Question 1

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

Accepted Answer

The financial crisis in 2008, which was caused in part by the subprime mortgage crisis, played a significant role in bringing on the recession of 2007-2009. It resulted in a widespread loss of confidence in the banking system, a credit freeze, and a sharp decline in economic activity.

Question 2

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 3

Hurricane Katrina resulted in a decline in oil production infrastructure along the gulf coast. As a result there was an unexpected decline in oil and natural gas supplies in 2005. Suppose that this caused an increase in the price level and a decline in real GDP in 2006. Also assume that potential real GDP continued to grow due to other factors. You can assume the aggregate demand curve did not change. Show the macroeconomic equilibrium for 2005 and 2006 using the dynamic aggregate supply and aggregate demand model.

Accepted Answer

The answer of Hurricane Katrina resulted in a decline in...

Question 4

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 5

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 in causing the recession of 2007-2009. The housing bubble burst, leading to widespread foreclosures, declining home values, and destabilizing the financial sector. This, in turn, triggered a broader economic downturn.

Question 6

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 advancements, population growth, and capital accumulation. This allows for long-term economic growth and an increase in the standard of living.

Question 7

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. The previous economic expansion began in November 2001.

Question 8

Which of the following models relies on emphasizing the importance of sticky wages and prices?
A) the monetarist model
B) the new classical model
C) the real business cycle model
D) the new Keynesian model

Accepted Answer

The new Keynesian model emphasizes the importance of sticky wages and prices, which can create inefficiencies in the labor and goods markets and lead to short-run fluctuations in output and employment. The model suggests that the government can use monetary and fiscal policies to mitigate these fluctuations and stabilize the economy. The other models listed (monetarist, new classical, and real business cycle) do not focus on sticky wages and prices as a key component of their analysis.

Question 9

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 10

In the dynamic aggregated demand and aggregate supply model, inflation occurs if
A) AD shifts faster than SRAS.
B) AD shifts slower than SRAS.
C) SRAS shifts faster than AD.
D) LRAS shifts faster than AD.

Accepted Answer

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

Question 11

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 12

Explain whether FedEx's 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 FedEx's sales are likely to...

Question 13

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 14

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 decline in housing construction, a slowdown in consumer spending, and a decrease in household wealth, all of which contributed to a decrease in aggregate demand. Falling oil prices and an increase in net exports (both of which would result in an increase in aggregate demand) did not occur during this period. While there was a slight decline in government spending during the recession, it was not a significant enough factor to be the primary cause of the decline in aggregate demand.

Question 15

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 16

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 17

When people became ________ concerned with the underlying value of their houses and became ________ 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

The answer of When people became ________ concerned with the...

Question 18

All of the following are assumptions made by the dynamic model of aggregate demand and aggregate supply except
A) aggregate demand and potential real GDP decrease continuously.
B) the aggregate demand curve shifts to the right during most periods.
C) potential real GDP increases continuously.
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 All of the following are assumptions made...

Question 19

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 20

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

Accepted Answer

When there is an increase in total spending but no corresponding increase in total production of goods and services, the overall demand for products exceeds the supply. This leads to an increase in prices, which we call inflation.

Quiz 24: Aggregate Demand and Aggregate Supply Analysis

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

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

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

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

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

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

Which of the following models relies on emphasizing the importance of sticky wages and prices?

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.

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

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 aggregate demand and aggregate supply model, what is the result of aggregate demand increasing faster 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?

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

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

All of the following are assumptions made by the dynamic model of aggregate demand and aggregate supply except

During 2008, oil price increases

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