Deck 10: Dynamic Change, economic Fluctuations, and the Ad-As Model

Question 1

A currency appreciation will be most likely to

A)reduce net exports and therefore increase aggregate demand.
B)raise net exports and therefore decrease aggregate demand.
C)reduce net exports and therefore decrease aggregate demand.
D)raise net exports and therefore increase aggregate demand.

Answer 1

C

Question 2

If a currency appreciates,a country's net exports

A)fall and AD increases.
B)rise and AD increases.
C)fall and AD decreases.
D)rise and AD decreases.

Answer 2

C

Question 3

When the U.S.dollar appreciates,

A)U.S.exports rise.
B)U.S.imports decline.
C)aggregate demand shifts leftward.
D)aggregate demand shifts rightward.

Answer 3

C

Question 4

When output is less than the economy's long-run capacity,which of the following is most likely to occur?

A)an abnormally low rate of unemployment
B)reductions in real interest rates and real resource prices
C)a sharp increase in imports
D)a government budget surplus

Question 5

An anticipated change is an economic occurrence that

A)catches most people by surprise.
B)is foreseen by most economic participants.
C)is anticipated by economists but unforeseen by other people.
D)is foreseen by policy makers but unforeseen by the public.

Question 6

An increase in the long-run aggregate supply curve indicates that

A)the natural rate of unemployment has increased.
B)unemployment has increased.
C)the general level of prices has increased.
D)potential real GDP has increased.

Question 7

Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?

A)a decrease in inflation
B)a decrease in unemployment
C)an increase in the general level of prices
D)an increase in the natural rate of unemployment

Question 8

Suppose there was a sharp reduction in stock prices and a sharp increase in the world price of crude oil.Within the framework of the AD/AS model,how would these two changes influence the U.S.economy?

A)The lower stock prices would increase SRAS,and the higher crude oil prices would reduce AD;as a result,there would be downward pressure on the general level of prices.
B)The lower stock prices would reduce SRAS,and the higher crude oil prices would increase AD;as a result,there would be upward pressure on the general level of prices.
C)The lower stock prices would increase AD,and the higher crude oil prices would increase SRAS;as a result,output would tend to increase.
D)The lower stock prices would reduce AD,and the higher crude oil prices would reduce SRAS;as a result,output would tend to decline.

Question 9

An unanticipated economic event is a change that

A)catches most people by surprise.
B)was foreseen by most economic participants.
C)is the result of a steady long-term trend in an economic variable.
D)was forecast by most economists.

Question 10

Which of the following will most likely be an unanticipated economic change?

A)higher oil prices resulting from a revolution in an oil-exporting country
B)this year's increase in the labor force
C)a constant increase in the general level of prices over a lengthy period of time
D)an increase in prime-age workers as a proportion of the labor force

Question 11

If the general level of prices is lower than business decision makers anticipated when they entered into long-term contracts for raw materials and other resources,which of the following is most likely to occur?

A)an economic boom
B)highly attractive profit margins
C)output less than the economy's long-run potential
D)a sharp increase in imports

Question 12

A recession abroad would

A)increase U.S.net exports and increase aggregate demand.
B)increase U.S.net exports and increase aggregate supply.
C)reduce U.S.net exports and reduce aggregate demand.
D)reduce U.S.net exports and increase aggregate demand.

Question 13

Which of the following reduced aggregate demand and thereby contributed to the crisis of 2008?

A)a rise in the value of the U.S.dollar
B)falling housing and stock prices
C)an increase in the real rate of interest
D)optimism about future economic conditions

Question 14

Which of the following will most likely accompany an unanticipated increase in aggregate demand?

A)an increase in real output
B)an increase in unemployment
C)a decrease in real GDP
D)a decrease in the demand for resources

Question 15

From mid-year 2006 to year-end 2008,housing prices

A)fell by approximately 30 percent,leading to a sharp reduction in aggregate demand.
B)increased by approximately 30 percent leading to a sharp increase in aggregate demand.
C)declined by a smaller about than in previous recessions.
D)were unchanged,but a sharp decline in stock prices reduced aggregate demand.

Question 16

Which of the following would be most likely to cause an increase in current aggregate demand in the United States?

A)increased fear that the U.S.economy was going into a recession
B)an increase in the real interest rate
C)sharp increase in the value of stocks owned by Americans
D)a recession in Canada,Mexico,and Western Europe

Question 17

If Asian economies suffer a serious economic slump,U.S.net exports will

A)increase and AD will shift rightward.
B)increase and AD will shift leftward.
C)decrease and AD will shift leftward.
D)decrease and AD will shift rightward.

