Question 1

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,then we would expect that in the short-run,
A) real GDP will rise and the price level might rise,fall,or stay the same.
B) real GDP will fall and the price level might rise,fall,or stay the same.
C) the price level will rise,and real GDP might rise,fall,or stay the same.
D) the price level will fall,and real GDP might rise,fall,or stay the same.

Accepted Answer

A sharp increase in the minimum wage will increase the cost of labor, leading firms to decrease output and employment. This decrease in supply will cause real GDP to fall. The increase in pessimism about future business conditions will also lead to a decrease in investment, further decreasing aggregate demand and output. The overall effect is a decrease in both aggregate demand and aggregate supply, leading to a decrease in real GDP. The effect on the price level is ambiguous because the decrease in output will lead to lower prices, but the increase in the cost of labor will lead to higher prices. Therefore, the price level might rise, fall, or stay the same.

Question 2

Suppose the economy is in long-run equilibrium.If there is a tax cut at the same time that major new sources of oil are discovered in the country,then in the short-run
A) real GDP will rise and the price level might rise,fall,or stay the same.
B) real GDP will fall and the price level might rise,fall,or stay the same.
C) the price level will rise,and real GDP might rise,fall,or stay the same.
D) the price level will fall,and real GDP might rise,fall,or stay the same.

Accepted Answer

A tax cut will increase Aggregate Demand (AD), shifting it to the right. This will cause Real GDP to rise. The discovery of new sources of oil will lower production costs for firms, which will shift the Aggregate Supply (AS) curve to the right, causing both Real GDP and the Price Level to decrease. However, if the magnitude of the tax cut is large enough, it could offset the downward pressure on the price level caused by the increase in production. Therefore, Real GDP will rise and the price level might rise, fall, or stay the same.

Question 3

In the mid-1970s the price of oil rose dramatically.This
A) shifted aggregate supply left.
B) caused U.S.prices to fall.
C) was the consequence of OPEC increasing oil production.
D) All of the above are correct.

Accepted Answer

The rise in the price of oil in the mid-1970s led to a leftward shift in aggregate supply as it increased the cost of production for firms. This resulted in higher prices for goods and services, which contributed to the high levels of inflation during that time period. The other choices are not correct because the rise in oil prices did not cause U.S. prices to fall, and OPEC's actions to increase oil production were actually in response to the rising demand for oil at the time.

Question 4

Suppose the economy is in long-run equilibrium.Senator A succeeds in getting taxes raised.At the same time,Senator B succeeds in getting major new restrictions on logging enacted.In the short run
A) real GDP will rise and the price level might rise,fall,or stay the same.
B) real GDP will fall and the price level might rise,fall,or stay the same.
C) the price level will rise,and real GDP might rise,fall,or stay the same.
D) the price level will fall,and real GDP might rise,fall,or stay the same.

Accepted Answer

Tax increases and restrictions on logging both lead to a decrease in aggregate demand, which results in a decrease in real GDP. The effects on the price level are ambiguous because the decrease in aggregate demand could lead to a decrease in prices (if there is significant slack in the economy) or it could lead to an increase in prices (if the decrease in aggregate supply due to the restrictions on logging is more significant). However, the decrease in real GDP is the only certain outcome in the short run.

Question 5

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.

Accepted Answer

The answer of Suppose the economy is in long-run equilibrium.In...

Question 6

The recessions of the 1970s are often attributed to
A) declining inflation expectations.
B) an increase in oil prices.
C) declines in the price of stock.
D) decreases in the money supply.

Accepted Answer

The recessions of the 1970s are often attributed to the increase in oil prices. The Organization of Petroleum Exporting Countries (OPEC) placed an oil embargo on countries that supported Israel, resulting in a significant increase in oil prices in 1973-74. The increase in energy costs led to inflation and reduced economic growth, causing recessions in many countries.

Question 7

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the minimum wage,a major new discovery of oil,a large influx of immigrants,and new environmental regulations that raise the cost of electricity production.In the short run
A) the price level will rise and real GDP will fall.
B) the price level will fall and real GDP will rise.
C) the price level and real GDP will both stay the same.
D) All of the above are possible.

Accepted Answer

All of the above outcomes are possible in the short run, depending on the magnitude and timing of each shock.

- If the increase in minimum wage leads to firms raising prices, inflation will increase and real GDP could fall as consumers cut back on spending. 
- If the major new discovery of oil leads to lower energy prices and increased investment, real GDP could rise. 
- If the influx of immigrants leads to increased labor supply and lower wages, firms may expand output and real GDP could rise. 
- If the new environmental regulations raise costs for electricity production and reduce output, real GDP could fall while prices rise.

Therefore, the short-run effects of these shocks are uncertain and could lead to any of the outcomes listed in the answer choices.

Question 8

Suppose that the economy is at long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then in the short run
A) real GDP will rise and the price level might rise,fall,or stay the same.
B) real GDP will fall and the price level might rise,fall,or stay the same.
C) the price level will rise,and real GDP might rise,fall,or stay the same.
D) the price level will fall,and real GDP might rise,fall,or stay the same.

Accepted Answer

The answer of Suppose that the economy is at long-run...

Question 9

Changes in the price of oil
A) can only lead to recessions.
B) have not contributed much to output fluctuations in the United States.
C) change the economy principally by changing aggregate demand.
D) created both inflation and recession in the United States in the 1970s.

Accepted Answer

Changes in the price of oil can have significant effects on the economy. In the 1970s, for example, oil price increases created both inflation and recession in the United States. However, it is not accurate to say that changes in oil prices can only lead to recessions, as oil price decreases can also boost the economy. Similarly, while changes in oil prices can affect aggregate demand, they can also have broader impacts on production costs and supply chains. Finally, while oil price fluctuations have not been the sole contributor to output fluctuations in the United States, they have still played a significant role.

Question 10

Which of the following affected aggregate demand during the recession of 2008-2009?
A) a decline in residential construction and a decrease in lending
B) a decline in residential construction but not a decrease in lending
C) a decrease in lending but not a decline in residential construction
D) neither a decrease in residential construction nor a decrease in lending

Accepted Answer

The decline in residential construction led to a decrease in investment spending, which is a component of aggregate demand. Additionally, the decrease in lending made it harder for businesses and consumers to spend money, further decreasing aggregate demand.

Question 11

Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,the value of the dollar falls.In the short-run
A) real GDP will rise and the price level might rise,fall,or stay the same.
B) real GDP will fall and the price level might rise,fall,or stay the same.
C) the price level will rise,and real GDP might rise,fall,or stay the same.
D) the price level will fall,and real GDP might rise,fall,or stay the same.

Accepted Answer

In the short run, the government's restriction on electricity production will lead to a decrease in the supply of electricity, causing a decrease in the aggregate supply. At the same time, the fall in the value of the dollar will lead to an increase in aggregate demand as exports become cheaper and imports become more expensive.

The combination of a decrease in aggregate supply and an increase in aggregate demand will lead to an increase in the price level. Real GDP may rise, fall or stay the same, depending on the extent of the decrease in the aggregate supply and the increase in aggregate demand. However, we can be certain that the price level will rise. Therefore, the best choice is C.

Question 12

Suppose the economy is in long-run equilibrium.In a short span of time,there is a decline in the money supply,a tax increase,a pessimistic revision of expectations about future business conditions,and a 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.

Accepted Answer

In the short run, a decline in the money supply, tax increase, and pessimistic revision of expectations would all lead to a decrease in both aggregate demand and aggregate supply. This would put downward pressure on both the price level and real GDP. The increase in the value of the dollar would also lead to a decrease in net exports, which would further decrease aggregate demand and put downward pressure on real GDP. Therefore, we would expect both the price level and real GDP to fall in the short run.

Question 13

Imagine the U.S.economy is in long-run equilibrium.Then suppose the value of the U.S.dollar increases.At the same time,people in the U.S.revise their expectations so that the expected price level falls.We would expect that in the short-run
A) real GDP will rise and the price level might rise,fall,or stay the same.
B) real GDP will fall and the price level might rise,fall,or stay the same.
C) the price level will rise,and real GDP might rise,fall,or stay the same.
D) the price level will fall,and real GDP might rise,fall,or stay the same.

Accepted Answer

If the value of the U.S. dollar increases, then U.S. exports will become more expensive relative to foreign imports, causing net exports to fall. This, in turn, will lead to a decrease in aggregate demand (AD) and a leftward shift of the AD curve, causing both real GDP and the price level to fall in the short run. Additionally, if people in the U.S. revise their expectations so that the expected price level falls, this will further decrease aggregate demand and amplify the downward pressure on both real GDP and the price level, resulting in a lower price level and potential decline in real GDP. Thus, the correct answer is D.

Question 14

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then in the short run,
A) real GDP will rise and the price level might rise,fall,or stay the same.In the long-run,real GDP will rise and the price level might rise,fall,or stay the same.
B) the price level will fall,and real GDP might rise,fall,or stay the same.In the long-run,real GDP and the price level will be unaffected.
C) the price level will rise,and real GDP might rise,fall,or stay the same.In the long run,real GDP will rise and the price level will fall.
D) the price level will fall,and real GDP might rise,fall,or stay the same.In the long run,real GDP will rise and the price level will fall.

Accepted Answer

A sharp decline in the stock market combined with an increase in immigration of skilled workers is likely to increase the supply of labor, which can initially lower wages and lower the production costs of firms. This, in turn, can result in a fall in the price level in the short run. If the decline in stock market affects consumer and investor confidence, it can also reduce consumer spending and investment, which can lead to a temporary fall in real GDP. However, since the increase in skilled workers will increase the country's productive capacity in the long run, real GDP is likely to rise. At the same time, the increase in labor supply will put downward pressure on wages, which can reduce firms' production costs and prices, leading to a fall in the price level in the long run. Therefore, in the long run, real GDP will rise and the price level will fall.

