Deck 30: Supply and Demand

Question 1

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) production shocks and flexible prices
D) money velocity and money supply

Answer 1

B

Question 2

Which of the curves listed below is part of the dynamic AD-AS model?

A) the dynamic aggregate demand curve
B) the short-run aggregate supply curve
C) the Solow growth curve
D) Each of these curves is part of the model.

Answer 2

D

Question 3

Business fluctuations are variations in

A) real income (GDP) 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.

Answer 3

A

Question 4

Variation of real GDP around the normal growth rate are called

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

Question 5

Reference: Ref 13-1 (Figure: Dynamic Aggregate Demand) Point A on this dynamic aggregate demand curve represents a real GDP growth rate of

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

Question 6

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

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

Question 7

A recession is defined as a widespread decline in

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

Question 8

Politicians and especially the general public worry about recessions because of

A) changes in the Solow growth rate.
B) inflation.
C) unemployment.
D) Each of these answers is correct.

Question 9

During a recession

A) labor is not fully utilized.
B) capital is not fully utilized.
C) land is not fully utilized.
D) Each of these answers is correct.

Question 10

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

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

Question 11

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

Question 12

The combination 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) Solow growth curve.
D) endowment curve.

Question 13

The average annual rate of growth of real GDP in the United States has fluctuated around ____ for the last 50 years.

A) 1 percent
B) 3 percent
C) 5 percent
D) -1 percent

Question 14

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

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

Question 15

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 16

Figure: Dynamic Aggregate Demand Reference: Ref 13-1 (Figure: Dynamic Aggregate Demand) Point B on this dynamic aggregate demand curve represents an inflation rate of

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

Question 17

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 18

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

Question 19

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

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

Question 20

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

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

Question 21

(Figure: Dynamic Aggregate Demand Model) Figure: Dynamic Aggregate Demand Model According to this dynamic aggregate demand model, the Solow growth rate is

A) 12 percent.
B) 3 percent.
C) 4 percent.
D) 8 percent.

Question 22

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

A) actual inflation rate.
B) expected inflation rate.
C) long-run inflation rate.
D) None of the answers is correct.

Question 23

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 24

A real shock causes

A) a shift of the dynamic aggregate demand curve.
B) a shift of both the Solow growth curve and the dynamic aggregate demand curve.
C) a shift of the Solow growth curve.
D) a movement along the Solow growth curve.

Question 25

Suppose both the growth rate of the money supply and the velocity of money are fixed, then an increase in the growth rate of exports will cause

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

Question 26

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 27

The Solow growth rate occurs when I. prices are flexible. II. all real factors of production are utilized. III. there is money illusion.

A) I and II only
B) II and III only
C) I and III only
D) I, II, and III

Question 28

In a diagram with the inflation rate on the vertical axis and the real growth rate on the horizontal axis, the Solow growth curve is

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

Question 29

Figure: Solow Growth Curves Reference: Ref 13-2 (Figure: Solow Growth Curves) Which of the following answer choices can explain the shift of the Solow growth 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 30

Reference: Ref 13-2 (Figure: Solow Growth Curves) Which of the following choices can explain the shift of the Solow growth curve from A to B in the figure?

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

Question 31

The Solow growth curve is represented by a vertical line at the Solow growth rate because I. it does not depend on the rate of inflation. II. there is an underlying assumption of strong money neutrality. III. it does not depend on the stock of factors of production.

A) I only
B) I and II only
C) II and III only
D) I and III only

Question 32

The dynamic aggregate demand curve is

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

Question 33

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

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

Question 34

The Solow growth curve is

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

Question 35

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 36

An increase in inflation will cause the Solow growth curve to

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

Question 37

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 38

When inflation is 4 percent and the real GDP growth rate is 2 percent, what is the aggregate demand curve spending growth rate?

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

Question 39

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

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

Question 40

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

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

Question 41

A negative real shock causes the Solow growth curve to shift

A) up.
B) down.
C) left.
D) right.

Question 42

How has the role of agricultural production changed in the Indian economy?

A) It has become a greater part of GDP, due to technological advances.
B) It has remained about 40 percent of GDP, but has doubled in yield.
C) It has fallen to about 20 percent of GDP due to economic diversification.
D) It is now only 1 percent of GDP.

