Question 1

In the long-run, if the economy is operating at the full employment level, the equilibrium level of real GDP is determined solely by the:

Accepted Answer

A)   level of unemployment in the economy.
B)   rate of inflation in the economy.
C)   real interest rate in the economy.
D)   aggregate supply curve of the economy.
E)   aggregate demand curve of the economy.F) D) and E)
G) All of the above

Question 2

The table given below reports the inflation rate in the U.S. and Canada for two years.
 
-Refer to Table 8.1. Assume that the exchange rate is fixed at 1.4 CAD = $1 and that price changes for salmon are identical to the inflation rate in each country. If U.S. importers pay 10,000 CAD for a trailer of Canadian salmon in year 1, what is the approximate price of that salmon in year 2, given that exchange rates do not change?

Accepted Answer

A)   $10,360
B)   $14,504
C)   $7,400
D)   $7,143
E)   $10,000F) A) and D)
G) None of the above

Question 3

Firms' profits or production do not increase in the long run because:

Accepted Answer

A)   some factors of production are fixed in the long run.
B)   all the factors of production are variable in the long run.
C)   changes in factor costs completely offset any change in the price level.
D)   there exists an excess capacity in the economy in the long run.
E)   factor costs remain fixed in the long run.F) A) and E)
G) A) and D)

Question 4

To determine short-run equilibrium in the economy, we use an aggregate supply curve that is:

Accepted Answer

A)   downward-sloping.
B)   vertical.
C)   upward-sloping.
D)   horizontal.
E)   parabolic.F) C) and E)
G) B) and C)

Question 5

In 2009, a nation reported total imports worth $250,000 and total exports worth $225,000. This implies the nation had net exports worth $25,000 during this year.

Accepted Answer

A) True 
 B)False

Question 6

In the long run, increased government spending is ineffective in raising equilibrium real GDP.

Accepted Answer

A) True 
 B)False  True

Question 7

Aggregate demand-aggregate supply analysis shows that in the long run the effect of increased aggregate spending on real GDP is:

Accepted Answer

A)   negative.
B)   close to infinity.
C)   indeterminate.
D)   zero.
E)   positive.F) None of the above
G) C) and D) D

Question 8

Aggregate demand represents the _____ at alternative price levels.

Accepted Answer

A)   total spending in the economy
B)   total saving in the economy
C)   total money demand in the economy
D)   total output of the economy
E)   total money supply in the economyF) B) and D)
G) A) and B)

Question 9

If the national output cannot be increased unless the productive capacity or potential GDP increases, the aggregate supply curve is:

Accepted Answer

A)   downward-sloping.
B)   U-shaped.
C)   vertical.
D)   upward-sloping.
E)   horizontal.F) A) and B)
G) A) and C)

Question 10

Suppose the long-run aggregate supply curve shifts to the right as a consequence of the discovery of more efficient production technologies. Given unchanged aggregate expenditure, this implies a rise in long-run equilibrium output and a decline in the equilibrium price level.

Accepted Answer

A) True 
 B)False

Question 11

Assume that the AD curve is held constant and short-run aggregate supply decreases. The result is a(n) :

Accepted Answer

A)   increase in both equilibrium real GDP and the price level.
B)   decrease in equilibrium real GDP and an increase in the price level.
C)   decrease in both equilibrium real GDP and the price level.
D)   decrease in equilibrium real GDP, while the price level remains fixed.
E)   increase in the price level, while equilibrium real GDP remains fixed.F) A) and E)
G) B) and E)

Question 12

Assuming a fixed exchange rate, a decrease in U.S. prices relative to European prices will:

Accepted Answer

A)   decrease European exports to the United States.
B)   increase U.S. imports from Europe.
C)   decrease aggregate spending in the U.S.
D)   not affect U.S. exports or imports.
E)   raise the purchasing power of U.S. consumers.F) B) and E)
G) B) and D)

Question 13

As the level of real GDP increases, the short-run aggregate supply curve:

Accepted Answer

A)   shifts to the right.
B)   shifts to the left.
C)   becomes flatter.
D)   becomes steeper.
E)   becomes horizontal to the real GDP axis.F) A) and B)
G) B) and E)

Question 14

Which of the following is true of the aggregate demand curve?

Accepted Answer

A)   The aggregate demand curve shows the various levels of expenditures in the economy at alternative price levels.
B)   The aggregate demand curve implies a positive relationship between inflation and unemployment.
C)   The aggregate demand curve is identical to the income consumption curve.
D)   The aggregate demand curve has the same slope as the aggregate supply curve.
E)   The aggregate demand curve relates relative prices to the quantity demanded of a particular good.F) C) and D)
G) A) and B)

Question 15

The long-run aggregate supply of an economy at the potential level of real GDP is graphically represented by:

Accepted Answer

A)   a horizontal line.
B)   an upward-sloping curve.
C)   a downward-sloping curve.
D)   a vertical line.
E)   a backward bending curve.F) B) and E)
G) B) and C)

Question 16

Which of the following could lead to a decline in aggregate supply in the U.S.?

Accepted Answer

A)   The discovery of new mineral deposits in Arizona
B)   Higher real wage rates in the U.S.
C)   Lower personal income in France
D)   Cutbacks in government borrowing
E)   Rapid depreciation of the Swiss francF) A) and D)
G) None of the above

Question 17

The interest rate effect suggests that investment spending and planned aggregate expenditures fall when the general price level rises.

