Ch. 10

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 a. an unanticipated decrease in aggregate demand. b. an unanticipated increase in aggregate demand. c. a favorable supply shock that shifts SRAS to the right. d. an unfavorable supply shock that shifts SRAS to the left.

b. an unanticipated increase in aggregate demand.

If an unanticipated decrease in aggregate demand results in an output below the economy's long-run capacity, long-run equilibrium will eventually be restored by a. an increase in the rate of inflation. b. lower resource prices and lower real interest rates. c. higher resource prices and higher real interest rates. d. a decrease in the natural rate of unemployment.

b. lower resource prices and lower real interest rates.

If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur? a. A reduction in the price level. b. An increase in the rate of unemployment. c. An increase in employment. d. An expansion in the federal budget deficit.

c. An increase in employment.

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.

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.

Other things constant, an increase in resource prices will a. increase aggregate demand. b. decrease aggregate demand. c. decrease short-run aggregate supply. d. increase short-run aggregate supply.

c. decrease short-run aggregate supply.

A recession in another country the U.S. actively trades with would a. increase U.S. net exports and increase aggregate demand. b. increase U.S. net exports and increase aggregate supply. c. reduce U.S. net exports and reduce aggregate demand. d. reduce U.S. net exports and increase aggregate demand.

c. reduce U.S. net exports and reduce aggregate demand.

A currency appreciation will be most likely to a. reduce net exports and therefore increase aggregate demand. b. raise net exports and therefore decrease aggregate demand. c. reduce net exports and therefore decrease aggregate demand. d. raise net exports and therefore increase aggregate demand.

c. reduce net exports and therefore decrease aggregate demand.

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.

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

Which of the following will most likely increase short-run aggregate supply? a. Unfavorable weather conditions in the nation's agricultural areas. b. An increase in income tax rates. c. An increase in the expected inflation rate. d. A reduction in resource prices.

d. A reduction in resource prices.

Which of the following will most likely accompany an unanticipated increase in aggregate demand? a. A decrease in prices. b. A decrease in resource prices. c. A decrease in real GDP. d. An increase in real GDP.

d. An increase in real GDP.

Which of the following is most likely to throw an economy into a recession? a. A reduction in the real interest rate. b. An unanticipated increase in short-run aggregate supply. c. An unanticipated increase in aggregate demand. d. An unanticipated reduction in aggregate demand.

d. An unanticipated reduction in aggregate demand.

The short-run effects of a favorable supply shock will include a. an increase in the general level of prices and a decrease in real output. b. an increase in the general level of prices and an increase in real output. c. a decrease in the general level of prices and a decrease in real output. d. a decrease in the general level of prices and an increase in real output.

d. a decrease in the general level of prices and an increase in real output.

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 a movement along the aggregate demand curve.

The situation in which actual output exceeds potential output a. is impossible because all resources are employed to produce potential output. b. is possible only in times of high unemployment. c. is possible only if the unemployment rate is negative. d. is possible only in the long run. e. creates pressure for inflation.

e. creates pressure for inflation.