Chapter 10 Questions
Another term for the real-balance effect is A. the wealth effect. B. the indirect effect. C. the interest rate effect. D. the substitution effect.
A
How is economic growth graphically depicted? A. The long-run aggregate supply curve shifts right. B. The aggregate demand curve shifts to the left. C. Aggregate demand shifts to the right. D. Short-run aggregate supply shifts left.
A
If the economy grows steadily over several years and at the same time maintains the aggregate demand curve in its present position, then the economy will experience which of the following? A. secular deflation B. inflation C. a stable price level D. The price level cannot be determined without more information.
A
What has been TRUE about inflation in the United States since 1960? A. Inflation rates have been consistently positive. B. Inflation rates have been consistently above 100 percent per year. C. The annual rate of inflation has varies around zero percent. D. The nation has experienced persistent deflation.
A
Long-run equilibrium will occur at the price level at which A. short-run aggregate supply (SRAS) and long-run aggregate supply intersect. B. aggregate demand and long-run aggregate supply intersect. C. aggregate demand and short-run aggregate supply (SRAS) intersect. D. long-run aggregate demand and short-run aggregate supply (SRAS) intersect.
B
What could cause a decrease in the price level and simultaneously an increase in GDP similar to the 1920s in the United States? A. an increase in interest rates B. a decrease in interest rates C. an increase in productivity D. a decrease in consumer confidence
C
What would happen in an economy if total planned production exceeded total planned real expenditures? A. Inventories would be depleted, and firms would tend to lower prices. B. Inventories would accumulate, and firms would tend to raise prices. C. Inventories would accumulate, and firms would tend to lower prices. D. Inventories would be depleted, and firms would tend to raise prices.
C
When interest rates rise, A. borrowing costs decline, and total planned real expenditures increase. B. borrowing costs increase and total planned real expenditures increase. C. borrowing costs increase, and total planned real expenditures decline. D. borrowing costs decline, and total planned real expenditures decline.
C
When the relative prices of U.S.-manufactured goods go up, the result is A. an increase in exports. B. a decrease in imports. C. a decrease in exports. D. no net change in imports or exports.
C
Whenever the general level of prices rises because of continual increases in aggregate demand, we say that the economy is experiencing A. supply-side inflation. B. aggregate supply shock. C. demand-side inflation. D. monetary stagflation.
C
Demand-side inflation occurs when A. increases in aggregate demand are not matched by increases in aggregate supply. B. long-run aggregate demand rises faster than short-run aggregate supply. C. increases in aggregate supply outstrip increases in aggregate demand. D. aggregate demand falls more rapidly than aggregate supply.
A
Which of the following will cause the Long-Run Aggregate Supply Curve to shift? I. Changes in the amount of capital II. Changes in the price level III. Changes in the money supply
A. I only B. II only C. I, II, and III D. only I and II A--
Which of the following statements is TRUE?
A. The long-run aggregate demand curve is upward sloping. B. The long-run aggregate supply curve is upward sloping. C. The long-run aggregate supply curve is vertical. D. The short-run aggregate supply curve is vertical. C--
Other things being equal, the economy's aggregate demand curve shows that
A. a change in the general price level causes a change in the quantity of final goods and services purchased. B. a change in the general price level causes the curve to shift. C. as the price level falls, total planned expenditures fall as well. D. real Gross Domestic Product (GDP) and the price level are not related. A--
All of the following would shift the LRAS curve to the right EXCEPT
A. a net inflow of human capital. B. an improvement in technology. C. an increase in the size of the labor force. D. an increase in the overall price level. D <-
Which of the following will NOT cause a leftward shift in the long-run aggregate supply curve?
A. a reduction in the amount of capital B. a reduction in government spending C. a net outflow of human capital D. an increase in the costs of obtaining energy resources B--
A country's long-run aggregate supply curve will shift to the left when there is (are)
A. a reduction in the labor force. B. a reduction in the money supply. C. a discovery of new oil reserves in that country. D. fewer regulatory impediments to business. A--
The total level of all planned expenditures in the economy best describes
A. aggregate supply. B. aggregate expenditures. C. aggregate demand. D. both B and C are correct. D--
All of the following explain the downward slope of the aggregate demand curve EXCEPT
A. changes in the stock of real wealth held by individuals. B. the effect of changing interest rates on the quantity demanded of interest-rate-sensitive goods. C. the presence of unused production capacity and unemployment. D. the availability of foreign substitute goods. C--
If a nation's production possibilities curve shifts outward, we should expect its long-run aggregate supply curve to
A. have a rightward shift. B. have a leftward shift. C. have an upward movement along the curve. D. have a downward movement along the curve. A--
The long-run aggregate supply curve of an economy corresponds to
A. none of the above: there is no relationship between the longminusrun aggregate supply curve and the production possibilities curve. B. a point inside the production possibilities curve. C. a point outside the production possibilities curve. D. a point on the production possibilities curve. D--
Aggregate demand reflects
A. planned demand for consumer goods only. B. both spending and production in the economy. C. planned total spending in the economy. D. planned total production in the economy. C--
The horizontal axis for an aggregate demand curve measures
A. real Gross Domestic Product (GDP). B. disposable personal income. C. quantity demanded of the representative good. D. output of all goods and services measured as a quantity index. A--
Over time in a growing economy, the long run aggregate supply curve will
A. shift inward to the left. B. shift outward to the right. C. move so as to match the short run aggregate supply (SRAS) curve. D. become increasingly steep. B--
