ECON 201 (Exam #2) CH 11

Over the last 60 years, the average annual growth of real GDP in the United States has been approximately a. 1 percent. b. 3 percent. c. 5 percent. d. 9 percent.

b, 3%

What impact did the soaring oil prices of 2007 and the first half of 2008 have on the economy?

they reduce SRAS, causing real output and employment to decline

When the economy is operating at an output beyond its full-employment potential, the a. actual level of unemployment will exceed the natural rate of unemployment. b. actual level of unemployment will equal the natural rate of unemployment. c. strong demand for resources will place upward pressure on resource prices. d. aggregate demand will increase until full employment is restored.

A, actual level of unemployment will exceed the natural rate of unemployment

Which one of the following factors will most likely cause an increase in aggregate demand? a. an increase in the expected inflation rate b. an increase in the real interest rate c. a decrease in net exports due to falling incomes abroad d. a technological development that decreases the cost of producing computer chips

A, an increase in the expected inflation rate

In the aggregate demand/aggregate supply model, when the output of an economy is less than its long-run potential, the economy will experience a. declining real wages and interest rates that will stimulate employment and real output. b. rising interest rates that will stimulate aggregate demand and restore full employment. c. a budget surplus that will stimulate demand and, thereby, help restore full employment. d. rising real wages and real interest rates that will restore equilibrium at a higher price level.

A, declining real wages and interest rates that will stimulate employment and real output

A rise in the price of oil would be most likely to cause which of the following in the United States? a. an economic boom b. an economic slowdown or recession c. a decrease in the general level of prices d. an increase in aggregate demand

B, an economic slowdown or recession

If the exchange rate value of the dollar depreciates relative to other currencies, we would expect a. U.S. exports to decrease. b. U.S. exports to increase. c. U.S. imports to increase. d. aggregate demand in the United States to decrease.

B, U.S. exports to increase

Which of the following will most likely accompany an unanticipated increase in short-run aggregate supply? a. an increase in real GDP b. an increase in the general level of prices c. an increase in the actual rate of unemployment d. an increase in the natural rate of unemployment

A, an increase in real GDP

Which of the following adjustments will most likely occur when output exceeds the economy's long-run capacity? a. Prices will decline, bringing actual output into balance with its potential. b. The natural rate of unemployment will increase and, thereby, restore equilibrium. c. Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity. d. Lower interest rates will increase the economy's long-run capacity and restore equilibrium.

C, higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity

How would aggregate demand change if foreign incomes increase and the exchange rate value of the dollar increases? a. Neither change would affect aggregate demand. b. The increase in income would decrease aggregate demand; the increase in the exchange rate would increase aggregate demand. c. The increase in income would increase aggregate demand; the increase in the exchange rate would decrease aggregate demand. d. Both changes would decrease aggregate demand.

C, the increase in income would increase aggregate demand; teh increase in the exchange rate would decrease aggregate demand

Within the framework of the AD/AS model, in the long run, output a. will exceed the economy's long-run capacity. b. will be less than the economy's long-run capacity. c. will converge toward the economy's long-run capacity. d. must equal approximately 95 percent of the economy's long-run capacity.

C, will converge toward the economy's long-run capacity

Which of the following shifts short-run, but not long-run aggregate supply to the right? a. a decrease in the actual rate of inflation b. a decrease in the expected rate of inflation c. a decrease in the capital stock d. a drought in the Midwest agricultural areas.

a, a decrease in the actual rate of inflation

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. b. an increase in long-run aggregate supply. c. an unanticipated decrease in aggregate demand. d. an unanticipated decrease in aggregate supply.

a, an anticipated increase in aggregate demand.

Which of the following will most likely increase long-run aggregate supply? a. an increase in the rate of investment b. an increase in resource prices c. an increase in the minimum wage d. an increase in the expected inflation rate

a, an increase in the rate of investment

An abnormally large grain crop due to highly favorable weather conditions in the Midwest is an example of a. a technological improvement that will increase long-run aggregate supply. b. a supply shock that will increase short-run aggregate supply. c. an unexpected development that will reduce the natural rate of unemployment. d. an unexpected development that will lead to excess supply and widespread unemployment.

b, a supply shock that will increase short-run aggregate supply

Suppose the economy is in long-run equilibrium. In a short span of time, there is a pessimistic revision of expectations about future business conditions and an unexpected rise in the value of the dollar. In the short run, we would expect a. the price level and real GDP both to rise. b. the price level and real GDP both to fall. c. the price level and real GDP both to stay the same. d. All of the above are possible.

