ECON EXAM 3 - Chapter 20

Which of the following is not correct? The model of aggregate demand and aggregate supply is used by most economists to analyze short-run fluctuations. During a recession firms cut back production and workers are laid off. A recession is a period of declining real incomes and declining unemployment. A depression is a severe recession.

A recession is a period of declining real incomes and declining unemployment

Other things the same, the aggregate quantity of goods demanded decreases if real wealth falls. the interest rate rises. the dollar appreciates. All of the above are correct

All of the above are correct

The long-run aggregate supply curve shifts right if immigration from abroad increases. the capital stock increases. technology advances All of the above are correct

All of the above are correct

The long-run aggregate supply curve is vertical. is a graphical representation of the classical dichotomy. indicates monetary neutrality in the long run. All of the above are correct.

All of the above are correct.

Which of the following explains why production rises in most years? increases in the labor force increases in the capital stock advances in technological knowledge All of the above are correct.

All of the above are correct.

Refer to Pessimism. In the short run what happens to the price level and real GDP? Both the price level and real GDP rise. Both the price level and real GDP fall. The price level rises and real GDP falls. The price level falls and real GDP rises.

Both the price level and real GDP fall.

Refer to Political Instability Abroad. What would happen to the dollar? It would appreciate in foreign exchange markets making U.S goods more expensive compared to foreign goods. It would appreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods. It would depreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. It would depreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods.

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

Refer to Political Instability Abroad. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand? ​​Net exports would rise which by itself would increase U.S. aggregate demand. Net exports would rise which by itself would decrease U.S. aggregate demand. Net exports would fall which by itself would increase U.S. aggregate demand. Net exports would fall which by itself would decrease U.S. aggregate demand.

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

Which of the following is correct concerning recessions? They come at fairly regular and predictable intervals. They are associated with comparatively large increases in investment spending. They are any period when real GDP growth is less than average. They tend to be associated with rising unemployment rates.

They tend to be associated with rising unemployment rates.

Which of the following typically rises during a recession? Investment. Unemployment tax revenues. new home construction.

Unemployment

Which of the following affected aggregate demand during the recession of 2008-2009? a decline in residential construction and a decrease in lending a decline in residential construction but not a decrease in lending a decrease in lending but not a decline in residential construction neither a decrease in residential construction nor a decrease in lending

a decline in residential construction and a decrease in lending

A change in the expected price level is likely to cause which of the following? ​​a shift in the short-run aggregate supply curve and long-run aggregate supply curve a shift in the short run aggregate supply curve a shift in the aggregate demand curve a shift in the long-run aggregate supply curve

a shift in the short run aggregate supply curve

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

a vertical long-run aggregate-supply curve.

Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift aggregate demand right. aggregate demand left aggregate supply right. aggregate supply left

aggregate demand left

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift aggregate demand right. aggregate demand left. aggregate supply right. aggregate supply left.

aggregate demand left.

Other things the same, an increase in the amount of capital firms wish to purchase would initially shift aggregate demand right aggregate demand left. aggregate supply right. aggregate supply left

aggregate demand right

The equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level), where a is a positive number, represents an upward-sloping short-run aggregate supply curve a vertical short-run aggregate supply curve a downward-sloping aggregate demand curve None of the above is correct

an upward-sloping short-run aggregate supply curve

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

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

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? only the increased funding for states only the tax cuts both the increased funding for states and the tax cuts neither the increased funding for states nor the tax cuts

both the increased funding for states and the tax cuts

Other things the same, continued increases in technology lead to continued increases in the price level and real GDP. continued decreases in the price level and real GDP. continued increases in real GDP and continued increases in the price level. continued increases in real GDP and continued decreases in the price level

continued increases in real GDP and continued decreases in the price level

Other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, then employment and production rise employment rises and production falls. employment falls and production rises. employment and production fall.

employment and production rise

Stagflation exists when prices rise and unemployment falls rise and unemployment falls. fall and unemployment rises. fall and unemployment rises.

fall and unemployment rises.