Question 18

Which of the following will lead to an increase in aggregate demand in the United States?

A)a higher price level
B)an increase in the real interest rate
C)an increase in wealth due to a substantial appreciation in the value of stocks
D)a decrease in real income in Japan and Western Europe

Question 19

If a currency depreciates,a country's net exports

A)fall and AD increases.
B)rise and AD increases.
C)fall and AD decreases.
D)rise and AD decreases.

Question 20

Which of the following will most likely increase aggregate supply in the long run?

A)unfavorable weather conditions in agricultural areas
B)an increase in the expected inflation rate
C)higher real interest rates
D)an increase in the rate of capital formation

Question 21

Which of the following will lead to a decrease in aggregate demand in the United States?

A)a higher price level
B)a decrease in the real interest rate
C)rapid growth in real income in Japan and Western Europe
D)an increase in the exchange rate value of the dollar

Question 22

Which of the following shifts both short-run and long-run aggregate supply to the left?

A)a decrease in the actual rate of inflation
B)a decrease in the expected rate of inflation
C)a decrease in the capital stock
D)a drought in the Midwest agricultural areas.

Question 23

How would aggregate demand change if foreign incomes increase and the exchange rate value of the dollar increases?

A)Neither change would affect aggregate demand.
B)The increase in income would decrease aggregate demand;the increase in the exchange rate would increase aggregate demand.
C)The increase in income would increase aggregate demand;the increase in the exchange rate would decrease aggregate demand.
D)Both changes would decrease aggregate demand.

Question 24

What would be the effect of a decrease in the real interest rate and an increase in the expected inflation rate?

A)Both changes would decrease aggregate demand.
B)Both changes would increase aggregate demand.
C)Both changes would increase short-run aggregate supply.
D)Both changes would increase long-run aggregate supply.

Question 25

Which of the following will most likely increase aggregate demand?

A)a decrease in stock market prices
B)a lower real interest rate
C)a decrease in the expected inflation rate
D)a decrease in real GDP

Question 26

If Europe and Japan experience rapid growth in their incomes,other things constant,this will cause a(n)

A)decrease in the exports of the United States.
B)increase in the exports of the United States.
C)decrease in the national income of the United States.
D)decrease in aggregate demand in the United States.

Question 27

Which of the following factors would increase aggregate demand in the goods and services market?

A)an decrease in stock prices
B)an increase in the real interest rate
C)a decrease in real incomes abroad
D)increased optimism on the part of consumers and businesses

Question 28

If a reduction in stock prices reduces the real wealth of Americans,the

A)aggregate demand curve will shift to the left.
B)long-run aggregate supply will shift to the left.
C)general price level will increase.
D)aggregate demand curve will shift to the right.

Question 29

Other things constant,an increase in the real interest rate will

A)cause consumers to reduce their purchases of durable items like appliances and automobiles.
B)induce businesses to increase their level of investment.
C)make borrowing money more attractive.
D)increase the natural rate of unemployment.

Question 30

An increase in the consumer sentiment index indicates that consumers are

A)becoming more optimistic about their future income and employment prospects.
B)becoming less optimistic about their future income and employment prospects.
C)expecting the inflation rate to rise in the near future.
D)expecting the inflation rate to fall in the near future.

Question 31

Which of the following would be most likely to cause a reduction in current aggregate demand in the United States?

A)increased fear of a recession
B)an increase in the expected rate of inflation
C)a sharp increase in the value of stocks owned by Americans
D)a rapid increase in the growth of income in Canada,Mexico,and Western Europe

Question 32

If the consumer sentiment index turns down sharply over a period of several months,which of the following is most likely to occur in the near future?

A)an increase in aggregate demand and expansion in real output
B)a reduction in aggregate demand and a contraction in real output
C)a reduction in aggregate demand and expansion in real output
D)an increase in aggregate demand and a contraction in real output

Question 33

If the exchange rate value of the dollar depreciates relative to other currencies,we would expect

A)U.S.exports to decrease.
B)U.S.exports to increase.
C)U.S.imports to increase.
D)aggregate demand in the United States to decrease.

