Question 1

Stagflation is the combination of
A)deflation with increasing real GDP.
B)inflation and increasing real GDP.
C)inflation and recession.
D)deflation and recession.

Accepted Answer

Stagflation is characterized by high inflation and stagnant economic growth, often accompanied by high unemployment, which is indicative of a recession.

Question 2

If the money price of a resource such as oil falls, then the
A)SAS curve shifts leftward.
B)SAS curve shifts rightward.
C)LAS curve shifts rightward.
D)LAS curve shifts leftward.

Accepted Answer

A fall in the money price of a resource like oil reduces production costs, leading to an increase in short-run aggregate supply (SAS), shifting the SAS curve rightward.

Question 3

-The above figure depicts an economy with a short- run equilibrium
A)at full employment.
B)at higher than full employment.
C)below full employment.
D)None of the above answers is correct.

Accepted Answer

The answer of 
-The above figure depicts an economy with...

Question 4

Which of the following changes would NOT shift the aggregate demand curve?
A)An increase in technology
B)A change in expectations about future income
C)A change in fiscal policy
D)A change in monetary policy

Accepted Answer

An increase in technology typically affects the aggregate supply curve, not the aggregate demand curve.

Question 5

In short- run macroeconomic equilibrium,
A)real GDP is less than potential GDP.
B)the price level is fixed and short- run aggregate supply determines real GDP.
C)real GDP equals potential GDP and aggregate demand determines the price level.
D)real GDP and the price level are determined by short- run aggregate supply and aggregate demand.

Accepted Answer

In short-run macroeconomic equilibrium, both real GDP and the price level are determined by the interaction of short-run aggregate supply and aggregate demand.

Question 6

There are several reasons why the aggregate demand curve is downward- sloping. Which of the following correctly describes one of these explanations?
A)A fall in the price level, holding foreign prices and the exchange rate constant, increases net exports.
B)A rise in the price level raises the purchasing power of wealth and increases desired consumption.
C)A rise in the price level lowers the interest rate and increases investment spending.
D)A rise in the price level raises interest rates and increases investment spending.

Accepted Answer

A fall in the price level makes domestic goods cheaper relative to foreign goods, increasing net exports, which is one reason the aggregate demand curve slopes downward.

Question 7

Suppose the Australian exchange rate falls from 90 yen per dollar to 80 yen per dollar. Australian exports will ________, Australian imports will ________, and Australian aggregate demand will________.
A)increase; decrease; increase
B)decrease; increase; decrease
C)decrease; increase; increase
D)increase; increase; increase

Accepted Answer

When the exchange rate falls, Australian goods become cheaper for foreign buyers, leading to an increase in exports. Conversely, imports become more expensive, leading to a decrease in imports. This increase in net exports raises aggregate demand.

Question 8

Business cycles are the result of
A)regular shifts of the AD curve only.
B)regular shifts of both the AD and SAS curves.
C)irregular shifts of both the AD and SAS curves.
D)irregular shifts of the SAS curve only.

Accepted Answer

Business cycles are caused by irregular shifts in both the Aggregate Demand (AD) and Short-run Aggregate Supply (SAS) curves, leading to fluctuations in economic activity.

Question 9

Economic growth is BEST defined as
A)rightward shifts of the SAS curve.
B)rightward shifts of the AD curve.
C)increases in potential GDP.
D)decreases in potential GDP.

Accepted Answer

Economic growth is best defined as increases in potential GDP, which represents the economy's capacity to produce goods and services.

Question 10

Full- employment equilibrium occurs
A)when potential GDP exceeds real GDP.
B)when real GDP exceeds potential GDP.
C)when real GDP equals potential GDP.
D)as a result of an increase in long- run aggregate supply.

Accepted Answer

Full-employment equilibrium occurs when real GDP equals potential GDP, meaning the economy is operating at its full capacity without inflationary or recessionary gaps.

Question 11

-In the above figure, if the economy is at point a, an increase in ________ will move the economy to________.
A)expected future income; point c
B)real wealth from the fall in the price level; point b
C)expected future income; point d
D)real wealth from the fall in the price level; point c

Accepted Answer

The answer of 
-In the above figure, if the economy...

Question 12

According to the intertemporal substitution effect, when the price level increases, the interest rate
A)rises and the quantity of real GDP demanded decreases.
B)is not affected.
C)rises and the quantity of real GDP demanded increases.
D)falls and the quantity of real GDP demanded decreases.

Accepted Answer

When the price level increases, the interest rate rises, leading to a decrease in the quantity of real GDP demanded due to the intertemporal substitution effect.

