economy."

Correct AnswerverifiedThe statement is False. An economy's agg...View AnswerShow Answer

If the marginal propensity to consume is 0.8, the value of the multiplier is:

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Figure 9.6 -Refer to Figure 9.6. In the short run, an improvement in the technology will move the equilibrium to:

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Why are the prices of some intermediate inputs sticky in the short run? What causes the stickiness in the prices of labor?

Correct AnswerverifiedFirms usually have formal and informal a...View AnswerShow Answer

The short run aggregate supply curve assumes that in the short- run:

Correct AnswerverifiedShow Answer

When we draw the aggregate demand curve, _______ should be on the x- axis and _______ should be on the y- axis.

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The short run aggregate supply curve is upward sloping and very steep.

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Figure 9.2 -Refer to Figure 9.2. Suppose the economy is at Point A, a decrease in the price level causes a movement to Point:

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In the long run, output is determined by:

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In the long- run, an increase in the money supply will cause output:

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If the economy is in long run equilibrium at full employment, the level of overall economic activity:

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When the economy is in a boom, the intersection between the:

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When the general price level rises:

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Recall Application 2, "Two Approaches to Determining the Causes of Recessions," to answer the following questions: -According to the application, a recession is likely to be caused by a decrease in aggregate supply if:

Correct AnswerverifiedShow Answer

In the short run, the primary determinant of output of firms is the:

Correct AnswerverifiedShow Answer

The aggregate demand curve would shift to the left if:

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If the economy is in equilibrium at full employment, an increase in aggregate demand will:

Correct AnswerverifiedShow Answer

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The statement is False. An economy's agg...
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Firms usually have formal and informal a...
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When we draw the aggregate demand curve, _ should be on the x- axis and _ should be on the y- axis.

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