Deck 13: Business Fluctuations: Aggregate Demand and Supply

Question 1

The unemployment rate is expected to _____ during a recession.

A) decrease
B) remain the same
C) increase
D) change indeterminately

Answer 1

increase

Question 2

In the graph of the AD-AS model, what is measured on the vertical axis?

A) the average price level
B) real GDP
C) the inflation rate
D) real GDP growth

Answer 2

the inflation rate

Question 3

If spending in an economy increases by 3% and real GDP increases by 1%, the result will be:

A) a recession.
B) inflation.
C) a positive supply shock.
D) war.

Answer 3

inflation.

Question 4

A recession is defined as a widespread decline in:

A) real income (GDP).
B) inflation.
C) unemployment.
D) mortgage defaults.

Question 5

Business fluctuations are variations in:

A) real income (GDP) growth around its trend growth rate.
B) inflation around its trend growth rate.
C) the unemployment rate around its trend growth rate.
D) mortgage defaults around their trend growth rate.

Question 6

In the graph of the AD-AS model, what is measured on the horizontal axis?

A) the average price level
B) real GDP
C) the inflation rate
D) real GDP growth

Question 7

During a recession:

A) labor is not fully utilized.
B) capital is not fully utilized.
C) land is not fully utilized.
D) land, labor, and capital are not fully utilized.

Question 8

The AD-AS model consists of the:

A) aggregate demand (AD) curve only.
B) short-run aggregate supply (SRAS) curve only.
C) long-run aggregate supply (LRAS) curve only.
D) AD, SRAS, and LRAS curves.

Question 9

A significant, widespread decline in real income and employment is called:

A) a recession.
B) a boom.
C) an aggregate demand fluctuation.
D) a business fluctuation.

Question 10

If spending growth is 6% and inflation is also 6%, this means that:

A) real GDP did not increase.
B) economic growth was 12%.
C) more money is chasing an increased number of goods.
D) a positive supply shock occurred.

Question 11

Variations in real GDP growth around its trend growth rate are called:

A) business fluctuations.
B) recessions.
C) inflation variations.
D) Solow growth rates.

Question 12

The term "business fluctuations" refers to:

A) the different stages of a product cycle.
B) changes in the prices of goods and services over time.
C) movement in real GDP around its long-term trend.
D) the trend in real GDP over a long period of time.

Question 13

If the growth rate of money is 3% and the growth rate of velocity is 1%, the growth rate of nominal GDP is:

A) 0%.
B) 1%.
C) 2%.
D) 4%.

Question 14

The average annual rate of growth of real GDP in the United States has fluctuated around ____ for the last 60 years.

A) 1.2%
B) 3.2%
C) 5%
D) -1%

Question 15

Use the following to answer questions: Figure: Aggregate Demand
(Figure: Aggregate Demand) Point A on this aggregate demand curve represents a real GDP growth rate of:

A) 2%.
B) 3%.
C) 5%.
D) 7%.

Question 16

Politicians and especially the general public worry about recessions because of:

A) high interest rates.
B) high inflation.
C) high unemployment.
D) lower wages.

Question 17

If spending growth is 3% and real GDP growth is 2%, what is the inflation rate?

A) 3%
B) 5%
C) 1%
D) 2%

Question 18

Economic growth is smooth in:

A) developed countries only.
B) both developed and developing countries.
C) developing countries only.
D) neither developed nor developing countries.

Question 19

Business fluctuations are fluctuations in the:

A) level of real GDP around its long-term trend.
B) level of nominal GDP around its long-term trend.
C) growth rate of real GDP around its trend growth rate.
D) growth rate of nominal GDP around its trend growth rate.

Question 20

The AD-AS model is most useful for explaining what causes:

A) the economy's long-run growth rate.
B) inflation.
C) stock market fluctuations.
D) fluctuations in GDP growth around its trend rate.

Question 21

Other things held constant, an increase in the velocity of money will cause the aggregate demand curve to:

A) shift inward.
B) shift outward.
C) not shift at all.
D) shift randomly.

Question 22

When inflation is 4% and the real GDP growth rate is 2%, what is the spending growth rate?

