Chapter 13

Inflation can be started by an increase in aggregate supply or a decrease in aggregate demand. a decrease in aggregate supply or an increase in aggregate demand. an increase in aggregate supply or an increase in aggregate demand. an increase in aggregate demand or an increase in potential GDP. a decrease in aggregate supply or a decrease in aggregate demand.

a decrease in aggregate supply or an increase in aggregate demand.

If the Fed increases the quantity of money, then the quantity of real GDP demanded increases and there is a movement down along the AD curve. both the aggregate demand curve and the aggregate supply curve shift leftward. the quantity of real GDP demanded decreases and there is a movement up along the AD curve. aggregate demand decreases and the AD curve shifts leftward. aggregate demand increases and the AD curve shifts rightward.

aggregate demand increases and the AD curve shifts rightward.

If real GDP is less than potential GDP, then the ________ and the price level ________. aggregate supply curve shifts leftward; rises amount of potential GDP increases; falls aggregate demand curve shifts leftward; rises aggregate demand curve shifts rightward; falls aggregate supply curve shifts rightward; falls

aggregate supply curve shifts rightward; falls

In a demand- pull inflation, money wage rates rise because a decrease in aggregate demand creates a labor shortage. a decrease in aggregate demand creates a labor surplus. an increase in aggregate supply creates a labor shortage. an increase in aggregate demand creates a labor shortage. an increase in aggregate demand creates a labor surplus.

an increase in aggregate demand creates a labor shortage.

Demand pull inflation can be started by a decrease in net exports. a decrease in the quantity of money. an increase in the price of oil. a decrease in the money price of resources. an increase in government expenditure.

an increase in government expenditure.

Cost- push inflation can start with a decrease in the quantity of money. an increase in government expenditure. an increase in oil prices. a decrease in government expenditure. a decrease in investment.

an increase in oil prices.

If there is a rise in the price level, there is ________ in the quantity of real GDP supplied and a movement ________ along the AS curve. an increase; downward a decrease; upward an increase; upward a decrease; downward no change; upward

an increase; upward

If the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP more than potential GDP, there is a recessionary gap. an inflationary gap. a falling price level. a below-full employment equilibrium. a rising real GDP.

an inflationary gap.

When cost- push inflation starts, real GDP ________ and the unemployment rate ________. does not change; falls does not change; does not change increases; falls decreases; rises decreases; falls

decreases; rises

The aggregate supply curve illustrates that the aggregate demand curve is not needed to determine the aggregate price level. higher the price level, the smaller the quantity of real GDP supplied. price level does not affect the quantity of real GDP supplied. higher the price level, the greater the quantity of real GDP supplied. amount of potential GDP increases when the price level rises.

higher the price level, the greater the quantity of real GDP supplied.

Reasons that the recession of 2008- 2009 did not become a depression include: i. The Fed bailed out troubled financial institutions. ii. The government aggressively balanced its budget. iii. The government increased its expenditures, which increased aggregate demand.

i and iii

Which of the following changes aggregate supply and shifts the aggregate supply curve? i. change in the price level ii. change in potential GDP iii. change in the money wage rate

ii and iii

A change in the price level produces a ________ the aggregate demand curve. i. shift in ii. change in the slope of iii. movement along

iii only

A tax cut ________ aggregate demand and ________. increases; shifts the AD curve rightward decreases; shifts the AD curve leftward increases; shifts the AD curve leftward decreases; shifts the AD curve rightward does not change; does not shift the AD curve

increases; shifts the AD curve rightward

Potential GDP decreases as the price level increases because people demand fewer goods and services. is independent of the price level. might either increase or decrease as the price level increases, depending on whether aggregate demand increases or decreases. increases as the price level increases because firms supply more goods and services. never changes.

is independent of the price level.

If the economy is at macroeconomic equilibrium, then real GDP cannot be compared to potential GDP. must be great than potential GDP. must be less than potential GDP. might be equal to, greater than, or less than potential GDP must equal potential GDP.

might be equal to, greater than, or less than potential GDP

A macroeconomic equilibrium occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied even if they are not equal to potential GDP. quantity of real GDP demanded is less than the quantity of real GDP supplied. quantity of real GDP demanded equals the quantity of real GDP supplied and both equal potential GDP. quantity of real GDP demanded is greater than the quantity of real GDP supplied. None of the above answers is correct.

quantity of real GDP demanded equals the quantity of real GDP supplied even if they are not equal to potential GDP.