Question 34

Within the framework of the AD/AS model,if consumers and investors become more pessimistic about the future direction of the economy,this will lead to a(n)

A)increase in aggregate demand.
B)decrease in aggregate demand.
C)increase in long-run aggregate supply (LRAS shifts to the right).
D)reduction in the natural rate of unemployment.

Question 35

Other things constant,a reduction in the real interest rate will

A)cause consumers to cut back on their purchases of durable items like automobiles.
B)induce businesses to increase their level of investment.
C)increase the natural rate of unemployment.
D)increase the actual rate of unemployment.

Question 36

Which of the following would be most likely to cause an increase in current aggregate demand in the United States?

A)increased fear that the U.S.economy was going into a recession
B)an increase in the real interest rate
C)a reduction in the expected rate of inflation
D)rapid growth of real income in Canada and Western Europe

Question 37

Which one of the following factors will most likely cause an increase in aggregate demand?

A)an increase in the expected inflation rate
B)an increase in the real interest rate
C)a decrease in net exports due to falling incomes abroad
D)a technological development that decreases the cost of producing computer chips

Question 38

An increase in the exchange rate value of the U.S.dollar,relative to the Japanese yen,will cause U.S.imports from Japan to

A)increase and exports to Japan to decrease.
B)increase and exports to Japan to increase.
C)decrease and exports to Japan to decrease.
D)decrease and exports to Japan to increase.

Question 39

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

A)a decrease in the actual rate of inflation
B)a decrease in the expected rate of inflation
C)a decrease in the capital stock
D)a drought in the Midwest agricultural areas.

Question 40

Within the AD/AS model,if consumers and investors become more optimistic about the future direction of the economy,

A)aggregate demand will decrease.
B)aggregate demand will increase.
C)long-run aggregate supply will increase.
D)long-run aggregate supply will decrease.

Question 41

Which of the following will most likely cause an increase in the long-run aggregate supply curve?

A)a reduction in the general level of prices
B)an increase in the general level of prices
C)an improvement in technology that substantially reduces the cost of generating energy
D)an increase in taxes that makes it more expensive for Americans to import crude oil

Question 42

When economic growth (a gradual shift of LRAS to the right)expands the production possibilities of an economy,

A)a higher rate of real output can be achieved in the short run,but it cannot be sustained in the long run.
B)a larger output can be attained even if unemployment remains at its natural rate.
C)the general level of prices will rise if the money supply is held constant.
D)the equilibrium in the goods and services market will be disrupted.

Question 43

Which of the following will most likely increase short-run aggregate supply?

A)unfavorable weather conditions in the nation's agricultural areas
B)an increase in income tax rates
C)an increase in the expected inflation rate
D)a reduction in resource prices

Question 44

During the past 50 years,the production possibilities of the United States have expanded,increasing both short-run and long-run aggregate supply.Other things constant,this would lead to

A)an expansion in output and an increase in prices.
B)an expansion in output and a decrease in prices.
C)no change in either output or prices.
D)no change in output and a decrease in prices.

Question 45

A supply shock is a surprise occurrence that

A)shifts the long-run aggregate supply curve to the right.
B)either increases or decreases short-run aggregate supply and output.
C)temporarily increases aggregate demand.
D)temporarily reduces aggregate demand.

Question 46

If the economy is simultaneously in long-run and short-run equilibrium,which of the following is true?

A)Aggregate quantity supplied is greater than potential output.
B)Aggregate quantity demanded is less than potential output.
C)Aggregate quantity demanded is equal to potential output.
D)The aggregate demand curve is horizontal at the potential output level.

Question 47

An abnormally large grain crop due to highly favorable weather conditions in the Midwest is an example of a(n)

A)technological improvement that will increase long-run aggregate supply.
B)supply shock that will increase short-run aggregate supply.
C)unexpected development that will reduce the natural rate of unemployment.
D)unexpected development that will lead to excess supply and widespread unemployment.

Question 48

An improvement in technology would shift which of the following curve(s)?

A)aggregate demand and short-run aggregate supply
B)only the short-run aggregate supply
C)only the aggregate demand
D)short-run and long-run aggregate supply

Question 49

If an improvement in the quality of education in the United States increases the productivity of labor,this will

A)increase aggregate demand and decrease aggregate supply.
B)increase short-run aggregate supply and reduce aggregate demand.
C)decrease aggregate demand and increase short-run aggregate supply.
D)increase both long-run and short-run aggregate supply.