A) -2%
B) 2%
C) 6%
D) 8%

Question 23

According to the quantity theory of money, if both the growth rate of the money supply and the velocity of money are fixed, then a higher inflation rate means:

A) a higher real growth rate.
B) no change in the real growth rate.
C) a lower real growth rate.
D) a higher or lower real growth rate, depending on the specific growth rate of the money supply.

Question 24

For an aggregate demand curve with $\vec { M }$ = 10% and $\vec { v }$
= 0%, if inflation is 6%, then real growth is:

A) -6%.
B) -4%.
C) 4%.
D) 16%.

Question 25

Use the following to answer questions: Figure: Aggregate Demand
(Figure: Aggregate Demand) Point B on this aggregate demand curve represents an inflation rate of:

A) 3%.
B) 4%.
C) 5%.
D) 7%.

Question 26

An increase in spending growth will cause the aggregate demand curve to:

A) shift inward.
B) shift outward.
C) not shift at all.
D) shift randomly.

Question 27

In the AD-AS model, $\bar { M }$ represents the:

A) money supply.
B) money velocity.
C) rate of money supply growth.
D) rate of money velocity growth.

Question 28

The aggregate demand curve shows all the combinations of _____ that are consistent with a specified rate of spending growth.

A) employment rates and price levels
B) inflation and real GDP growth rates
C) nominal GDP and real GDP
D) money velocity and money supply

Question 29

If the growth rate of the money supply in an economy is 5%, the growth rate of output is 2%, and the velocity of money is constant, what will the inflation rate in this economy be?

A) 2%
B) 3%
C) 5%
D) 7%

Question 30

If the growth rate of spending increases from 3% to 5%, then:

A) the inflation rate will rise 2%.
B) the growth rate of real output will rise 2%.
C) the aggregate demand curve will shift to the right.
D) the slope of the aggregate demand curve will increase.

Question 31

Which of the following combinations would be on an aggregate demand curve with a spending growth rate of 6%?

A) inflation rate of 3%, real growth rate of 6%
B) inflation rate of 6%, real growth rate of 3%
C) inflation rate of 2%, real growth rate of 8%
D) inflation rate of 8%, real growth rate of -2%

Question 32

All the combinations of inflation and real growth consistent with a specific rate of spending growth is called the:

A) aggregate demand curve.
B) short-run aggregate supply curve.
C) long-run aggregate supply curve.
D) endowment curve.

Question 33

Holding everything else constant, an increase in the growth rate of the money supply will cause the aggregate demand curve to:

A) shift inward.
B) shift outward.
C) not shift at all.
D) shift randomly.

Question 34

(Figure: Three Aggregate Demand Curves)
Figure: Three Aggregate Demand Curves
Consider the three aggregate demand curves shown in the graph. Movement from Point A to Point D represents:

A) an increase in spending growth from 2% to 3%.
B) an increase in spending growth from 4% to 6%.
C) an increase in real GDP growth, but not spending growth.
D) an increase in inflation, but not spending growth.

Question 35

Which of the following would cause the aggregate demand curve to shift to the right?

A) an increase in the growth rate of output
B) a decrease in the inflation rate
C) a decrease in the velocity of money
D) an increase in the growth rate of the money supply

Question 36

If both the growth rate and the velocity of the money supply are fixed, then a higher inflation rate will cause:

A) an upward movement along the AD curve.
B) a downward movement along the AD curve.
C) a shift of the AD curve to the left.
D) a shift of the AD curve to the right.

Question 37

The aggregate demand curve shows the relationship between real GDP growth and the:

A) actual inflation rate.
B) expected inflation rate.
C) long-run inflation rate.
D) interest rate.

Question 38

The aggregate demand curve shows all the combinations of _____ and _____ that are consistent with a specified rate of _____.

A) prices; real GDP; spending
B) prices; GNP; money supply
C) inflation; nominal growth; money supply
D) inflation; real GDP growth; spending growth

Question 39

The aggregate demand curve is:

A) upward sloping.
B) downward sloping.
C) a vertical line.
D) a horizontal line.

Question 40

The aggregate demand curve shows the relationship between the:

A) growth rate of real output and the inflation rate.
B) inflation rate and the growth rate of the money supply.
C) growth rate of real output and the growth rate of the money supply.
D) growth rate of consumption and the inflation rate.

Question 41

If $\vec { v }$ = 4%, $\bar { P }$
= 3%, and $\bar { Y } _ { R }$
= 2%, then $\bar { M }$
Must equal:

A) 1%.
B) 2%.
C) 6%.
D) 7%.

Question 42

A 2% increase in real growth, ceteris paribus, _____ inflation by _____.

A) increases; 1%
B) increases; 2%
C) decreases; 1%
D) decreases; 2%

Question 43

In the equation $\vec { M } + \vec { v } = \vec { P } + \vec { Y } _ { R }$ , what does $\bar { M }$
Stand for?

A) the money supply
B) growth in the money supply
C) money velocity
D) growth in money velocity

Question 44

If spending grows by 2%, real GDP growth is 5%, and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

A) falling; 3%
B) falling; 2%
C) rising; 3%
D) rising; 2%

Question 45

A 1% increase in real growth, ceteris paribus, _____ inflation by _____.

A) increases; 1%
B) increases; 2%
C) decreases; 1%
D) decreases; 2%

Question 46

In the equation $\vec { M } + \vec { v } = \vec { P } + \vec { Y } _ { R }$ , what does $\bar { Y } _ { R }$
Stand for?

A) real GDP
B) nominal GDP
C) growth in real GDP growth
D) growth in nominal GDP growth

Question 47

The primary purpose of the AD-AS model is to explain:

A) the steady-state output.
B) trends in output.
C) business fluctuations.
D) long-term economic growth.

Question 48

In the equation $\vec { M } + \vec { v } = \vec { P } + \vec { Y } _ { R }$ , what does $\vec { v }$
Stand for?

A) the velocity of money
B) growth in the velocity of money
C) the market value of goods and services
D) growth in the market value of goods and services

Question 49

If velocity is stable, then $\vec { v }$ equals:

A) 0%.
B) 1%.
C) 10%.
D) 100%.

Question 50

The aggregate demand curve is a straight line with a slope of _____.

A) 0
B) 1
C) -1
D) -10

Question 51

If spending grows by 3% while real growth is 1% and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

A) falling; 3%
B) falling; 2%
C) rising; 3%
D) rising; 2%

Question 52

If $\bar { M }$ = 5%, $\vec { v }$
= -3%, and $\bar { P }$
= 2%, then $\bar { Y } _ { R }$
Must equal:

A) -3%
B) -2%
C) 0%
D) 2%

Question 53

If velocity is constant, the growth rate of the money supply is 2%, and inflation is 3%, then real output growth will be:

A) -5%.
B) -1%.
C) 1%.
D) 5%.

Question 54

If spending grows by 3%, real GDP grows by 5%, and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

A) falling; 3%
B) falling; 2%
C) rising; 3%
D) rising; 2%

Question 55

An increase in the rate of spending growth must flow into either higher inflation or:

A) higher deflation.
B) lower inflation.
C) higher growth.
D) lower growth.

Question 56

The aggregate demand curve indicates that at a given spending growth rate, a higher inflation is related to a:

A) lower real GDP growth rate.
B) higher money supply growth rate.
C) lower velocity growth rate.
D) higher unemployment rate.

Question 57

In the AD-AS model, $\bar { Y } _ { R }$ represents the:

A) growth rate of real GDP.
B) level of real GDP.
C) reference year.
D) growth rate of the money supply.

Question 58

In the equation $\vec { M } + \vec { v } = \vec { P } + \vec { Y } _ { R }$ , what does $\bar { P }$
Stand for?

A) production
B) growth in production
C) prices
D) inflation

Question 59

An increase in spending growth causes:

A) an upward movement along the AD curve.
B) a downward movement along the AD curve.
C) a rightward shift of the AD curve.
D) a leftward shift of the AD curve.

Question 60

If spending grows by 3%, real GDP growth is 0%, and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

A) falling; 3%
B) falling; 2%
C) rising; 3%
D) rising 2%

Question 61

A real shock causes:

A) a shift of the aggregate demand curve.
B) a shift of both the long-run aggregate supply curve and the aggregate demand curve.
C) a shift of the long-run aggregate supply curve.
D) a movement along the long-run aggregate supply curve.

