Question 1

Suppose people are worried about losing their jobs. In the short run, this will
A) decrease short-run aggregate supply and output.
B) decrease aggregate demand and output.
C) decrease aggregate demand and short-run aggregate supply.
D) decrease output and increase the price level.
E) increase saving and increase aggregate demand.

Accepted Answer

When people are worried about losing their jobs, they tend to decrease their spending, which reduces aggregate demand. This reduction in aggregate demand leads to a decrease in output in the short run.

Question 2

Refer to the following figure to answer the next questions.
 
-Based on the figure, starting at point A, if there is an increase in the price of oil, then in the short run we move to point ______and in the long run to point_____ .
A) F; E
B) F; A
C) D; C
D) D; A
E) B; E

Accepted Answer

Starting at point A, an increase in the price of oil leads to an increase in costs, which shifts the short-run aggregate supply curve (SRAS) to the left. This movement takes the economy to point F in the short run. However, eventually, firms will adjust their prices and the long-run aggregate supply curve (LRAS) will shift to the left to reflect the higher costs of production. This takes the economy to point A in the long run. Therefore, the correct answer is B, as it indicates that the economy moves to point F in the short run and then back to point A in the long run.

Question 3

Suppose that you have the following information about the economy, where all figures are in millions of dollars:
 Full employment output = $2,000 
Consumption = $1,200 
Investment = $400
Government spending = $500 
Net exports = -$200
Because short-run output is_____ full-employment output, in the long run we would expect the price level to_______ .
A) less than; rise
B) less than; fall
C) greater than; rise
D) greater than; fall
E) equal to; remain unchanged

Accepted Answer

In the long run, short-run output adjusts to full-employment output. Since full-employment output is already reached, any increase in aggregate demand will lead to an increase in the price level. Thus, in the long run, we would expect the price level to be lower than it would be at short-run output, causing it to fall. Therefore, option B is the correct answer.

Question 4

Which of the following would cause an increase in employment in the short run?
A) The minimum wage increases.
B) Exports decrease.
C) There is a negative supply shock.
D) There is an increase in the expected price level.
E) There is an increase in government spending.

Accepted Answer

An increase in government spending would lead to an increase in aggregate demand, which would cause an increase in output and thus an increase in employment in the short run.

Question 5

Which of the following would cause an increase in the price level in the long run?
A) The number of workers in the labor force increases.
B) Net exports decrease.
C) Investment increases.
D) Natural resources increase.
E) There is a temporary increase in the price of oil.

Accepted Answer

An increase in investment would cause an increase in productivity which can lead to an increase in the price level in the long run as firms raise their prices to cover their higher costs of production. The other options are unlikely to have a significant impact on the price level in the long run.

Question 6

Refer to the following figure to answer the next questions.
 
-Based on the figure, if the economy is currently at point B, then in the long run, we can expect the economy to naturally adjust to point
A) A.
B) B.
C) C.
D) D.
E) E.

Accepted Answer

The answer of Refer to the following figure to answer...

Question 7

If consumers decide to save a larger percentage of their incomes, it will be
A) harmful in the long run because the price level will rise.
B) beneficial in the short run because saving will rise.
C) beneficial in the long run because interest rates will fall.
D) harmful in the long run because aggregate supply will fall.
E) harmful in the long run because unemployment will increase.

Accepted Answer

If consumers save a larger percentage of their incomes, it means banks have access to more funds to loan out for investment. This increases the supply of loanable funds and lowers interest rates, which could lead to increased investment and economic growth in the long run.

Question 8

Suppose there is a surge in stock market values. In the short run, we would expect the price level to _____and the unemployment rate to______ .
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
E) remain unchanged; decrease

Accepted Answer

A surge in stock market values indicates an increase in investor confidence, leading to a rise in consumer spending and business investments. This leads to an increase in aggregate demand (AD) in the short run, causing an increase in the price level. Additionally, businesses may hire more workers to keep up with the increased demand, resulting in a decrease in unemployment rate. Therefore, we would expect the price level to increase and the unemployment rate to decrease.

Question 9

Refer to the following figure to answer the next questions.
 
-Based on the figure, if the economy starts at point A and ends up at point E, then in the short run, there was a(n)
A) decrease in aggregate demand.
B) increase in aggregate demand.
C) decrease in short-run aggregate supply.
D) increase in short-run aggregate supply.
E) increase in long-run aggregate supply.