If a country is trying to recover from a recent recession, it is unlikely their government officials will decide to ________ because it would ________. raise interest rates; decrease aggregate demand increase taxes; increase aggregate demand institute a tax cut; increase aggregate demand lower interest rates; decrease aggregate demand raise interest rates; increase aggregate demand

raise interest rates; decrease aggregate demand

Moving along the AS curve, when the price level increases, the real wage rate rises, and there is an increase in the quantity of real GDP supplied. nominal wage rate falls, and there is an increase in the quantity of real GDP supplied. real wage rate rises, and there is a decrease in the quantity of real GDP supplied. nominal wage rate rises, and there is a decrease in the quantity of real GDP supplied. real wage rate falls, and there is an increase in the quantity of real GDP supplied.

real wage rate falls, and there is an increase in the quantity of real GDP supplied.

The AD curve is a graph depicting the relationship between the price level and the quantity of real GDP demanded. business cycle during expansions and recessions. relationship between the price level and potential GDP. relationship between the price level and the quantity of real GDP supplied. relationship between the aggregate quantity of real GDP demanded and the aggregate quantity of real GDP supplied.

relationship between the price level and the quantity of real GDP demanded.

A rise in the U.S. price level brings a ________ in the price of U.S. exports relative to imports that ________ exports of U.S. goods, bringing ________ in the quantity of U.S. real GDP demanded. rise; decreases; a decrease rise; increases; an increase rise; increases; a decrease fall; decreases; a decrease fall; increases; an increase

rise; decreases; a decrease

In the short run, a rise in the price level brings a ________ in the real interest rate that ________ investment, bringing ________ in the quantity of real GDP demanded. rise; increases ; an increase fall; increases ; an increase rise; decreases; a decrease fall; decreases ; a decrease rise; decreases; an increase

rise; decreases; a decrease

Because of the existence of the aggregate demand multiplier, a $10 billion change in expenditure changes the slope of the aggregate demand curve so it is steeper. shifts the aggregate demand curve by less than $10 billion. shifts the aggregate demand curve by $10 billion. shifts the aggregate demand curve by more than $10 billion. changes the slope of the aggregate demand curve so it is less steep.

shifts the aggregate demand curve by more than $10 billion.

To prevent demand- pull inflation, real GDP must increase. the Fed must not let the quantity of money persistently rise. firms must refuse to increase the real wage rate. the natural unemployment rate must increase. firms must refuse to increase the money wage rate.

the Fed must not let the quantity of money persistently rise.

If there is an increase in expected future income, then there is an upward movement along the aggregate demand curve. there is a downward movement along the aggregate demand curve. the aggregate demand curve shifts leftward. the aggregate demand curve becomes steeper. the aggregate demand curve shifts rightward.

the aggregate demand curve shifts rightward.

If the quantity of real GDP demanded is less than the quantity of real GDP supplied, then aggregate demand changes to restore the equilibrium. the price level falls and firms decrease production. the price level rises to restore the macroeconomic equilibrium. the price level falls and firms increase production. the economy must be producing at potential GDP.

the price level falls and firms decrease production.

The aggregate demand curve shifts when any of the following factors change EXCEPT : foreign income. the price level. monetary policy. fiscal policy. expectations about the future.

the price level.

Which of the following does NOT affect potential GDP? the quantity of capital and human capital the quantity of money the amount of entrepreneurial talent available the quantity of labor employed the quantity of land and natural resources

the quantity of money

If the equilibrium price level is 135 but the actual price level is 150, then the quantity of real GDP demanded is greater than the quantity of real GDP supplied. firms increase their production because they are able to sell their output at a higher than expected price. aggregate demand will decrease to restore equilibrium. the quantity of real GDP demanded is less than the quantity of real GDP supplied. aggregate demand will increase to restore equilibrium.

the quantity of real GDP demanded is less than the quantity of real GDP supplied.

The aggregate supply curve shows the relationship between potential GDP and the aggregate demand curve. the quantity of real GDP supplied and the interest rate. the quantity of real GDP supplied and the price level. potential GDP and real GDP. potential GDP and the price level.

the quantity of real GDP supplied and the price level.