Question 1

According to the sticky-wage theory, which statement is consistent with a more-than-expected increase in the price level?

Accepted Answer

A)   Real wages rise, so firms will hire more workers.
B)   Real wages rise, so firms will hire fewer workers.
C)   Real wages fall, so firms will hire more workers.
D)   Real wages fall, so firms will hire fewer workers.E) B) and D)
F) All of the above

Question 2

Which statement best describes the effects of a fall in the price level?

Accepted Answer

A)   The real value of money and the real exchange rate rise.
B)   The real value of money and the real exchange rate fall.
C)   The real value of money rises, and the real exchange rate falls.
D)   The real value of money falls, and the real exchange rate rises.E) None of the above
F) B) and D)

Question 3

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)   the price level falls
B)   the money supply increases
C)   the dollar depreciates
D)   interest rates riseE) None of the above
F) All of the above

Question 4

What are the effects of a decrease in the price level?

Accepted Answer

A)   People hold less money, so they lend less, and the interest rate rises.
B)   People hold less money, so they lend more, and the interest rate falls.
C)   People hold more money, so they lend more, and the interest rate rises.
D)   People hold more money, so they lend less, and the interest rate falls.E) None of the above
F) All of the above

Question 5

Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?

Accepted Answer

When the price level increases, the purc...

Question 6

What could create an increase in the price level and a decrease in real GDP in the short run?

Accepted Answer

A)   an increase in the money supply
B)   a decrease in taxes
C)   an increase in stock prices
D)   bad weather in agriculture producing provincesE) A) and B)
F) B) and D) D

Question 7

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

Accepted Answer

See graph.
Figure 14-2

Over time, techn...

Question 8

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

Accepted Answer

A)   an increase in government spending
B)   an increase in the expected price level
C)   an increase in the capital stock
D)   an increase in interest ratesE) A) and C)
F) A) and D)

Question 9

What are the effects of an increase in the price level?

Accepted Answer

A)   The interest rate increases, the dollar depreciates, and net exports increase.
B)   The interest rate increases, the dollar appreciates, and net exports decrease.
C)   The interest rate decreases, the dollar depreciates, and net exports increase.
D)   The interest rate decreases, the dollar appreciates, and net exports decrease.E) A) and D)
F) All of the above B

Question 10

How does Canadian aggregate demand change if the dollar appreciates or other countries experience recessions?

Accepted Answer

A)   Aggregate demand shifts right.
B)   Aggregate demand shifts left.
C)   If the dollar appreciates, aggregate demand shifts right; if other countries experience recessions, aggregate demand shifts left.
D)   If the dollar appreciates, aggregate demand shifts left; if other countries experience recessions, aggregate demand shifts right.E) A) and C)
F) A) and B) B

Question 11

What happens when the price level rises?

Accepted Answer

A)   Interest rates rise, so firms increase investment.
B)   Interest rates rise, so firms decrease investment.
C)   Interest rates fall, so firms increase investment.
D)   Interest rates fall, so firms decrease investment.E) A) and B)
F) A) and C)

Question 12

What would cause prices and real GDP to rise in the short run?

Accepted Answer

A)   short-run aggregate supply shifts right
B)   short-run aggregate supply shifts left
C)   aggregate demand shifts right
D)   aggregate demand shifts leftE) B) and D)
F) All of the above

Question 13

Which of the following shifts the short-run aggregate supply to the left?

Accepted Answer

A)   an increase in the price level
B)   an increase in the expected price level
C)   an increase in the capital stock
D)   an increase in the money supplyE) A) and D)
F) All of the above

Question 14

Which statement best describes the effects of a fall in the price level?

Accepted Answer

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

Question 15

Increased uncertainty and pessimism about the future of the economy decreases investment spending, shifting aggregate demand to the left.

Accepted Answer

A) True 
 B)False

Question 16

What happens when the price level falls?

Accepted Answer

A)   Interest rates rise, so firms increase investment.
B)   Interest rates rise, so firms decrease investment.
C)   Interest rates fall, so firms increase investment.
D)   Interest rates fall, so firms decrease investment.E) A) and D)
F) A) and C)

Question 17

Figure 14-1 
-Refer to Figure 14-1. If the economy starts at C and there is an increase in aggregate demand, what happens to the economy in the long run?

Accepted Answer

A)   It moves to D and then back to C.
B)   It moves to B and then to A.
C)   It moves to D and then to A.
D)   It moves to B and then back to C.E) None of the above
F) B) and C)

Question 18

Although we understand what things change GDP, it is difficult to predict recessions with a fair amount of accuracy.

Accepted Answer

A) True 
 B)False

Question 19

What happened during World War II?

Accepted Answer

A)   Government purchases of goods and services increased.
B)   The real GDP per person decreased by 60 percent.
C)   The unemployment rate increased to 15 percent.
D)   More resources were devoted to the production of consumer goods.E) A) and B)
F) B) and C)

Question 20

Make a list of things that would shift the long-run aggregate-supply curve to the right.

Accepted Answer

Examples in the text (or variations) inc...

Exam 14: Aggregate Demand and Aggregate Supply

According to the sticky-wage theory, which statement is consistent with a more-than-expected increase in the price level?

Correct AnswerverifiedShow Answer

Which statement best describes the effects of a fall in the price level?

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the left?

Correct AnswerverifiedShow Answer

What are the effects of a decrease in the price level?

Correct AnswerverifiedShow Answer

Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?

Correct AnswerverifiedWhen the price level increases, the purc...View AnswerShow Answer

What could create an increase in the price level and a decrease in real GDP in the short run?

Correct AnswerverifiedD

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

Correct AnswerverifiedSee graph.Figure 14-2 Over time, techn...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

What are the effects of an increase in the price level?

Correct AnswerverifiedB

How does Canadian aggregate demand change if the dollar appreciates or other countries experience recessions?

Correct AnswerverifiedB

What happens when the price level rises?

Correct AnswerverifiedShow Answer

What would cause prices and real GDP to rise in the short run?

Correct AnswerverifiedShow Answer

Which of the following shifts the short-run aggregate supply to the left?

Correct AnswerverifiedShow Answer

Which statement best describes the effects of a fall in the price level?

Correct AnswerverifiedShow Answer

Increased uncertainty and pessimism about the future of the economy decreases investment spending, shifting aggregate demand to the left.

Correct AnswerverifiedShow Answer

What happens when the price level falls?

Correct AnswerverifiedShow Answer

Figure 14-1 -Refer to Figure 14-1. If the economy starts at C and there is an increase in aggregate demand, what happens to the economy in the long run?

Correct AnswerverifiedShow Answer

Although we understand what things change GDP, it is difficult to predict recessions with a fair amount of accuracy.

Correct AnswerverifiedShow Answer

What happened during World War II?

Correct AnswerverifiedShow Answer

Make a list of things that would shift the long-run aggregate-supply curve to the right.

Correct AnswerverifiedExamples in the text (or variations) inc...View AnswerShow Answer

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When the price level increases, the purc...
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D

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See graph.
Figure 14-2 Over time, techn...
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B

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B

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Examples in the text (or variations) inc...
View Answer