Accepted Answer

An economy moving from point A to point E typically indicates an increase in aggregate demand, as this movement suggests a shift to the right of the aggregate demand curve, leading to higher output and price levels in the short run.

Question 10

Suppose firms increase investment spending to replace worn-out equipment. In the short run, aggregate demand will _____and output will ______.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) remain unchanged; remain unchanged
E) decrease; increase

Accepted Answer

When firms increase investment spending to replace worn-out equipment, it increases the aggregate demand (AD) in the economy. This is because the firms are spending money on buying new equipment, which leads to an increase in the production of capital goods. As a result, there is an increase in the production of goods and services, leading to an increase in output in the short run. Hence, the correct option is A, i.e., increase in aggregate demand and increase in output.

Question 11

If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will _______, output will_____ , and employment will ____in the long run.
A) increase; remain unchanged; increase
B) remain unchanged; increase; increase
C) decrease; increase; increase
D) decrease; decrease; increase
E) increase; increase; increase

Accepted Answer

In the long run, the economy tends to adjust back to its potential output level as prices and wages become more flexible, leading to a decrease in the price level, an increase in output, and an increase in employment. This adjustment process is based on the self-correcting mechanism of the economy, where lower prices eventually stimulate demand, leading to increased production and employment.

Question 12

Refer to the following figure to answer the next questions.
 
-Based on the figure, if the economy is at point F, then in the long run, we can expect
A) the price level to increase and output to increase.
B) the price level to decrease and output to increase.
C) the long-run aggregate supply curve to shift to the left.
D) aggregate demand to increase.
E) aggregate demand to decrease.

Accepted Answer

At point F, the economy is producing at a level of output above potential, which will lead to an increase in the price level in the short run. However, in the long run, wages and prices can adjust to bring the economy back to potential output, causing the long-run aggregate supply curve to shift to the right. This will result in a decrease in the price level and an increase in output. Therefore, the best answer is B.

Question 13

An increase in aggregate demand is harmful because
A) workers with sticky wages are paying more for goods and services.
B) firms have sticky input prices and earn less profit.
C) unemployment rises.
D) output has risen above the full-employment level.
E) wages will have to fall in the long run.

Accepted Answer

The answer of An increase in aggregate demand is harmful...

Question 14

Suppose the government permanently reduces spending in an effort to reduce the budget deficit. In the new long-run equilibrium, output will _____and the price level will_____ .
A) decrease; decrease
B) remain unchanged; decrease
C) remain unchanged; increase
D) decrease; remain unchanged
E) increase; decrease

Accepted Answer

The answer of Suppose the government permanently reduces spending in...

Question 15

Suppose that many of our trading partners in Europe sink into recession. In the short run, output in the United States will _____and the price level will _______.
A) increase; increase
B) decrease; decrease
C) remain unaffected; remain unaffected
D) decrease; remain unaffected
E) increase; remain unaffected

Accepted Answer

When trading partners in Europe sink into recession, demand for U.S. exports to Europe will likely decrease, leading to a reduction in U.S. output as export industries scale back. This decreased demand can also lead to lower price levels as businesses might reduce prices to stimulate demand.

Question 16

Suppose housing values fall during a recession. In the short run,
A) the price level will fall as we move down the aggregate demand curve.
B) the price level will fall as we move down the short-run aggregate supply curve.
C) short-run aggregate supply will decrease and the price level will fall.
D) short-run aggregate supply will increase because wages will fall.
E) aggregate demand will increase because the demand for houses will increase.

Accepted Answer

A decrease in housing values will decrease household wealth, leading to a decrease in consumption expenditure and a shift of the aggregate demand curve to the left in the short run. As a result, the price level will fall as we move down the short-run aggregate supply curve.

Question 17

A decrease in aggregate demand is harmful in the short run because _______but not in the long run because _______.
A) real wealth rises; real wealth falls
B) wages increase; wages decrease
C) the price level rises; output falls
D) unemployment rises; the price level falls
E) the price level falls; the unemployment rate rises

Accepted Answer

In the short run, a decrease in aggregate demand leads to a decrease in output, leading to a rise in unemployment. However, in the long run, wages and prices adjust to the changes, leading to a decrease in the price level and a return to the full employment level of output. Therefore, the negative effects on employment and output are only temporary in the long run.

Question 18

Refer to the following figure to answer the next questions.
 
-Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point______ and in the long run to point_______ .
A) B; E
B) B; C
C) D; A
D) D; C
E) B; A

Accepted Answer

According to the figure, starting at point A, an increase in government spending would shift the aggregate demand curve to the right, leading to an increase in output and price level, moving the economy to point B in the short run. In the long run, the increase in output would lead to higher wages and production costs, shifting the short-run aggregate supply curve to the left, eventually bringing the economy to point E with higher price level but the same level of output as in the initial equilibrium.

Question 19

The table identifies annual gross domestic product (GDP) in billions of dollars) for country X. Year

$$\begin{array} { l l l l } 
\hline \text { Year } & \text { GDP } & \text { Year } & \text { GDP } \
\hline 2006 & 1,107 & 2011 & 2,614 \
2007 & 1,397 & 2012 & 2,460 \
2008 & 1,695 & 2013 & 2,465 \
2009 & 1,667 & 2014 & 2,417 \
2010 & 2,208 & 2015 & 1,774 \
\hline
\end{array}$$
Based on the table, during which years(s) was country X most likely to have been in a recession?
A) 2014 and 2015
B) 2009, 2012, 2014, and 2015
C) 2009, 2012, 2013, 2014, and 2015
D) 2012 through 2015
E) 2009

Accepted Answer

The answer of The table identifies annual gross domestic product...

Question 20

An increase in the price level will_____ the real value of wealth and, as a result, there will be the_____ aggregate demand curve.
A) reduce; a leftward shift of
B) reduce; an upward movement along
C) increase; a rightward shift of
D) increase; an upward movement along
E) have no effect on; no change in

Accepted Answer

The answer of An increase in the price level will_____...

Quiz 13: The Aggregate Demandaggregate Supply Model

Suppose people are worried about losing their jobs. In the short run, this will

Refer to the following figure to answer the next questions. -Based on the figure, starting at point A, if there is an increase in the price of oil, then in the short run we move to point __and in the long run to point_ .

Which of the following would cause an increase in employment in the short run?

Which of the following would cause an increase in the price level in the long run?

Refer to the following figure to answer the next questions. -Based on the figure, if the economy is currently at point B, then in the long run, we can expect the economy to naturally adjust to point

If consumers decide to save a larger percentage of their incomes, it will be

Suppose there is a surge in stock market values. In the short run, we would expect the price level to _and the unemployment rate to__ .

Refer to the following figure to answer the next questions. -Based on the figure, if the economy starts at point A and ends up at point E, then in the short run, there was a(n)

Suppose firms increase investment spending to replace worn-out equipment. In the short run, aggregate demand will _and output will __.

If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will _____, output will_ , and employment will __in the long run.

Refer to the following figure to answer the next questions. -Based on the figure, if the economy is at point F, then in the long run, we can expect

An increase in aggregate demand is harmful because

Suppose the government permanently reduces spending in an effort to reduce the budget deficit. In the new long-run equilibrium, output will _and the price level will_ .

Suppose that many of our trading partners in Europe sink into recession. In the short run, output in the United States will _and the price level will ___.

Suppose housing values fall during a recession. In the short run,

A decrease in aggregate demand is harmful in the short run because _but not in the long run because _.

Refer to the following figure to answer the next questions. -Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point and in the long run to point_ .

An increase in the price level will_ the real value of wealth and, as a result, there will be the_ aggregate demand curve.

Quiz 13: The Aggregate Demandaggregate Supply Model

Suppose people are worried about losing their jobs. In the short run, this will

Refer to the following figure to answer the next questions. -Based on the figure, starting at point A, if there is an increase in the price of oil, then in the short run we move to point ______and in the long run to point_____ .

Which of the following would cause an increase in employment in the short run?

Which of the following would cause an increase in the price level in the long run?

Refer to the following figure to answer the next questions. -Based on the figure, if the economy is currently at point B, then in the long run, we can expect the economy to naturally adjust to point

If consumers decide to save a larger percentage of their incomes, it will be

Suppose there is a surge in stock market values. In the short run, we would expect the price level to _____and the unemployment rate to______ .

Refer to the following figure to answer the next questions. -Based on the figure, if the economy starts at point A and ends up at point E, then in the short run, there was a(n)

Suppose firms increase investment spending to replace worn-out equipment. In the short run, aggregate demand will _____and output will ______.

If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will _______, output will_____ , and employment will ____in the long run.