b, the price level and real GDP both to fall

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 the long-run supply curve shifts rightward. b. The short-run aggregate supply curve shifts rightward and there is a movement along the aggregate demand curve. c. The short-run aggregate supply curve does not shift and the long-run aggregate supply curve shifts rightward. d. The short-run aggregate supply curve shifts rightward but the long-run aggregate supply curve does not shift. e. The short-run aggregate supply curve shifts leftward and there is a movement along the aggregate demand curve.

e, the short-run aggregate supply curve shifts leftward and there is movement along the aggregate demand curve

If a reduction in stock prices reduces the real wealth of Americans, the a. aggregate demand curve will shift to the left. b. long-run aggregate supply will shift to the left. c. general price level will increase. d. aggregate demand curve will shift to the right.

A, aggregate demand curve will shift to the left

Which of the following will most likely occur as the result of an unanticipated increase in aggregate demand? a. an increase in output and a move to a higher price level b. an increase in prices and a long-run increase in output c. an increase in long-run aggregate supply (LRAS shifts to the right) d. a decrease in the natural rate of unemployment

A, an increase in output and a move to a higher price level

The short-run effect of a sudden increase in stock prices will be a. an increase in output and a decrease in prices. b. an increase in both output and prices. c. a decrease in both output and prices. d. a decrease in output and an increase in prices.

B, an increase in both output and prices.

Which of the following will most likely accompany an unanticipated reduction in aggregate demand? a. an increase in the general price level b. an increase in unemployment c. an increase in real GDP d. an increase in resource prices

B, an increase in unemployment

Other things constant, a reduction in the real interest rate will a. cause consumers to cut back on their purchases of durable items like automobiles. b. induce businesses to increase their level of investment. c. increase the natural rate of unemployment. d. increase the actual rate of unemployment. A<

B, induce businesses to increase their level of investment

Within the AD/AS model, which one of the following adjustments will cause the economy to return to its long-run capacity when output is temporarily greater than the economy's long-run potential? a. Lower wage rates and resource prices reduce short-run aggregate supply. b. Lower interest rates increase aggregate demand and, thereby, stimulate output. c. Higher wage rates and resource prices reduce short-run aggregate supply. d. A decrease in prices reduces aggregate demand.

C, higher wage rates and resource prices reduce short-run aggregate supply.

If the U.S. price level decreased relative to price levels in foreign countries, what would be the impact on domestic aggregate supply and aggregate demand curves? a. the aggregate supply curve would shift outward and the aggregate demand curve would remain unchanged b. the aggregate supply curve would shift inward and the aggregate demand curve would remain unchanged c. the aggregate demand curve would shift outward and the aggregate supply curve would remain unchanged d. the aggregate demand curve would shift inward and the aggregate supply curve would remain unchanged e. the domestic aggregate demand and supply curves would remain unchanged

C, the aggregate demand curve would shift inward and the aggregate supply curve would remain unchanged.

Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas? a. a decrease in inflation b. a decrease in unemployment c. a decrease in the general level of prices d. an increase in the general level of prices

D, an increase in the general level of prices

Suppose there was a sharp reduction in stock prices and a sharp increase in the world price of crude oil. Within the framework of the AD/AS model, how would these two changes influence the U.S. economy? a. The lower stock prices would increase SRAS, and the higher crude oil prices would reduce AD; as a result, there would be downward pressure on the general level of prices. b. The lower stock prices would reduce SRAS, and the higher crude oil prices would increase AD; as a result, there would be upward pressure on the general level of prices. c. The lower stock prices would increase AD, and the higher crude oil prices would increase SRAS; as a result, output would tend to increase. d. The lower stock prices would reduce AD, and the higher crude oil prices would reduce SRAS; as a result, output would tend to decline.

D, the lower stock prices would reduce to AD, and the higher crude oil prices would reduce SRAS; as a result, output would tend to decline.

An increase in the long-run aggregate supply curve indicates that potential ___ has increased.

GDP

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 a. it is only necessary that long-run aggregate supply shifts right over time. b. it is only necessary that aggregate demand shifts right over time. c. both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must shift farther. d. None of the above cases would produce rising prices and growing real GDP over time.

c, both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must shift farther

Within the AD/AS model, if consumers increase their savings and cut back on their spending, the real interest rate will ___ and, thereby, cushion the reduction in consumption spending

decrease