Question 1

-Refer to the above figure. If the aggregate demand curve shifts beyond AD5, which of the following would we NOT expect?
A) strong demand-pull inflation
B) no increase in real Gross Domestic Product (GDP)
C) strong and rapid increases in the price level
D) increases in real net domestic product

Accepted Answer

When the aggregate demand curve shifts beyond AD5, the economy is likely operating beyond its full capacity, leading to demand-pull inflation. This situation typically results in strong inflationary pressures without a corresponding increase in real GDP, as the economy is already at or near full employment. Therefore, we would not expect increases in real net domestic product.

Question 2

When the value of the dollar increases, the net effect on the economy
A) will be an increase in short-run aggregate supply and a decrease in aggregate demand.
B) will be decrease in short-run aggregate supply and an increase in aggregate demand.
C) will be an increase in both aggregate demand and aggregate supply.
D) will be a decrease in both aggregate demand and aggregate supply.

Accepted Answer

When the value of the dollar increases, it makes imports cheaper and exports more expensive. This tends to decrease aggregate demand because domestic consumers can buy foreign goods more cheaply, and foreign consumers are less likely to buy domestic goods. It can increase short-run aggregate supply because the cost of imported inputs decreases, making it cheaper for businesses to produce goods and services.

Question 3

What effect does a stronger dollar have on aggregate supply? Why?

Accepted Answer

The answer of What effect does a stronger dollar have...

Question 4

Refer to the above figure. If the aggregate demand curve shifts beyond AD5, then the economy will experience
A) demand-pull inflation.
B) cost-push inflation.
C) structural inflation.
D) stagflation.

Accepted Answer

If the aggregate demand curve shifts beyond AD5, it means that there is an increase in demand for goods and services in the economy. This will result in a situation known as demand-pull inflation, where the overall price level in the economy increases due to a higher demand for goods and services than the supply can keep up with, causing an increase in prices. Therefore, the best choice is A, demand-pull inflation.

Question 5

Suppose the euro appreciates against the dollar. This causes U.S. exports to become less expensive for consumers in the European Union, which would likely cause the U.S.
A) aggregate supply to shift leftward.
B) aggregate supply to shift rightward.
C) aggregate demand to shift leftward.
D) aggregate demand to shift rightward.

Accepted Answer

An appreciation of the euro against the dollar would mean that the dollar is weaker against the euro. This means that exports from the U.S. become cheaper for consumers in the European Union, which would likely lead to an increase in demand for U.S. goods. This increase in demand would cause the aggregate demand for the U.S. to shift rightward.

Question 6

Suppose the U.S. dollar weakens against the euro (and against other major currencies). We know with certainty that this weakening of the dollar will cause which of the following to occur?
A) a recessionary gap
B) an inflationary gap
C) a deflationary gap
D) none of the above

Accepted Answer

There is no way to predict with certainty how a weakening of the U.S. dollar will impact the economy. It could lead to increased exports and economic growth, or it could lead to inflation if import prices increase. Therefore, none of the options A, B, or C can be considered as a certain consequence.

Question 7

Using a graph, show the effects of a weaker dollar on the economy. Explain.

Accepted Answer

The answer of Using a graph, show the effects of...

Question 8

When the value of the dollar decreases, the net effect on the economy
A) will be an increase in short-run aggregate supply and a decrease in aggregate demand.
B) will be decrease in short-run aggregate supply and an increase in aggregate demand.
C) will be an increase in both aggregate demand and aggregate supply.
D) will be a decrease in both aggregate demand and aggregate supply.

Accepted Answer

When the value of the dollar decreases, it becomes less valuable internationally and imports become more expensive. This leads to a decrease in short-run aggregate supply as the cost of production increases for businesses. Additionally, exports become more attractive to foreign buyers, leading to an increase in aggregate demand as more goods are being produced for export. Therefore, the net effect is a decrease in short-run aggregate supply and an increase in aggregate demand.

Quiz 11: Classical and Keynesian Macro Analyses

-Refer to the above figure. If the aggregate demand curve shifts beyond AD5, which of the following would we NOT expect?

When the value of the dollar increases, the net effect on the economy

What effect does a stronger dollar have on aggregate supply? Why?

Refer to the above figure. If the aggregate demand curve shifts beyond AD5, then the economy will experience

Suppose the euro appreciates against the dollar. This causes U.S. exports to become less expensive for consumers in the European Union, which would likely cause the U.S.

Suppose the U.S. dollar weakens against the euro (and against other major currencies) . We know with certainty that this weakening of the dollar will cause which of the following to occur?

Using a graph, show the effects of a weaker dollar on the economy. Explain.

When the value of the dollar decreases, the net effect on the economy