Question 1

Inflation is generally the result of total spending growing faster than total production.

Accepted Answer

Inflation occurs when there is too much money in circulation relative to the available goods and services, leading to an increase in prices. This can happen when total spending (demand) outpaces total production (supply).

Question 2

One factor which brought on the recession of 2007-2009 was the end of the housing bubble.

Accepted Answer

The end of the housing bubble was a significant factor that led to the recession of 2007-2009. The housing bubble was created by a surge in subprime lending and an increase in demand for housing. However, when the prices of houses began to drop, homeowners were unable to pay their mortgages, leading to defaults and foreclosures. This caused a ripple effect in the economy, causing financial institutions to suffer losses, and ultimately leading to the recession.

Question 3

Use the dynamic model of aggregate demand and supply to illustrate a situation where aggregate demand and short-run aggregate supply are both increasing from year 1 to year 2, resulting in a higher price level and higher level of real GDP at macroeconomic equilibrium in year 2.

Accepted Answer

The answer of Use the dynamic model of aggregate demand...

Question 4

The recession of 2007-2009 began in ________, with the end of the economic expansion that had begun in ________.
A) January 2007; April 1984
B) December 2007; November 2001
C) July 2007; August 2006
D) March 2007; March 1995

Accepted Answer

The recession of 2007-2009 began in December 2007, as officially declared by the National Bureau of Economic Research (NBER), with the end of the economic expansion that had begun in November 2001.

Question 5

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?
A) SRAS shifted to the right by more than LRAS.
B) AD shifted to the right by more than SRAS.
C) AD shifted to the right by less than SRAS.
D) SRAS and AD do not shift.

Accepted Answer

The answer of Which of the following could explain why...

Question 6

Which of the following is an assumption made by the dynamic model of aggregate demand and aggregate supply?
A) Aggregate demand and potential real GDP decrease continuously.
B) The aggregate demand curve shifts to the right except during periods when workers and firms expect higher wages.
C) Potential real GDP increases continuously during economic expansions and decreases continuously during economic recessions.
D) The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages.

Accepted Answer

The answer of Which of the following is an assumption...

Question 7

In the dynamic aggregate demand and aggregate supply model, what is the result of aggregate demand increasing faster than potential real GDP?

Accepted Answer

The answer of In the dynamic aggregate demand and aggregate...

Question 8

One factor which brought on the recession of 2007-2009 was the financial crisis in 2008.

Accepted Answer

The financial crisis in 2008 played a significant role in causing the recession of 2007-2009. The crisis was triggered by the collapse of the US housing market and the subprime mortgage industry, which spread throughout the financial system due to the interconnectedness of financial institutions and the use of complex and risky financial instruments. This led to a credit crunch and a decline in economic activity, ultimately resulting in the recession.

Question 9

Explain how the static aggregate demand and aggregate supply model gives us misleading results about the price level, particularly with respect to decreases in aggregate demand. Describe how the aggregate demand curve is different in the dynamic model as compared to the static model. Describe how potential GDP is different in the dynamic model as compared to the static model.

Accepted Answer

The answer of Explain how the static aggregate demand and...

Question 10

In the dynamic aggregated demand and aggregate supply model, if AD shifts further than AS
A) inflation occurs.
B) deflation occurs.
C) stagflation occurs.
D) disinflation occurs.

Accepted Answer

If AD shifts further than AS, there will be excess demand in the economy, which will put upward pressure on prices. This situation is known as demand-pull inflation, where increase in demand drives up prices. Therefore, inflation occurs.

Question 11

The dynamic aggregate demand and aggregate supply model assumes that potential GDP increases over time.

Accepted Answer

The dynamic aggregate demand and aggregate supply model assumes that potential GDP increases over time due to factors such as technological advances, increases in labor force, and capital stock.

Question 12

During 2008, oil price increases
A) shifted the short-run aggregate supply curve farther to the left than similar increases had 30 years earlier.
B) shifted the aggregate demand curve farther to the right than similar increases had 30 years earlier.
C) did not shift the short-run aggregate supply curve as far to the left as similar increases had 30 years earlier.
D) shifted the aggregate demand curve farther to the left than similar increases had 30 years earlier.

Accepted Answer

During 2008, the impact of oil price increases on the short-run aggregate supply curve was not as severe as similar increases had been 30 years earlier, due to factors such as improved energy efficiency and a lesser dependence on oil in many economies.

Question 13

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?
A) SRAS shifted to the right by more than LRAS.
B) AD shifted to the right by more than SRAS.
C) AD shifted to the right by less than SRAS.
D) AD did not shift and SRAS shifted to the left.