As the capital stock reduces , we would expect the long-run aggregate supply curve to
A. shift left. B. first shift right, then shift left. C. remain the same. D. shift right A--
The long-run aggregate supply curve
A. shifts to the right when the Federal Reserve increases the money supply. B. shifts to the right when there is a tax increase. C. indicates that an increase in the overall price level will cause an increase in production. D. indicates the level of output (GDP) that occurs when resources are fully employed. D--
The long-run aggregate supply curve
A. shows that at higher prices, potential real Gross Domestic Product (GDP) increases. B. is very sensitive to changes in the price level. C. slopes up and to the right. D. shows that long-run aggregate supply equals potential real Gross Domestic Product (GDP). D--
The long-run aggregate supply curve is vertical because
A. the economy has large numbers of unemployed. B. the economy has yet to use all its available resources. C. the economy has contracted. D. the economy has reached its potential real Gross Domestic Product (GDP) and is at full employment. D--
Long-run aggregate supply is
A. the level of output that occurs when the economy is operating on the production possibilities curve. B. downward sloping. C. the sum of planned expenditures by consumers and firms. D. upward sloping. A--
The real-balance effect implies that when
A. the price level decreases, the value of money balances held by individuals, firms, government, and foreigners decreases and spending decreases. B. the price level increases, the value of money balances held by individuals, firms, government, and foreigners increases and spending increases. C. the price level increases, the value of money balances held by individuals, firms, government, and foreigners decreases and spending decreases. D. the price level decreases, the value of money balances held by individuals, firms, government, and foreigners increases and spending decreases. C--
When prices increase, the real interest rate
A. will decrease and total planned spending on goods and services will decrease. B. will increase and total planned spending on goods and services will increase. C. will increase and total planned spending on goods and services will decrease. D. will not be affected. C--
The long run aggregate supply curve (LRAS) also represents
A.the full-information level of output. B. the full-adjustment level of output. C. the full-employment level of output. D. all of the above. D <-
Economic growth takes place A. when aggregate demand increases. B. when aggregate supply increases. C. only when both aggregate demand and aggregate supply increase. D. only if the price level is constant or rising.
B
One reason that the aggregate demand curve slopes downward is because A. higher price levels reduce interest rates. B. higher price levels reduce net exports. C. higher price levels increase real wealth and consumption. D. higher price levels increase investment.
B
What is measured on the horizontal axis of the aggregate demand/aggregate supply model?
What is measured on the horizontal axis of the aggregate demand/aggregate supply model? A. planned expenditures B. nominal income C. prices D. real Gross Domestic Product (GDP D--
One impact of a rise in the dollar's value is that A. exports will increase sharply. B. U.S. goods are cheaper domestically. C. U.S. goods will become cheaper overseas. D. imports become cheaper for the U.S. consumer.
D
Suppose total planned expenditures equal $50 trillion when the value of the price level is 100. If the price level drops to 90, total planned real expenditures will equal A. None of the above: Cannot be determined without additional information. B. $50 billion. C. less than $50 trillion. D. more than $50 trillion.
D
To find an economy's long-run equilibrium price level, locate the point where ________ and ________ cross and look to the left. A. aggregate demand; short-run aggregate supply B. aggregate demand; price level C. demand; supply D. long-run aggregate supply; aggregate demand
D
What has caused persistent inflation in the United States? A. A decrease in labor productivity B. Supply-side inflation C. The nation's long-run aggregate supply curve has shifted to the left. D. None of the above
D
Supply-side inflation could be caused by which of the following? A. An increase in aggregate demand B. An increase in long-run aggregate supply C. A decrease in aggregate demand D. A decrease in long-run aggregate supply
D
Long-run aggregate supply reflects
total spending in the economy at full employment. B. only foreign production from U.S. subsidiaries. C. total production in the economy at full employment. D. both production and spending in the economy. C --
Higher interest rates tend to A. increase the quantity demanded of goods and services. B. lower the costs of building new plants and equipment. C. reduce the total planned spending on goods and services. D. make it less costly for people to buy houses and cars.
C
Supply-side inflation is caused by A. a decrease in aggregate demand and no change in aggregate supply. B. an increase in aggregate supply and no change in aggregate demand. C. a decrease in aggregate supply and no change in aggregate demand. D. an increase in aggregate supply and no change in aggregate demand.
C
The U. S. has experienced inflation every year since 1959 due to A. a sustained decrease in aggregate supply. B. a sustained increase in aggregate demand accompanied by an even larger decrease in LRAS. C. a sustained increase in aggregate supply accompanied by an even larger increase in aggregate demand. D. a sustained decrease in aggregate demand.
C
The U.S. economy has had persistent inflation in recent past decades. A possible explanation for the inflation is that A. there have been decreases in aggregate demand while aggregate supply has remained unchanged. B. there have been increases in the growth rate while aggregate demand has remained unchanged. C. growth in aggregate demand has outpaced growth in aggregate supply. D. there have been decreases in the growth rate while aggregate demand has remained unchanged.
C
If persistent inflation was due to declines in long-run aggregate supply, what pattern would be observed? A. Increases in the price level would occur simultaneously with increases in real GDP. B. Only prices of goods would increase; prices of services would remain constant. C. Only prices of services would increase; prices of goods would remain constant. D. Increases in the price level would occur simultaneously with decreases in real GDP.
D
The aggregate supply curve
relates planned aggregate production to price level.