Question 15

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,then in the short run,real GDP will
A) rise and the price level might rise,fall,or stay the same.In the long run,the price level might rise,fall,or stay the same but real GDP will be unaffected.
B) fall and the price level might rise,fall,or stay the same.In the long run,the price level might rise,fall,or stay the same but real GDP will be unaffected.
C) rise and the price level might rise,fall,or stay the same.In the long run,the price level might rise,fall,or stay the same but real GDP will be lower.
D) fall and the price level might rise,fall,or stay the same.In the long run,the price level might rise,fall,or stay the same but real GDP will be lower.

Accepted Answer

The answer of Suppose the economy is in long-run equilibrium.If...

Question 16

During the 2008-2009 unemployment rose from about 4.4% to about
A) 6%
B) 8%
C) 10%
D) 12%

Accepted Answer

According to the information given, the unemployment rate rose from about 4.4% to a higher number. The only option that fits this criteria is C, which states that unemployment rose to 10%. Therefore, the correct answer is C.

Question 17

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp decline in the stock market,a tax cut,an increase in the money supply and a decline in the value of the dollar.In the short run
A) the price level and real GDP will both rise.
B) the price level and real GDP will both fall.
C) neither the price leave nor real GDP will change.
D) All of the above are possible.

Accepted Answer

All of the above outcomes are possible in the short run. A sharp decline in the stock market could lead to a decrease in consumer and business confidence, causing a decrease in consumption and investment spending and thus decreasing real GDP. A tax cut could increase disposable income and boost consumption spending, leading to an increase in real GDP. An increase in the money supply could lead to lower interest rates, which could increase investment spending and consumption, also leading to an increase in real GDP. A decline in the value of the dollar could make exports cheaper and increase exports, but also make imports more expensive and decrease imports, leading to a potential increase or decrease in real GDP. However, these changes could also lead to changes in prices, which could lead to an increase or decrease in the price level. Therefore, all of the above outcomes are possible.

Question 18

In 1986,OPEC countries increased their production of oil.This caused
A) the price level to rise.
B) aggregate supply to shift right.
C) unemployment to rise.
D) None of the above is correct.

Accepted Answer

When OPEC countries increased their production of oil, it caused an increase in aggregate supply, shifting the supply curve to the right. This would lead to a decrease in the price level and an increase in the level of output. Therefore, option B is correct. Option A is incorrect as it suggests that the price level would rise, which is contrary to the effect of an increase in aggregate supply. Option C is also incorrect as an increase in output would likely lead to a decrease in unemployment rather than an increase. Option D is also incorrect as we have identified option B as the correct answer.

Question 19

Which of the following did the Fed do during the recession of 2008-2009?
A) lowered the federal funds rate and sold securities and loans
B) lowered the federal funds rate and purchased securities and loans
C) raised the federal funds rate and sold securities and loans
D) raised the federal funds rate and purchased securities and loans

Accepted Answer

The Fed lowered the federal funds rate and purchased securities and loans during the recession of 2008-2009 as part of its expansionary monetary policy to stimulate economic growth and stabilize financial markets. This increase in liquidity helped to improve conditions in credit markets and support lending activities.

Question 20

During the 2008-2009 recession real GDP fell by about
A) 2%
B) 4%
C) 6%
D) 8%

Accepted Answer

The answer of During the 2008-2009 recession real GDP fell...

Quiz 33: Aggregate Demand and Aggregate Supply

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,then we would expect that in the short-run,

Suppose the economy is in long-run equilibrium.If there is a tax cut at the same time that major new sources of oil are discovered in the country,then in the short-run

In the mid-1970s the price of oil rose dramatically.This

Suppose the economy is in long-run equilibrium.Senator A succeeds in getting taxes raised.At the same time,Senator B succeeds in getting major new restrictions on logging enacted.In the short run

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

The recessions of the 1970s are often attributed to

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the minimum wage,a major new discovery of oil,a large influx of immigrants,and new environmental regulations that raise the cost of electricity production.In the short run

Suppose that the economy is at long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then in the short run

Changes in the price of oil

Which of the following affected aggregate demand during the recession of 2008-2009?

Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,the value of the dollar falls.In the short-run

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

Imagine the U.S.economy is in long-run equilibrium.Then suppose the value of the U.S.dollar increases.At the same time,people in the U.S.revise their expectations so that the expected price level falls.We would expect that in the short-run

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then in the short run,

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,then in the short run,real GDP will

During the 2008-2009 unemployment rose from about 4.4% to about

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp decline in the stock market,a tax cut,an increase in the money supply and a decline in the value of the dollar.In the short run

In 1986,OPEC countries increased their production of oil.This caused

Which of the following did the Fed do during the recession of 2008-2009?

During the 2008-2009 recession real GDP fell by about