Other things the same, when the price level falls, interest rates rise, so firms increase investment. rise, so firms decrease investment. fall, so firms increase investment. fall, so firms decrease investment.

fall, so firms increase investment.

People will buy more if the price level rises because rising prices increase the real value of a dollar. rises because rising prices decrease the real value of a dollar. falls because falling prices increase the real value of a dollar. falls because falling prices decrease the real value of a dollar.

falls because falling prices increase the real value of a dollar.

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases, the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports. the real value of money decreases; in turn, interest rates increase, which decreases net exports. households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods. households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.

households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.

The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change in the price level and output. in the price level, but not output. in output, but not the price level. in neither the price level nor output

in the price level, but not output.

Other things the same, if the price level rises, people increase foreign bond purchases, so the dollar appreciates. increase foreign bond purchases, so the dollar depreciates. increase domestic bond purchases, so the dollar appreciates. increase domestic bond purchases, so the dollar depreciates.

increase domestic bond purchases, so the dollar appreciates.

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve. increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve. decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve.

increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve

Other things the same, a decrease in the U.S. interest rate induces firms to invest more shifts money demand to the left. makes the U.S. dollar appreciate. increases the opportunity cost of holding dollars

induces firms to invest more

Recession come at regular intervals. During recessions consumption spending falls relatively more than investment spending. regular intervals. During recessions investment spending falls relatively more than consumption spending. irregular intervals. During recessions consumption spending falls relatively more than investment spending irregular intervals. During recessions investment spending falls relatively more than consumption spending.

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

If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level and output are higher than in the original long-run equilibrium. and output are lower than in the original long-run equilibrium. is lower and output is the same as the original long-run equilibrium is the same and output is lower than in the original long-run equilibrium.

is lower and output is the same as the original long-run equilibrium

An increase in the expected price level shifts short-run aggregate supply to the right, and an increase in the actual price level shifts short-run aggregate supply to the right. right, and an increase in the actual price level does not shift short-run aggregate supply. left, and an increase in the actual price level shifts short-run aggregate supply to the left. left, and an increase in the actual price level does not shift short-run aggregate supply.

left, and an increase in the actual price level does not shift short-run aggregate supply.

Real GDP is the current dollar value of all goods produced by the citizens of an economy within a given time. measures economic activity and income. is used primarily to measure long-run changes rather than short-run fluctuations. All of the above are correct

measures economic activity and income.

If people decide to hold less money, then money demand decreases, there is an excess supply of money, and interest rates rise. money demand decreases, there is an excess supply of money, and interest rates fall. money demand increases, there is an excess demand for money, and interest rates fall. money demand increases, there is an excess demand for money, and interest rates rise.

money demand decreases, there is an excess supply of money, and interest rates fall.

Real GDP moves in the opposite direction as unemployment. increases as production falls. falls when households save a smaller fraction of their income. All of the above are correct.

moves in the opposite direction as unemployment.

A decrease in the expected price level shifts only the long-run aggregate supply curve right. only the short-run aggregate supply curve right. both the short-run and the long-run aggregate supply curve right. Neither the short-run nor the long-run aggregate supply curve right

only the short-run aggregate supply curve right.

Other things the same, a fall in an economy's overall level of prices tends to raise both the quantity demanded and supplied of goods and services. raise the quantity demanded of goods and services, but lower the quantity supplied. lower the quantity demanded of goods and services, but raise the quantity supplied. lower both the quantity demanded and the quantity supplied of goods and services.

raise the quantity demanded of goods and services, but lower the quantity supplied.

Which of the following is most commonly used to monitor short-run changes in economic activity? the inflation rate. real GDP. interest rates. value of the U.S. dollar in the foreign exchange market.

real GDP.

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if real wealth rises. the interest rate rises. the dollar appreciates. All of the above are correct

real wealth rises.

When we say that economic fluctuations are "irregular and unpredictable," we mean that the relationship between output and unemployment is erratic and difficult to characterize ​​when one macroeconomic variable that measures income or spending is falling, other macroeconomic variables that measure income or spending are likely to be rising recessions do not occur at regular intervals. All of the above are correct

recessions do not occur at regular intervals.