Question 50

A large grain crop resulting from favorable weather conditions would shift which of the following curves?

A)only aggregate demand
B)aggregate demand and short-run aggregate supply
C)only short-run aggregate supply
D)only long-run aggregate supply

Question 51

Over the last 60 years,the average annual growth of real GDP in the United States has been approximately

A)1 percent.
B)3 percent.
C)5 percent.
D)9 percent.

Question 52

Which of the following will most likely increase long-run aggregate supply?

A)an increase in the rate of investment
B)an increase in resource prices
C)an increase in the minimum wage
D)an increase in the expected inflation rate

Question 53

Suppose the economy is in long-run equilibrium.In a short span of time,there is a large influx of skilled immigrants,a major new discovery of oil,and a major new technological advance in electricity production.In the short run,we would expect

A)the price level to rise and real GDP to fall.
B)the price level to fall and real GDP to rise.
C)the price level and real GDP both to stay the same.
D)All of the above are possible.

Question 54

An increase in capital formation that expands long-run aggregate supply will

A)increase output and decrease prices.
B)increase both output and prices.
C)decrease both output and prices.
D)decrease output and increase prices.

Question 55

Which of the following is the best example of a supply shock?

A)an increase in the availability of capital and machinery due to normal changes in business investment
B)a decrease in the productivity of the labor force due to a decline in the average educational level of workers
C)a decline in agricultural output due to a summer drought
D)an increase in output as a result of an expansion in employment

Question 56

Other things constant,an increase in resource prices will

A)increase aggregate demand.
B)decrease aggregate demand.
C)decrease short-run aggregate supply.
D)increase short-run aggregate supply.

Question 57

Suppose the economy is initially in long-run equilibrium and then it experiences a supply shock in the form of sharply higher energy prices.Which of the following is true?

A)The short-run aggregate supply curve shifts leftward and the long-run supply curve shifts rightward.
B)The short-run aggregate supply curve shifts rightward and there is a movement along the aggregate demand curve.
C)The short-run aggregate supply curve does not shift and the long-run aggregate supply curve shifts rightward.
D)The short-run aggregate supply curve shifts rightward but the long-run aggregate supply curve does not shift.
E)The short-run aggregate supply curve shifts leftward and there is a movement along the aggregate demand curve.

Question 58

If business decision makers expect that the inflation rate will increase in the near future,

A)long-run aggregate supply will increase.
B)long-run aggregate supply will decrease.
C)short-run aggregate supply will increase.
D)short-run aggregate supply will decrease.

Question 59

In the aggregate demand/aggregate supply model,an increase in a country's sustainable potential output is represented by an increase in

A)prices.
B)aggregate demand.
C)long-run aggregate supply.
D)an increase in the general level of prices.

Question 60

If an economy is growing,but experiences no inflation,this means

A)aggregate demand increased,but aggregate supply did not.
B)aggregate supply increased,but aggregate demand did not.
C)aggregate demand and aggregate supply increased by the same amount.
D)aggregate demand and aggregate supply decreased by the same amount.

Question 61

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 labor available
D)All of the above are correct.

Question 62

Within the AD/AS model,an increase in capital formation that permits the economy to achieve a larger output will

A)increase long-run aggregate supply.
B)increase short-run aggregate supply,but long-run aggregate supply will be unaffected.
C)increase aggregate demand.
D)decrease aggregate demand.

Question 63

The situation in which actual output exceeds potential output

A)is impossible because all resources are employed to produce potential output
B)is possible only in times of high unemployment
C)is possible only if the unemployment rate is negative
D)is possible only in the long run
E)creates pressure for inflation

Question 64

When an economy experiences long-run economic growth,a larger output can be achieved

A)only if there is a reduction in the natural rate of unemployment.
B)only if the economy's actual unemployment is less than the natural rate.
C)if prices increase.
D)even though unemployment remains at its natural rate.

Question 65

The usual results of an adverse supply shock are

A)a rise in prices and a fall in output.
B)a fall in prices and a rise in output.
C)increased growth and lower inflation.
D)a rise in prices and a rise in output.

Question 66

An economic contraction caused by a shift in aggregate demand causes prices to

A)rise in the short run,and rise even more in the long run.
B)rise in the short run,and fall back to their original level in the long run.
C)fall in the short run,and fall even more in the long run.
D)fall in the short run,and rise back to their original level in the long run.

