Econ 202 Quiz 15

Scenario 33-2 Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. Refer to Scenario 33-2. In the short run what happens to the price level and real GDP? A. Both the price level and real GDP fall. B. The price level rises and real GDP falls. C. Both the price level and real GDP rise. D. The price level falls and real GDP rises.

A. Both the price level and real GDP fall.

Refer to Figure 33-4. The short-run equilibrium is defined by the given AD and SRAS curves. Which of the long-run aggregate-supply curves is consistent with the economy being in a recession? A. LRAS3 B. LRAS2 C. Both LRAS1 and LRAS3 D. LRAS1

A. LRAS3

Refer to Figure 33-6. Suppose the economy starts at R. If changes occur that move the economy to a new short-run equilibrium of P1 and Y1 , then it must be the case that A. aggregate demand has decreased. B. short-run aggregate supply has increased. C. aggregate demand has increased. D. short-run aggregate supply has decreased.

A. aggregate demand has decreased.

The price level rises in the short run if A. aggregate demand shifts right or aggregate supply shifts left. B. aggregate demand or aggregate supply shifts left. C. aggregate demand shifts left or aggregate supply shifts right. D. aggregate demand or aggregate supply shifts right.

A. aggregate demand shifts right or aggregate supply shifts left.

Aggregate demand includes A. the quantity of goods and services the government, households, firms, and customers abroad want to buy. B. the quantity of goods and service the government wants to buy, but not the quantity of goods and services households, firms, or customers abroad want to buy. C. the quantity of goods and services households and firms want to buy, but not the quantity of goods and services the government wants to buy. D. neither the quantity of goods and services the government, households, nor firms want to buy nor the quantity of goods and services customers abroad want to buy.

A. the quantity of goods and services the government, households, firms, and customers abroad want to buy.

Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-1. What would happen to the dollar? A. It would appreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods. B. It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. C. It would depreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. D. It would depreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods.

B. It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.

Refer to Figure 33-4. The short-run equilibrium is defined by the given AD and SRAS curves. Which of the long-run aggregate-supply curves is consistent with a short-run economic an expansion? A. LRAS2 B. LRAS1 C. LRAS3 D. Both LRAS1 and LRAS3

B. LRAS1

Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-1. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand? A. Net exports would fall which by itself would increase U.S. aggregate demand. B. Net exports would fall which by itself would decrease U.S. aggregate demand. C. Net exports would rise which by itself would increase U.S. aggregate demand. D. Net exports would rise which by itself would decrease U.S. aggregate demand.

B. Net exports would fall which by itself would decrease U.S. aggregate demand.

The classical dichotomy and monetary neutrality are represented graphically by A. a downward-sloping aggregate-demand curve. B. a vertical long-run aggregate-supply curve. C. an upward-sloping long-run aggregate-supply curve. D. an upward-sloping short-run aggregate-curve.

B. a vertical long-run aggregate-supply curve.

Suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage. They may infer that the reward to working is temporarily A. high and so supply a smaller quantity of labor. B. low and so supply a smaller quantity of labor. C. high and so supply a larger quantity of labor. D. low and so supply a larger quantity of labor.

B. low and so supply a smaller quantity of labor.

Other things the same, if the U.S. price level falls, then U.S. residents want to buy A. more foreign bonds. The real exchange rate rises. B. more foreign bonds. The real exchange rate falls. C. fewer foreign bonds. The real exchange rate falls. D. fewer foreign bonds. The real exchange rate rises.

B. more foreign bonds. The real exchange rate falls.

Refer to Figure 33-2. If the economy is at O and there is a reduction in aggregate demand, in the short run the economy A. stays at O. B. moves to R. C. moves to P. D. moves to Q.

B. moves to R.

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because monetary neutrality would mean that A. production should have risen, but prices should not have. B. the prices should have risen, but production should not have changed. C. neither prices nor production should have risen. D. the prices and production should both have fallen.

B. the prices should have risen, but production should not have changed.

In 2009, Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right? A. Only the tax cuts B. Neither the increased funding for states nor the tax cuts C. Both the increased funding for states and the tax cuts D. Only the increased funding for states

C. Both the increased funding for states and the tax cuts

Which of the following would not be directly included in aggregate demand? A. Purchases of goods by households B. An increase in firms' inventories C. Government's tax collections D. Firms' purchases of newly produced machinery

C. Government's tax collections

Refer to Figure 33-2. A decrease in taxes would move the economy from Q to A. P in the short run and the long run. B. R in the short run and Q in the long run. C. P in the short run and O in the long run. D. R in the short run and the long run.

C. P in the short run and O in the long run.

Economic expansions in Europe and China would cause the U.S. price level A. to fall and real GDP to rise. B. to rise and real GDP to fall. C. and real GDP to rise. D. and real GDP to fall.

C. and real GDP to rise.

The initial impact of an increase in an investment tax credit is to shift aggregate A. supply left. B. supply right. C. demand right. D. demand left.

C. demand right.

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will A. rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. B. rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. C. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. D. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.

C. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.

The effect of an increase in the price level on the aggregate-demand curve is represented by a A. shift to the left of the aggregate-demand curve. B. shift to the right of the aggregate-demand curve. C. movement to the left along a given aggregate-demand curve. D. movement to the right along a given aggregate-demand curve.

C. movement to the left along a given aggregate-demand curve.

Which of the following would shift the long-run aggregate supply curve right? A. Both an increase in the capital stock and an increase in the price level B. Neither an increase in the money supply nor an increase in the capital stock C. An increase in the money supply, but not an increase in the capital stock D. An increase in the capital stock, but not an increase in the price level

D. An increase in the capital stock, but not an increase in the price level

Recessions come at A. regular intervals. During recessions consumption spending falls relatively more than investment spending. B. regular intervals. During recessions investment spending falls relatively more than consumption spending. C. irregular intervals. During recessions consumption spending falls relatively more than investment spending. D. irregular intervals. During recessions investment spending falls relatively more than consumption spending.

D. irregular intervals. During recessions investment spending falls relatively more than consumption spending.

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have A. lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied. B. higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. C. higher than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied. D. 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 an increase in the aggregate quantity of goods and services supplied.

Refer to Figure 33-3. In Figure 33-3, Point B represents a A. short-run equilibrium and a long-run equilibrium. B. long-run equilibrium, and Point C represents a short-run equilibrium. C. long-run equilibrium, and Point A represents a short-run equilibrium. D. short-run equilibrium, and Point A represents a long-run equilibrium.

D. short-run equilibrium, and Point A represents a long-run equilibrium.

An increase in the expected price level shifts A. both the short-run and long-run aggregate supply curves to the left. B. the long-run aggregate supply curve to the left but does not affect the short-run aggregate supply curve. C. neither the long-run aggregate supply curve nor the short-run aggregate supply curve to the left. D. the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve.

D. the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve.