Chapter 10 Part 1

The situation in which actual output exceeds potential output

b. creates pressure for inflation

A supply shock is a surprise occurrence that

b. either increases or decreases short-run aggregate supply and output.

An increase in the exchange rate value of the U.S. dollar, relative to the Japanese yen, will cause U.S. imports from Japan to

a. increase and exports to Japan to decrease.

Which of the following would be most likely to cause a reduction in current aggregate demand in the United States?

a. increased fear of a recession

An anticipated change is an economic occurrence that

a. is foreseen by most economic participants.

In the aggregate demand/aggregate supply model, an increase in a country's sustainable potential output is represented by an increase in

a. long-run aggregate supply.

A currency appreciation will be most likely to

a. reduce net exports and therefore decrease aggregate demand.

If a currency depreciates, a country's net exports

a. rise and AD increases.

The expected price level is important because

b. firms and resource owners make long-term agreements based on the expected price level

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

b. a decrease in the capital stock

Which of the following will most likely increase short-run aggregate supply?

b. a reduction in resource prices

Within the AD/AS model, if consumers and investors become more optimistic about the future direction of the economy,

b. aggregate demand will increase.

If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur?

b. an increase in employment

Which of the following will most likely increase long-run aggregate supply?

b. an increase in the rate of investment

Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. To explain this

b. both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must shift farther.

Which of the following factors would increase aggregate demand in the goods and services market?

b. increased optimism on the part of consumers and businesses

Once decision makers fully adjust to an increase in the general price level,

b. output will return to the full-employment level.

An increase in the long-run aggregate supply curve indicates that

b. potential real GDP has increased.

Which of the following would be most likely to cause an increase in current aggregate demand in the United States?

b. sharp increase in the value of stocks owned by Americans

An improvement in technology would shift which of the following curve(s)?

b. short-run and long-run aggregate supply

Suppose we observe an economy experiencing an economic expansion and high inflation. This means the expansion is attributed to

a. an anticipated increase in aggregate demand.

An economic contraction caused by a shift in aggregate demand causes prices to

a. fall in the short run, and fall even more in the long run.

How will an unanticipated decrease in aggregate demand influence equilibrium output in the goods and services market?

a. Output will decrease, and the general level of prices will fall.

Which of the following would cause prices to fall and output to rise in the short run?

a. Short-run aggregate supply shifts right.

Suppose the economy is initially in long-run equilibrium and then it experiences a supply shock in the form of sharply higher energy prices. Which of the following is true?

a. The short-run aggregate supply curve shifts leftward and there is a movement along the aggregate demand curve.

When economic growth (a gradual shift of LRAS to the right) expands the production possibilities of an economy,

a. a larger output can be attained even if unemployment remains at its natural rate.

Suppose the economy is in long-run equilibrium. In a short span of time, there is a large influx of skilled immigrants, a major new discovery of oil, and a major new technological advance in electricity production. In the short run, we would expect

b. the price level to fall and real GDP to rise.

Which of the following will most likely accompany an unanticipated increase in short-run aggregate supply?

c. an increase in real GDP

Which of the following will most likely increase aggregate supply in the long run?

c. an increase in the rate of capital formation

Which of the following will most likely accompany an unanticipated reduction in aggregate demand?

c. an increase in unemployment

An increase in the general level of prices in the goods and services market that is accompanied by a short-run expansion in output is most likely caused by

c. an unanticipated increase in aggregate demand.

If Asian economies suffer a serious economic slump, U.S. net exports will

c. decrease and AD will shift leftward.

If an unanticipated increase in aggregate demand results in an output beyond the economy's long-run capacity, long-run equilibrium will eventually be restored by

c. higher resource prices, a decrease in SRAS, and an increase in the general level of prices.

Which of the following would be most likely to cause an increase in current aggregate demand in the United States?

c. rapid growth of real income in Canada and Western Europe

When output is less than the economy's long-run capacity, which of the following is most likely to occur?

c. reductions in real interest rates and real resource prices

When the economy is operating at an output beyond its full-employment potential, the

c. strong demand for resources will place upward pressure on resource prices.

An abnormally large grain crop due to highly favorable weather conditions in the Midwest is an example of a(n)

c. supply shock that will increase short-run aggregate supply.

Which of the following would be most likely to shift the long-run aggregate supply curve (LRAS) to the right?

d. an increase in labor productivity as the result of improved computer technology and expansion of the Internet

An increase in capital formation that expands long-run aggregate supply will

d. increase output and decrease prices.

Other things constant, a reduction in the real interest rate will

d. induce businesses to increase their level of investment.