Question 62

Use the following to answer questions: Figure: Long-Run Aggregate Supply Curves
(Figure: Long-Run Aggregate Supply Curves) Which of the following can explain the shift of the long-run aggregate supply curve from A to B in the figure?

A) development of new technology
B) war
C) negative supply shock
D) oil crisis

Question 63

A decrease in spending growth will cause the economy's aggregate demand curve to:

A) shift to the right.
B) shift to the left.
C) become steeper.
D) become flatter.

Question 64

If prices are perfectly flexible, the economy will always be growing:

A) at its potential rate.
B) above its potential rate.
C) below its potential rate.
D) near its potential rate.

Question 65

Use the following to answer questions: Figure: Long-Run Aggregate Supply Curves
(Figure: Long-Run Aggregate Supply Curves) Which of the following can explain the shift of the long-run aggregate supply curve from A to C in the figure?

A) development of new technology
B) an increase in the nation's factors of production
C) negative supply shock
D) increase in oil supply

Question 66

The long-run aggregate supply curve is represented by a vertical line at the Solow growth rate because:

A) growth depends on the rate of inflation in the long run.
B) there is an underlying assumption of long-run money neutrality.
C) growth is affected by changes in the money supply in the long run.
D) growth is not affected by the factors of production.

Question 67

The long-run aggregate supply curve is:

A) upward sloping.
B) downward sloping.
C) a vertical line.
D) a horizontal line.

Question 68

An increase in spending growth will cause the economy's aggregate demand curve to:

A) shift to the right.
B) shift to the left.
C) become steeper.
D) become flatter.

Question 69

The "Solow" growth rate is the rate of economic growth that occurs when:

A) inflation is moderate.
B) prices and wages are sticky.
C) prices and wages are flexible.
D) the money supply is growing.

Question 70

The position of the long-run aggregate supply curve shows the economy's:

A) potential growth rate given by the real factors of production.
B) long-run inflation rate.
C) expected inflation rate.
D) rate of money growth plus velocity growth.

Question 71

The Solow growth rate is the economy's:

A) actual growth rate.
B) potential growth rate.
C) expansionary growth rate.
D) recessionary growth rate.

Question 72

The economy's aggregate demand curve shows all combinations of _____ that are consistent with a specified rate of spending growth.

A) inflation and the unemployment rate
B) inflation and real GDP growth
C) economic growth and the unemployment rate
D) the price level and real GDP

Question 73

Which of the following most likely causes a shift of the long-run aggregate supply curve to the right?

A) an increase in the money supply
B) a decrease in tax revenues
C) an increase in crop production due to more rainfall
D) an increase in oil prices due to a fire in a major oil refinery

Question 74

Which of the following would NOT shift the long-run aggregate supply curve?

A) wars
B) increases in technology
C) strikes
D) an increase in the money supply

Question 75

On a given aggregate demand curve, if the rate of spending growth is 10% and the growth rate of the money supply is 2%, then the velocity of money must be growing at:

A) 5%.
B) 8%.
C) 12%.
D) 20%.

Question 76

For a given aggregate demand curve, the specified rate of spending growth is the growth rate of money:

A) supply plus the growth in velocity.
B) demand plus the growth in velocity.
C) supply minus the rate of growth in velocity.
D) demand minus the rate of growth in velocity.

Question 77

In a diagram with the inflation rate on the vertical axis and the real growth rate on the horizontal axis, the long-run aggregate supply curve is:

A) upward sloping.
B) downward sloping.
C) a vertical line at the Solow growth rate.
D) a horizontal line at the expected inflation rate.

Question 78

A major hurricane hitting the East Coast of the United States is an example of a:

A) real shock.
B) geographic distress.
C) GDP deflator.
D) productivity neutralizing event.

Question 79

An increase in inflation will cause the long-run aggregate supply curve to:

A) shift inward.
B) shift outward.
C) not shift at all.
D) shift randomly.

Question 80

An increase in spending growth causes a _____ the aggregate demand curve.

A) rightward shift of
B) leftward shift of
C) movement up along
D) movement down along