Question 43

Using the AD and Solow growth curve model, the internet revolution of the 1990s caused

A) both real growth and inflation to increase.
B) both real growth and inflation to decrease.
C) real growth to increase and inflation to decrease.
D) real growth to decrease and inflation to increase.

Question 44

What portion of GDP does agriculture in the United States currently generate?

A) around 1 percent
B) 10 percent
C) 20 percent
D) over 40 percent

Question 45

A hurricane that damages buildings and roadways in the Gulf Coast is considered a

A) positive shock to the economy.
B) negative shock to the economy.
C) negative transmission mechanism.
D) positive transmission mechanism.

Question 46

Which of the following most likely causes a shift of the Solow growth 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 47

Reference: Ref 13-3 (Figure: Real Shocks) From point X in the accompanying dynamic aggregate demand model, a negative supply shock that still lets the economy grow will change the inflation rate to

A) 3 percent.
B) 7 percent.
C) 5 percent.
D) 10 percent.

Question 48

Which of the following can shift the Solow growth curve?

A) wars
B) increases in technology
C) strikes
D) Each of these answers is correct.

Question 49

Since 1980, shocks to rainfall are becoming less economically important for India's GDP. Which of the following explains why this is the case?

A) Agriculture is becoming a smaller part of the India's GDP.
B) India no longer produces agricultural items, but has shifted all those resources to producing Bollywood movies.
C) Rainfall patterns have changed, causing fewer disruptions.
D) Each of these answers is correct.

Question 50

Solow growth rates fluctuate over time because of

A) real shocks.
B) changes in the rate of inflation.
C) monetary shocks.
D) Each of these answers is correct.

Question 51

A real shock is any shock that increases or decreases the growth rate of

A) nominal GDP.
B) real GDP.
C) potential GDP.
D) All of the answers are correct.

Question 52

A decrease in oil prices is an example of

A) a negative productivity shock.
B) a positive productivity shock.
C) a neutral productivity shock.
D) a deflationary productivity shock.

Question 53

Historically, rainfall shocks in India correlate well with

A) agricultural output and real GDP.
B) inflation and employment.
C) prices and aggregate demand.
D) money velocity and money supply.

Question 54

What are some different transmission mechanisms through which negative agricultural shocks affect India's GDP? I. Declines in agricultural output reduce GDP. II. A fall in agricultural output causes lower incomes for farmers who consume fewer goods and services causing GDP to fall even further. III. Declines in the agricultural sector cause declines in the purchases of agricultural equipment.

A) I only
B) I and II only
C) II and III only
D) I, II, and III

Question 55

Figure: Real Shocks Reference: Ref 13-3 (Figure: Real Shocks) From Point X in the accompanying dynamic aggregate demand model, a negative real shock will cause the economy to move to Point

A) W.
B) X.
C) Y.
D) Z.

Question 56

A negative real shock causes

A) a lower inflation rate and a lower real growth rate.
B) a lower inflation rate and a higher real growth rate.
C) a higher inflation rate and a lower real growth rate.
D) a higher inflation rate and a higher real growth rate.

Question 57

All of the following are examples of shocks EXCEPT

A) an increase in sales tax revenues due to population growth.
B) a major decline in the price of oil due to the discovery of new oil reserves in Alaska.
C) a drought in California that reduces the supply of crops.
D) a strike in the airline industry.

Question 58

A positive real shock causes a shift of the

A) Solow growth curve to the right.
B) Solow growth curve to the left.
C) aggregate demand curve to the right.
D) aggregate demand curve to the left.

Question 59

Beginning from an equilibrium in an AD-Solow growth curve model, a negative supply shock will cause

A) both real growth and inflation to increase.
B) both real growth and inflation to decrease.
C) real growth to increase and inflation to decrease.
D) real growth to decrease and inflation to increase.

Question 60

Which of the following is a shock that could shift the Solow growth curve?

A) productivity shock
B) negative supply shock
C) real shock
D) All of the answers are correct.

Question 61

The increase in oil prices that took place during the mid-2000s were driven mainly by

A) decreases in supply.
B) increases in demand.
C) increases in both supply and demand.
D) increases in supply and decreases in demand.

Question 62

Why have oil shocks become less economically important for the United States in recent years?

A) American producers are now more energy efficient.
B) Negative oil shocks have been tempered by positive productivity shocks, such as improvements in technology.
C) The Federal Reserve has become better at responding to oil shocks.
D) Each of these answers is correct.

