Econ 111 Test 4

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level: a. rises, shifting aggregate demand right. b. rises, shifting aggregate demand left. c. falls, shifting aggregate supply right. d. falls, shifting aggregate supply left.

C

Disinflation is defined as a a. zero rate of inflation. b. constant rate of inflation. c. reduction in the rate of inflation. d. negative rate of inflation.

C

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they: a. decreased the money supply. b. increased government expenditures. c. decreased taxes. d. None of the above is correct.

A

If policymakers decrease aggregate demand, then in the short run the price level: a. falls and unemployment rises. b. and unemployment fall. c. and unemployment rise. d. rises and unemployment falls.

A

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households: a. increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve. b. decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve. c. increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve. d. decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve.

A

Refer to Figure 22-5. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to a. A and 1. b. back to C and 3. c. D and 4. d. F and 5.

A

The initial impact of an increase in an investment tax credit is to shift: a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left.

A

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if: a. the price level is higher than expected making production more profitable. b. the price level is higher than expected making production less profitable. c. the price level is lower than expected making production more profitable. d. the price level is higher than expected making production less profitable.

A

What, if anything, did policymakers do in response to the recession of 2001? a. tax cuts and expansionary monetary policy b. only tax cuts c. only expansionary monetary policy d. neither tax cuts nor expansionary monetary policy

A

When the actual change in the price level differs from its expected change, which of the following can explain why firms might change their production? a. both menu costs and mistaking a price level change for a change in relative prices b. menu costs but not mistaking a price level change for a change in relative prices c. mistaking a price level change for a change in relative price but not menu costs d. neither menu costs nor mistaking a price level change for a change in relative prices

A

If the central bank decreases the money supply, then in the short run prices: a. rise and unemployment falls. b. fall and unemployment rises. c. and unemployment rise. d. and unemployment fall.

B

Refer to Figure 22-5. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to a. A and 1. b. B and 2. c. back to C and 3. d. D and 4.

B

Refer to Figure 22-5. Starting from C and 3, in the short run, an unexpected decrease in money supply growth moves the economy to a. A and 1. b. B and 2. c. back to C and 3. d. D and 4.

B

Refer to Figure 22-5. The economy would move from C to B a. in the short run if money supply growth increased unexpectedly. b. in the short run if money supply growth decreased unexpectedly. c. in the long run if money supply growth increases. d. in the long run if money supply growth decreases.

B

The aggregate quantity of goods and service demanded changes as the price level falls because: a. real wealth rises, interest rates rise, and the dollar appreciates. b. real wealth rises, interest rates fall, and the dollar depreciates. c. real wealth falls, interest rates rise, and the dollar appreciates. d. real wealth falls, interest rates fall, and the dollar depreciates.

B

In the long run inflation: a. and unemployment are primarily determined by labor market factors. b. and unemployment are primarily determined by the rate of money supply growth. c. is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors. d. is primarily determined by labor market factors while unemployment is primarily determined by the rate of money supply growth.

C

Refer to Figure 20-1. An increase in the money supply would move the economy from C to a. B in the short run and the long run. b. D in the short run and the long run. c. B in the short run and A in the long run. d. D in the short run and C in the long run.

C

Refer to Figure 20-1. If the economy starts at A and there is a fall in aggregate demand, the economy moves a. back to A in the long run. b. to B in the long run. c. to C in the long run. d. to D in the long run.

C

Refer to Figure 22-5. The economy would move from 3 to 5 a. in the short run if money supply growth increased unexpectedly. b. in the short run if money supply growth decreased unexpectedly. c. in the long run if money supply growth increases. d. in the long run if money supply growth decreases.

C

The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will increase if the price level: a. increases by less than expected so that firms believe the relative price of their output has increased. b. increases by less than expected so that firms believe the relative price of their output has decreased. c. increases by more than expected so that firms believe the relative price of their output has increased. d. increases by more than expected so that firms believe the relative price of their output has decreased.

C

The short-run relationship between inflation and unemployment is often called: a. the Classical Dichotomy. b. Money Neutrality. c. the Phillips curve. d. None of the above is correct.

C

The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have: a. higher than desired prices which leads to an increase in the aggregate quantity of goods and services supplied. b. higher than desired prices which leads to a decrease in the aggregate quantity of goods and service supplied. c. lower than desired prices which leads to an increase in the aggregate quantity of goods and services supplied. d. lower than desired prices which leads to a decrease in the aggregate quantity of goods and services supplied

C

An increase in the expected price level shifts short-run aggregate supply to the: a. right, and an increase in the actual price level shifts short-run aggregate supply to the right. b. right, and an increase in the actual price level does not shift short-run aggregate supply. c. left, and an increase in the actual price level shifts short-run aggregate supply to the left. d. left, and an increase in the actual price level does not shift short-run aggregate supply.

D

During recessions a. workers are laid off. b. factories are idle. c. firms may find they are unable to sell all they produce. d. All of the above are correct.

D

Other things the same, if the price level rises, people a. increase foreign bond purchases, so the supply of dollars in the market for foreign- currency exchange increases. b. increase foreign bond purchases, so the supply of dollars in the market for foreign- currency exchange decreases. c. decrease foreign bond purchases, so the supply of dollars in the market for foreign- currency exchange increases. d. decrease foreign bond purchases, so the supply of dollars in the market for foreign- currency exchange decreases.

D

Refer to Figure 20-1. If the economy is at A and there is a fall in aggregate demand, in the short run the economy: a. stays at A. b. moves to B. c. moves to C. d. moves to D.

D

Refer to Figure 22-5. Starting from C and 3, in the long run, an increase in money supply growth moves the economy to a. A and 1. b. back to C and 3. c. D and 4. d. F and 5.

D

When the money supply decreases: a. interest rates fall and so aggregate demand shifts right. b. interest rates fall and so aggregate demand shifts left. c. interest rates rise and so aggregate demand shifts right. d. interest rates rise and so aggregate demand shifts left.

D

Which of the following effects helps to explain the downward slope of the aggregate- demand curve? a. the exchange-rate effect b. the wealth effect c. the interest-rate effect d. All of the above are correct.

D

Which of the following results in higher inflation and higher unemployment in the short run? a. a more expansionary monetary policy b. a more contractionary monetary policy c. a decrease in the minimum wage d. an adverse supply shock such as an increase in the price of oil

D