Accepted Answer

A) True 
 B)False

Question 18

If people expect the economy to do well in the future, they will increase their consumption today at every price level.

Accepted Answer

A) True 
 B)False

Question 19

An increase in aggregate demand due to higher foreign income will cause:

Accepted Answer

A)   domestic equilibrium GDP to increase.
B)   domestic equilibrium GDP to decrease.
C)   domestic prices to fall.
D)   foreign prices to fall.
E)   foreign equilibrium GDP to fall.F) B) and E)
G) B) and D)

Question 20

A rightward shift in the aggregate supply curve is generally associated with a reduction in resource prices.

Accepted Answer

A) True 
 B)False  True

Exam 8: Macroeconomic Equilibrium: Aggregate Demand and Supply

In the long-run, if the economy is operating at the full employment level, the equilibrium level of real GDP is determined solely by the:

Correct Answer
verified

Correct Answer
verified

Firms' profits or production do not increase in the long run because:

Correct Answer
verified

To determine short-run equilibrium in the economy, we use an aggregate supply curve that is:

Correct Answer
verified

In 2009, a nation reported total imports worth $250,000 and total exports worth $225,000. This implies the nation had net exports worth $25,000 during this year.

Correct Answer
verified

In the long run, increased government spending is ineffective in raising equilibrium real GDP.

Correct Answer
verified
True

Aggregate demand-aggregate supply analysis shows that in the long run the effect of increased aggregate spending on real GDP is:

Correct Answer
verified
D

Aggregate demand represents the _____ at alternative price levels.

Correct Answer
verified

If the national output cannot be increased unless the productive capacity or potential GDP increases, the aggregate supply curve is:

Correct Answer
verified

Suppose the long-run aggregate supply curve shifts to the right as a consequence of the discovery of more efficient production technologies. Given unchanged aggregate expenditure, this implies a rise in long-run equilibrium output and a decline in the equilibrium price level.

Correct Answer
verified

Assume that the AD curve is held constant and short-run aggregate supply decreases. The result is a(n) :

Correct Answer
verified

Assuming a fixed exchange rate, a decrease in U.S. prices relative to European prices will:

Correct Answer
verified

As the level of real GDP increases, the short-run aggregate supply curve:

Correct Answer
verified

Which of the following is true of the aggregate demand curve?

Correct Answer
verified

The long-run aggregate supply of an economy at the potential level of real GDP is graphically represented by:

Correct Answer
verified

Which of the following could lead to a decline in aggregate supply in the U.S.?

Correct Answer
verified

The interest rate effect suggests that investment spending and planned aggregate expenditures fall when the general price level rises.

Correct Answer
verified

If people expect the economy to do well in the future, they will increase their consumption today at every price level.

Correct Answer
verified

An increase in aggregate demand due to higher foreign income will cause:

Correct Answer
verified

A rightward shift in the aggregate supply curve is generally associated with a reduction in resource prices.

Correct Answer
verified
True

Exam 8: Macroeconomic Equilibrium: Aggregate Demand and Supply

In the long-run, if the economy is operating at the full employment level, the equilibrium level of real GDP is determined solely by the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Firms' profits or production do not increase in the long run because:

Correct AnswerverifiedShow Answer

To determine short-run equilibrium in the economy, we use an aggregate supply curve that is:

Correct AnswerverifiedShow Answer

In 2009, a nation reported total imports worth $250,000 and total exports worth $225,000. This implies the nation had net exports worth $25,000 during this year.

Correct AnswerverifiedShow Answer

In the long run, increased government spending is ineffective in raising equilibrium real GDP.

Correct AnswerverifiedTrue

Aggregate demand-aggregate supply analysis shows that in the long run the effect of increased aggregate spending on real GDP is:

Correct AnswerverifiedD

Aggregate demand represents the _____ at alternative price levels.

Correct AnswerverifiedShow Answer

If the national output cannot be increased unless the productive capacity or potential GDP increases, the aggregate supply curve is:

Correct AnswerverifiedShow Answer

Suppose the long-run aggregate supply curve shifts to the right as a consequence of the discovery of more efficient production technologies. Given unchanged aggregate expenditure, this implies a rise in long-run equilibrium output and a decline in the equilibrium price level.

Correct AnswerverifiedShow Answer

Assume that the AD curve is held constant and short-run aggregate supply decreases. The result is a(n) :

Correct AnswerverifiedShow Answer

Assuming a fixed exchange rate, a decrease in U.S. prices relative to European prices will:

Correct AnswerverifiedShow Answer

As the level of real GDP increases, the short-run aggregate supply curve:

Correct AnswerverifiedShow Answer

Which of the following is true of the aggregate demand curve?

Correct AnswerverifiedShow Answer

The long-run aggregate supply of an economy at the potential level of real GDP is graphically represented by:

Correct AnswerverifiedShow Answer

Which of the following could lead to a decline in aggregate supply in the U.S.?

Correct AnswerverifiedShow Answer

The interest rate effect suggests that investment spending and planned aggregate expenditures fall when the general price level rises.

Correct AnswerverifiedShow Answer

If people expect the economy to do well in the future, they will increase their consumption today at every price level.

Correct AnswerverifiedShow Answer

An increase in aggregate demand due to higher foreign income will cause:

Correct AnswerverifiedShow Answer

A rightward shift in the aggregate supply curve is generally associated with a reduction in resource prices.

Correct AnswerverifiedTrue

Correct Answer
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Correct Answer
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True

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D

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True