Question 63

Incorrect
B) Oil consumption has stayed steady, but GDP has more than doubled since 1970.
C) Spikes in oil prices will not lead to as severe recessions in the United States today as they did in the 1970s.
D) America is still purchasing 1.3 barrels of oil per $1,000 of GDP and saving the remainder for the future.

Question 64

Which of the following does NOT represent a shock that can affect GDP?

A) productivity shocks
B) weather shocks
C) changes in the portion of income that consumers save as a whole
D) None of the answers represents such a shock.

Question 65

In 1970 1.3 barrels of oil produced $1,000 of GDP. In 2004 it took only 0.64 barrels of oil. What implications does this have for economic fluctuations in the United States today?

Question 66

A reduction in the supply of oil is a real shock because it

A) makes gasoline more expensive for consumers.
B) raises the profits of oil producers.
C) makes labor and capital less productive.
D) reduces the amount of oil consumption.

Question 67

An economy can overcome a large negative oil shock faster if what occurs?

A) technological advancement
B) additional rainfall
C) monetary authorities react very little
D) None of the answers is correct.

Question 68

Productivity in a manufacturing economy could be significantly affected by

A) a rainfall shock.
B) a weather shock.
C) an oil shock.
D) None of the answers is correct.

Question 69

The first oil shock to have a large impact on the U.S. economy came in

A) 1973.
B) 1977.
C) 2005.
D) 2007.

Question 70

(Figure: Real Output Shock) This figure shows how real output growth reacts to a shock of a 10 percent increase in the price of new oil. How long does it take for the economy to return to normal?

A) five quarters
B) five years
C) ten years
D) two and a half years

Question 71

When did the first oil shock occur in the United States?

A) 1946
B) 1970
C) 1973
D) 1981

Question 72

The increase in real oil prices since 2002 did not immediately cause a U.S. recession. Which of the following is NOT a reason for this?

A) More fuel-efficient cars meant the United States consumed much less oil than in previous decades.
B) The price increases were mainly due to increased demand and were expected.
C) Positive technology shocks balanced the negative oil shocks.
D) The Federal Reserve was able to counteract some aspects of the negative oil shocks.

Question 73

The five most recent U.S. recessions

A) preceded positive oil price shocks.
B) were preceded by negative oil price shocks.
C) were not related to oil price shocks.
D) were milder because of oil price shocks.

Question 74

In response to a negative oil price shock, real GDP growth:

A) rises and never returns to its initial level.
B) falls and never returns to its initial level.
C) first rises and then falls back to its initial level.
D) first falls and then rises back to its initial level.

Question 75

1271Figure: Oil Market Reference: Ref 13-4 (Figure: Oil Market) Consider the world market for oil represented in the figure. Which of the panels correctly depicts what happened in the market for oil during the 1973 OPEC oil crisis?

A) Panel A
B) Panel B
C) Panel C
D) Panel D

Question 76

High oil prices tend to

A) increase the demand for some products and reduce the demand for others.
B) increase the demand for all products.
C) reduce the demand for all products.
D) shift the economy's AD curve outward.

Question 77

When a war breaks out in the Middle East and causes an oil shock, what makes the shock so costly to deal with?

A) There is uncertainty on how long the war will last.
B) The economic shock is unexpected.
C) Many countries experience the shock at the same time.
D) Agricultural productivity plummets.

Question 78

How has the price of oil generally been related to recessions in the United States?

A) Falling oil prices have produced a recession either in the next quarter or at the same time as the price fall.
B) Rising oil prices for at least two years have produced a recession.
C) If oil prices rise and fall within a year there will be a recession.
D) Rising oil prices have produced a recession either concurrently or quickly thereafter.

Question 79

From point X in the accompanying dynamic aggregate demand model, an increase in the supply of oil will cause the economy to move to point

A) W.
B) X.
C) Y.
D) Z.

Question 80

Which of the following best describes some of the profound effects of the 1973 oil crisis on the U.S. economy? I. Consumer preferences moved away from big cars and towards smaller cars. II. Employment in car manufacturing firms increased significantly. III. Although oil prices rose, gasoline prices fell since the two are substitutes.

A) I only
B) I and II only
C) II and III only
D) I, II, and III