Ch. 15 Aggregate Supply & Aggregate Demand Homework

In the short run, wages tend to be sticky a. because of contracts, social norms, and notions of fairness. b. because of contracts, but not social norms or notions of fairness. c. because of social norms and notions of fairness, but not contracts. d. but not because of social norms, notions of fairness or contracts.

a. because of contracts, social norms, and notions of fairness.

The long-run aggregate supply curve a. is vertical. b. shifts to the left when the economy's endowment of productive resources decreases. c. shifts to the right when the technology used in production improves. d. All of the above are correct.

d. All of the above are correct.

Which of the following statements are accurate observations about the recession of 2008-2009 in the United States? (Indicate all correct answers.) a. The recession of 2008-2009 originated partly in the Federal Reserve's response to the recession of 2001. A prolonged period of low interest rates -- plus the financial innovation called "securitization" -- led home prices to increase to unsustainable levels. b. The recession began with a sharp decline in home prices (from unsustainable levels). This led to a sharp fall in home building. c. People who had borrowed money to buy homes, defaulted (when their homes were worth less than the borrowed amount). This led to large losses for banks, which then cut back on lending. This reduced investment spending by businesses. d. Declines in the construction of new homes and in business investment spending led to large job losses

a. The recession of 2008-2009 originated partly in the Federal Reserve's response to the recession of 2001. A prolonged period of low interest rates -- plus the financial innovation called "securitization" -- led home prices to increase to unsustainable levels. b. The recession began with a sharp decline in home prices (from unsustainable levels). This led to a sharp fall in home building. c. People who had borrowed money to buy homes, defaulted (when their homes were worth less than the borrowed amount). This led to large losses for banks, which then cut back on lending. This reduced investment spending by businesses. d. Declines in the construction of new homes and in business investment spending led to large job losses

Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay optimistic for some time. As a result of this increase in optimism, which curve shifts and in which direction? a. aggregate demand shifts right b. aggregate demand shifts left c. aggregate supply shifts right. d. aggregate supply shifts left.

a. aggregate demand shifts right

Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay optimistic for some time. As a result of this increase in optimism, what happens to the price level and real GDP in the short run? a. both the price level and real GDP rise. b. both the price level and real GDP fall. c. the price level rises and real GDP falls. d. the price level falls and real GDP rises.

a. both the price level and real GDP rise.

Suppose the economy begins in long-run equilibrium. Then two things happen: a tax cut is announced and at the same time major new sources of oil are discovered in the country. Then in the short-run we would expect a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the same. d. the price level will fall, and real GDP might rise, fall, or stay the same.

a. real GDP will rise and the price level might rise, fall, or stay the same.

What, if anything, did policymakers do in response to the recession of 2008-2009? 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. tax cuts and expansionary monetary policy

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output that 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. the price level is higher than expected, making production more profitable.

A short period of falling incomes and rising unemployment is called a a. depression. b. recession. c. expansion. d. business cycle.

b. recession.

Suppose the economy begins 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 a. the price level to rise and real GDP to fall. b. the price level to fall and real GDP to rise. c. the price level and real GDP both to stay the same. d. All of the above are possible.

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

Which of the following shifts both short-run and long-run aggregate supply left? a. a decrease in the actual price level b. a decrease in the expected price level c. a decrease in the economy's stock of physical capital (perhaps as a result of a devastating earthquake) d. a decrease in the money supply

c. a decrease in the economy's stock of physical capital (perhaps as a result of a devastating earthquake)

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has a. decreased, so they increase production. b. decreased, so they decrease production. c. increased, so they increase production. d. increased, so they decrease production.

c. increased, so they increase production.

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 increases their sales. b. higher than desired prices, which depresses their sales. c. lower than desired prices, which increases their sales. d. lower than desired prices, which depresses their sales.

c. lower than desired prices, which increases their sales.

If the price level is higher than expected, firms might raise their production in the short run if a. the nominal wage they pay their employees was set based on the expected price level. b. prices are costly to adjust and they have set their price at some time in the past and are not ready to change it. c. they believe that the price of their product has risen relative to the price of other products, when in fact the rise in the price of their product reflects an increase in the general price level. d. All of the above are correct.

d. All of the above are correct.

Which of the following has been suggested as a cause of the Great Depression? a. a decline in the money supply b. a decrease in stock prices c. the collapse of the banking system (after fearful depositors withdrew their deposits) d. All of the above are correct.

d. All of the above are correct.

In the model of aggregate demand and aggregate supply, short-run equilibrium is represented by the intersection of the a. aggregate demand curve and the short-run aggregate supply curve. Long-run equilibrium is represented by the intersection of the aggregate demand curve and the long-run aggregate supply curve. b. aggregate demand curve and the long-run aggregate supply curve. Long-run equilibrium is represented by the intersection of the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve. c. aggregate demand curve and the short-run aggregate supply curve. Long-run equilibrium is represented by the intersection of the long-run aggregate demand curve and the long-run aggregate supply curve. d. aggregate demand curve and the short-run aggregate supply curve. Long-run equilibrium is represented by the intersection of the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.

d. aggregate demand curve and the short-run aggregate supply curve. Long-run equilibrium is represented by the intersection of the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.

An increase in the price level and a decrease in real GDP in the short run -- a phenomenon called stagflation -- could be the result of a. an increase in the money supply. b. an increase in government expenditures. c. a fall in stock prices. d. bad weather in farm states.

d. bad weather in farm states.

Changes in the price of oil a. can only lead to recessions. b. have not contributed much to output fluctuations in the United States. c. affect the economy mainly by changing aggregate demand. d. created both inflation and recession in the United States in the 1970s.

d. created both inflation and recession in the United States in the 1970s.

Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay optimistic for some time. How is the new long-run equilibrium different from the original one? a. both price and real GDP are higher b. both price and real GDP are lower. c. the price level is the same and GDP is higher. d. the price level is higher and real GDP is the same.

d. the price level is higher and real GDP is the same.

The aggregate supply curve is upward sloping, rather than vertical, in a. the short and long run. b. neither the short nor the long run. c. the long run, but not the short run. d. the short run, but not the long run.

d. the short run, but not the long run.