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Which of the following is consistent with an increase in the price level?


A) Dollars become more valuable, and interest rates rise.
B) Dollars become more valuable, and interest rates fall.
C) Dollars become less valuable, and interest rates rise.
D) Dollars become less valuable, and interest rates fall.

E) A) and D)
F) A) and C)

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Consider the following equation, where a is a positive number: quantity of output supplied = natural rate of output + a (actual price level - expected price level) . What does this equation represent?


A) an upward-sloping short-run aggregate supply curve
B) a vertical long-run supply curve
C) a downward-sloping aggregate demand curve
D) an upward-sloping aggregate demand curve

E) B) and D)
F) B) and C)

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Which of the following would cause stagflation?


A) aggregate demand shifts right
B) aggregate demand shifts left
C) aggregate supply shifts right
D) aggregate supply shifts left

E) A) and B)
F) All of the above

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Which of the following characterizes the long-run aggregate supply curve?


A) It is horizontal.
B) It shows a positive relationship between price level and output.
C) It demonstrates the importance of money in the economy.
D) It shows that money does not influence real GDP in the long run.

E) C) and D)
F) A) and B)

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Which of the following shifts the short-run aggregate supply right?


A) an increase in the minimum wage
B) an increase in immigration from abroad
C) an increase in the price of oil
D) an increase in the actual price level

E) None of the above
F) A) and D)

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What does a rise in the economy's overall level of prices tend to do?


A) It tends to raise both the quantity demanded and supplied of goods and services.
B) It tends to raise the quantity demanded of goods and services, but lower the quantity supplied.
C) It tends to lower the quantity demanded of goods and services, but raise the quantity supplied.
D) It tends to lower both the quantity demanded and the quantity supplied of goods and services.

E) A) and B)
F) A) and C)

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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, what would we expect to happen?


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) The price level and real GDP may rise, fall, or remain the same.

E) B) and C)
F) A) and D)

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What are the effects of a decrease in Canadian interest rates?


A) a depreciation of the dollar and greater net exports
B) a depreciation of the dollar and smaller net exports
C) an appreciation of the dollar and greater net exports
D) an appreciation of the dollar and smaller net exports

E) A) and D)
F) B) and C)

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Which of the following happens during recessions?


A) Firms produce less but invest more.
B) Firms have to increase production because of falling prices.
C) Incomes increase because workers have to work overtime.
D) Many workers are laid off.

E) A) and B)
F) B) and C)

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Which of the following shifts aggregate demand to the left?


A) The price level rises.
B) The price level falls.
C) The dollar depreciates.
D) Stock prices fall.

E) A) and D)
F) All of the above

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An aggregate supply (AS) curve is described by the equation Y = YLR + a * (P - PEXP), where Y is current output, YLR is the long run level of output, a is a positive constant, P is the current price level, and PEXP is the expected price level. Suppose YLR = 50, a = 1, and PEXP = 40. a.Draw the long run aggregate supply curve in an AD - AS (aggregate demand - aggregate supply) diagram. b.Using the AS equation, find the output corresponding to price levels P = 40 and P = 80 and place the 2 points on your diagram. Draw the short run AS curve that passes through the two points. c.Identify the expected price level on your graph. d.Suppose the expected price level decreases to P'EXP = 30. For current price levels P = 40 and P = 60, recalculate the output levels using the AS formula. Draw the new AS curve and identify the new expected price level.

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a.The long-run aggregate supply curve is...

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A decrease in the money supply causes the interest rate to rise so that investment rises.

A) True
B) False

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Discuss what economists believe is different about the long and short run.

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Most economists believe that in the long...

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Which of the following best describes the aggregate demand and aggregate supply model?


A) Aggregate supply adjusts to satisfy aggregate demand at the prevailing market prices.
B) The price level adjusts to bring aggregate demand and supply into balance.
C) Aggregate demand adjusts to equate aggregate supply at the prevailing market prices.
D) Both aggregate demand and supply adjust to become equal at the prevailing market prices.

E) B) and D)
F) A) and D)

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Illustrate the classical analysis of growth and inflation with aggregate demand and long-run aggregate supply curves.

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See graph. blured image Over time, technological adv...

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How is the effect of an increase in the price level represented?


A) by a shift to the right of the aggregate demand curve
B) by a shift to the left of the aggregate demand curve
C) by a movement to the left along a given aggregate demand curve
D) by a movement to the right along a given aggregate demand curve

E) A) and B)
F) A) and C)

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Scenario 14-2. The economy is in long-run equilibrium. Suddenly, due to corporate scandals, international tensions, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time. -Refer to Scenario 14-2. Initially, which curve shifts in which direction?


A) AD shifts right.
B) AD shifts left.
C) Short-run AS shifts left.
D) Short-run AS shifts right.

E) C) and D)
F) A) and C)

Correct Answer

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What did The General Theory, a 1936 book by John Maynard Keynes, attempt to explain?


A) stagflation
B) the classical dichotomy
C) short-run economic fluctuations
D) how changes in the money supply had created the Great Depression

E) B) and C)
F) None of the above

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What happens to prices and output when the long-run aggregate supply curve shifts right?


A) Prices and output both increase.
B) Prices and output both decrease.
C) Prices increase and output decreases.
D) Prices decrease and output increases.

E) None of the above
F) All of the above

Correct Answer

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Other things the same, a decrease in the price level makes the interest rate increase, which leads to an appreciation of the dollar in the foreign-currency exchange.

A) True
B) False

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