Question 67

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

A)Short-run aggregate supply shifts right.
B)Short-run aggregate supply shifts left.
C)Aggregate demand shifts right.
D)Aggregate demand shifts left.

Question 68

Suppose the economy is in long-run equilibrium.In a short span of time,there is a pessimistic revision of expectations about future business conditions and an unexpected rise in the value of the dollar.In the short run,we would expect

A)the price level and real GDP both to rise.
B)the price level and real GDP both to fall.
C)the price level and real GDP both to stay the same.
D)All of the above are possible.

Question 69

The long-run equilibrium price level is the price level the economy is expected to reach when the

A)economy produces its potential output
B)Fed has stabilized interest rates
C)federal budget is balanced
D)discount rate equals the prime rate
E)inflation rate is zero

Question 70

Suppose the economy is initially in long-run equilibrium and aggregate demand rises.In the long run prices

A)and output are higher than in the original long-run equilibrium.
B)and output are lower than in the original long-run equilibrium.
C)are higher and output is the same as the original long-run equilibrium.
D)are the same and output is lower than in the original long-run equilibrium.

Question 71

Suppose this year's inflation rate is 4 percent,which is greater than the 2 percent everyone expected.Which of the following is true?

A)real GDP will increase
B)the unemployment rate will probably rise
C)potential output will remain the same
D)the short-run aggregate supply curve will shift to the right
E)there will be a leftward movement along a given short-run aggregate supply curve

Question 72

If the U.S.price level increased relative to price levels in foreign countries,what would be the impact on domestic aggregate supply and aggregate demand curves?

A)the aggregate supply curve would shift outward and the aggregate demand curve would remain unchanged
B)the aggregate supply curve would shift inward and the aggregate demand curve would remain unchanged
C)the aggregate demand curve would shift outward and the aggregate supply curve would remain unchanged
D)the aggregate demand curve would shift inward and the aggregate supply curve would remain unchanged
E)the domestic aggregate demand and supply curves would remain unchanged

Question 73

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

A)Short-run aggregate supply shifts right.
B)Short-run aggregate supply shifts left.
C)Aggregate demand shifts right.
D)Aggregate demand shifts left.

Question 74

Which of the following,other things the same,would make the price level decrease and real GDP increase?

A)long-run aggregate supply shifts right
B)long-run aggregate supply shifts left
C)aggregate demand shifts right
D)aggregate demand shifts left

Question 75

The expected price level is important because

A)it is the equilibrium price level in the short run
B)it determines the actual price level in the short run
C)it determines the actual price level in the long run
D)firms and resource owners make long-term agreements based on the expected price level

Question 76

Suppose we observe an economy experiencing an economic expansion and high inflation.This means the expansion is attributed to

A)an anticipated increase in aggregate demand.
B)an increase in long-run aggregate supply.
C)an unanticipated decrease in aggregate demand.
D)an unanticipated decrease in aggregate supply.

Question 77

Since the end of World War II,the U.S.has almost always had rising prices and an upward trend in real GDP.To explain this

A)it is only necessary that long-run aggregate supply shifts right over time.
B)it is only necessary that aggregate demand shifts right over time.
C)both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must shift farther.
D)None of the above cases would produce rising prices and growing real GDP over time.

Question 78

Under which of the following conditions will a change in government purchases have the greatest effect on the economy in the short run?

A)The aggregate demand curve is relatively flat.
B)The aggregate demand curve is relatively steep.
C)The short-run aggregate supply curve is relatively flat.
D)The aggregate demand curve is vertical.
E)The short-run aggregate supply curve is vertical.

Question 79

If the U.S.price level decreased relative to price levels in foreign countries,what would be the impact on domestic aggregate supply and aggregate demand curves?

A)the aggregate supply curve would shift outward and the aggregate demand curve would remain unchanged
B)the aggregate supply curve would shift inward and the aggregate demand curve would remain unchanged
C)the aggregate demand curve would shift outward and the aggregate supply curve would remain unchanged
D)the aggregate demand curve would shift inward and the aggregate supply curve would remain unchanged
E)the domestic aggregate demand and supply curves would remain unchanged

Question 80

Which of the following would be most likely to shift the long-run aggregate supply curve (LRAS)to the right?

A)favorable weather conditions that increased the size of this year's grain harvest
B)an increase in resource prices relative to product prices
C)an increase in labor productivity as the result of improved computer technology and expansion of the Internet
D)an increase in the cost of security as the result of terrorist activities