If wages are sticky, then a greater than expected increase in the price level aises the real costs of production, so the short-run aggregate supply curve shifts left. raises the real costs of production, so the aggregate quantity of goods and services declines. reduces the real costs of production, so the short-run aggregate supply curve shifts right. reduces the real costs of production, so the aggregate quantity of goods and services rises.

reduces the real costs of production, so the aggregate quantity of goods and services rises.

The investment component of GDP measures spending on financial assets such as stocks and bonds. During recessions it declines by a relatively large amount. residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount. financial assets such as stocks and bonds. During recessions it declines by a relatively small amount. residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively small amount.

residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount.

If banks and speculators in the U.S. decided to exchange U.S. dollars for the foreign currencies of other countries, but foreigners do not desire to increase their holdings of U.S. dollars, then U.S. net exports would rise and aggregate demand would shift left rise and aggregate demand would shift right fall and aggregate demand would shift left. fall and aggregate demand would shift right.

rise and aggregate demand would shift right

Other things the same, a decrease in the price level causes real wealth to fall, interest rates to fall, and the dollar to appreciate. fall, interest rates to rise, and the dollar to depreciate. rise, interest rates to rise, and the dollar to appreciate. rise, interest rates to fall, and the dollar to depreciate

rise, interest rates to fall, and the dollar to depreciate

Other things the same, when the price level rises, interest rates rise, which means consumers will want to spend more on homebuilding. rise, which means consumers will want to spend less on homebuilding. fall, which means consumers will want to spend more on homebuilding. fall, which means consumers will want to spend less on homebuilding.

rise, which means consumers will want to spend less on homebuilding.

If the price level falls, the real value of a dollar rises, so people will want to buy more. This response helps explain the slope of the aggregate demand curve. rises, so people will want to buy more. This response shifts aggregate demand to the right. falls, so people will want to buy less. This response helps explain the slope of the aggregate demand curve. falls, so people will want to buy less. This response shifts aggregate demand to the left.

rises, so people will want to buy more. This response helps explain the slope of the aggregate demand curve.

Most economists use the aggregate demand and aggregate supply model primarily to analyze short-run fluctuations in the economy. the effects of macroeconomic policy on the prices of individual goods. the long-run effects of international trade policies. productivity and economic growth

short-run fluctuations in the economy.

Recessions in Canada and Mexico would cause the U.S. price level and real GDP to rise the U.S. price level and real GDP to fall. the U.S. price level to rise and real GDP to fall the U.S. price level to fall and real GDP to rise

the U.S. price level and real GDP to fall.

If speculators lost confidence in foreign economies and so wanted to buy more U.S. bonds the dollar would appreciate which would cause aggregate demand to shift right the dollar would appreciate which would cause aggregate demand to shift left. the dollar would depreciate which would cause aggregate demand to shift right. the dollar would depreciate which would cause aggregate demand to shift left.

the dollar would appreciate which would cause aggregate demand to shift left.

If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S. bonds, the dollar would appreciate which would cause aggregate demand to shift right. the dollar would appreciate which would cause aggregate demand to shift left. the dollar would depreciate which would cause aggregate demand to shift right. the dollar would depreciate which would cause aggregate demand to shift left.

the dollar would depreciate which would cause aggregate demand to shift right.

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve? the wealth effect the interest-rate effect the exchange-rate effect the real-wage effect

the interest-rate effect

If the actual price level is 165, but people had been expecting it to be 160, then ​​the quantity of output supplied rises, but only in the short run. the quantity of output supplied rises in the short run and the long run. the quantity of output supplied falls, but only in the short run. the quantity of output supplied falls in the short run and the long run.

the quantity of output supplied rises, but only in the short run.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for the slope of short-run aggregate supply. the slope of long-run aggregate supply. the slope of the aggregate-demand curve. everything that makes the aggregate-demand curve shift.

the slope of the aggregate-demand curve.