Question 13

-In the above figure, the economy is initially at point B. If the Reserve Bank decreases the quantity of money, there is A)a movement to point A. B)a shift to AD₂. C)a shift to AD₁. D)a movement to point C.

Accepted Answer

The answer of 
-In the above figure, the economy is...

Question 14

In a long- run equilibrium, an increase in the quantity of capital leads to
A)a decrease in the equilibrium price level and an increase in equilibrium real GDP.
B)no change in the equilibrium price level, but an increase in equilibrium real GDP.
C)a decrease in the equilibrium price level, but no change in equilibrium real GDP.
D)an increase in the equilibrium price level and an increase in equilibrium real GDP.

Accepted Answer

An increase in the quantity of capital shifts the long-run aggregate supply curve to the right, leading to a decrease in the equilibrium price level and an increase in equilibrium real GDP.

Question 15

In the macroeconomic long run,
A)real GDP equals potential GDP.
B)regardless of the price level, the economy is producing at potential GDP.
C)the economy is at full employment.
D)All of the above are correct.

Accepted Answer

In the long run, the economy will tend towards producing at its potential GDP, which occurs when it is at full employment. This means that all available resources are being used, and there is no cyclical unemployment. Therefore, all three statements are correct.

Question 16

A classical economist believes that
A)the economy is self- regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic.
B)if the economy was left alone, it would rarely operate at full employment.
C)the economy is self- regulating and will normally, though not always, operate at full employment if monetary policy is not erratic.
D)the economy is self- regulating and always at full employment.

Accepted Answer

The answer of A classical economist believes that
A)the economy is...

Question 17

-In the above figure, the economy is at point A. Then the price level rises to 120 while the money wage rate remains constant. Firms will be willing to supply output equal to
A)$13.0 billion.
B)more than $13.0 billion.
C)less than $13.0 billion.
D)Without more information, it is impossible to determine which of the above answers is correct.

Accepted Answer

When the price level rises and the money wage rate remains constant, firms experience higher profitability, leading them to increase output beyond the initial level.

Question 18

The Reserve Bank lowers interest rates. As a result, in the short run, real GDP ________ and the price level ________.
A)increases; falls
B)decreases; falls
C)decreases; rises
D)increases; rises

Accepted Answer

Lowering interest rates typically stimulates economic activity by making borrowing cheaper, leading to increased investment and consumption. This boosts real GDP and can also lead to a rise in the price level due to increased demand.

Question 19

According to the intertemporal substitution effect, a fall in the price level will
A)increase the real value of wealth, which raises the interest rate so that the quantity of real GDP demanded decreases.
B)increase net exports, which causes the quantity of real GDP demanded to increase.
C)decrease the real value of wealth, which increases the quantity of real GDP demanded.
D)cause the interest rate to fall so that investment increases and the quantity of real GDP demanded increases.

Accepted Answer

The intertemporal substitution effect suggests that a fall in the price level leads to a decrease in interest rates, encouraging more investment and increasing the quantity of real GDP demanded.

Question 20

Suppose there is an increase in short- run aggregate supply with no change in long- run aggregate supply. This situation could be the result of
A)an increase in the quantity of capital.
B)a decrease in the money wage rate.
C)an increase in the price of oil.
D)a technological advancement.

Accepted Answer

A decrease in the money wage rate reduces production costs, leading to an increase in short-run aggregate supply without affecting long-run aggregate supply.

Quiz 24: Aggregate Demand and Aggregate Supply

Stagflation is the combination of

If the money price of a resource such as oil falls, then the

-The above figure depicts an economy with a short- run equilibrium

Which of the following changes would NOT shift the aggregate demand curve?

In short- run macroeconomic equilibrium,

There are several reasons why the aggregate demand curve is downward- sloping. Which of the following correctly describes one of these explanations?

Suppose the Australian exchange rate falls from 90 yen per dollar to 80 yen per dollar. Australian exports will , Australian imports will , and Australian aggregate demand will.

Business cycles are the result of

Economic growth is BEST defined as

Full- employment equilibrium occurs

-In the above figure, if the economy is at point a, an increase in will move the economy to.

According to the intertemporal substitution effect, when the price level increases, the interest rate

-In the above figure, the economy is initially at point B. If the Reserve Bank decreases the quantity of money, there is

In a long- run equilibrium, an increase in the quantity of capital leads to

In the macroeconomic long run,

A classical economist believes that

-In the above figure, the economy is at point A. Then the price level rises to 120 while the money wage rate remains constant. Firms will be willing to supply output equal to

The Reserve Bank lowers interest rates. As a result, in the short run, real GDP and the price level .

According to the intertemporal substitution effect, a fall in the price level will

Suppose there is an increase in short- run aggregate supply with no change in long- run aggregate supply. This situation could be the result of