Accepted Answer

The answer of Which of the following could explain why...

Question 14

Use the dynamic model of aggregate demand and supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

Accepted Answer

The answer of Use the dynamic model of aggregate demand...

Question 15

In the dynamic aggregated demand and aggregate supply model, inflation occurs if
A) the AD curve shifts more to the right than the LRAS curve.
B) the SRAS curve shifts more to the right than the AD curve.
C) the AD curve shifts to the left and the SRAS curve shifts to the right.
D) the AD curve shifts to the left and the LRAS curve shifts to the right.

Accepted Answer

Inflation occurs when the aggregate demand (AD) curve shifts more to the right than the long-run aggregate supply (LRAS) curve, leading to an increase in both price level and output level in the short-run. This is because the economy operates above its potential output level, causing firms to increase prices due to high demand. Therefore, option A is the correct answer. Option B is incorrect because if the SRAS curve shifts more to the right than the AD curve, it leads to a decrease in both price level and output level in the short-run. Option C is incorrect because if the AD curve shifts to the left and the SRAS curve shifts to the right, it leads to a decrease in price level and an ambiguous effect on the output level. Finally, option D is incorrect because if the AD curve shifts to the left and the LRAS curve shifts to the right, it leads to a decrease in the price level but an increase in the output level.

Question 16

When people became ________ concerned with the underlying value of their houses and became ________ concerned with the expectations of the prices of their houses increasing, a housing bubble occurred.
A) less; less
B) less; more
C) more; less
D) more; more

Accepted Answer

When people become less concerned with the underlying value of their homes and more concerned with the expectation of prices increasing, it leads to a housing bubble. This is because the demand for homes increases, causing prices to rise rapidly and potentially surpassing the actual value of the homes.

Question 17

In the dynamic aggregate demand and aggregate supply model, what is the result of aggregate demand increasing slower than potential real GDP?

Accepted Answer

The answer of In the dynamic aggregate demand and aggregate...

Question 18

Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?
A) falling oil prices
B) an increase in net exports
C) the end of the housing bubble
D) a decline in government spending

Accepted Answer

The end of the housing bubble led to a decrease in consumer spending and a decline in overall economic activity, contributing to the decline in aggregate demand and the subsequent recession. Falling oil prices and an increase in net exports could both potentially increase aggregate demand, while a decline in government spending could also contribute to a decrease in aggregate demand but was not a primary driver of the 2007-2009 recession.

Question 19

Explain how the aggregate demand and aggregate supply model can be made more dynamic.

Accepted Answer

The answer of Explain how the aggregate demand and aggregate...

Question 20

Explain whether KB Homes' sales are likely to fluctuate more or less than the sales of each of the following firms as the economy moves from recession to expansion and back to recession.
Whirlpool Corporation (appliance manufacturer)
Taco Bell
The Boeing Company (aircraft manufacturer)
GameStop (video game sales and rentals)

Accepted Answer

The answer of Explain whether KB Homes' sales are likely...

Quiz 24: Aggregate Demand and Aggregate Supply Analysis

Inflation is generally the result of total spending growing faster than total production.

One factor which brought on the recession of 2007-2009 was the end of the housing bubble.

Use the dynamic model of aggregate demand and supply to illustrate a situation where aggregate demand and short-run aggregate supply are both increasing from year 1 to year 2, resulting in a higher price level and higher level of real GDP at macroeconomic equilibrium in year 2.

The recession of 2007-2009 began in , with the end of the economic expansion that had begun in .

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?

Which of the following is an assumption made by the dynamic model of aggregate demand and aggregate supply?

In the dynamic aggregate demand and aggregate supply model, what is the result of aggregate demand increasing faster than potential real GDP?

One factor which brought on the recession of 2007-2009 was the financial crisis in 2008.

In the dynamic aggregated demand and aggregate supply model, if AD shifts further than AS

The dynamic aggregate demand and aggregate supply model assumes that potential GDP increases over time.

During 2008, oil price increases

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?

Use the dynamic model of aggregate demand and supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

In the dynamic aggregated demand and aggregate supply model, inflation occurs if

When people became concerned with the underlying value of their houses and became concerned with the expectations of the prices of their houses increasing, a housing bubble occurred.

In the dynamic aggregate demand and aggregate supply model, what is the result of aggregate demand increasing slower than potential real GDP?

Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?

Explain how the aggregate demand and aggregate supply model can be made more dynamic.