Chapter 11 Review

Suppose the current situation is such that the price level is 120, real GDP is $13 trillion, and GDP along the long-run aggregate supply curve is $12.6 trillion. What will take place to restore the long-run equilibrium? A) The price level will fall until long-run aggregate supply increases to $13 trillion. B) The price level will fall and money wage rates will rise until real GDP along the long- run aggregate supply curve is $13 trillion. C) Money wage rates will rise until real GDP is $12.6 trillion. D) Aggregate demand will increase until both short-run and long-run aggregate supply equal $13 trillion.

Money wage rates will rise until real GDP is $12.6 trillion.

If the money wage rate rises, then the A) SAS curve shifts rightward. B) SAS curve shifts leftward. C) LAS curve shifts rightward. D) LAS curve shifts leftward.

SAS curve shifts leftward.

In November, 2012, U.S. lawmakers were faced with a "fiscal cliff:" if they did not agree on how to reduce the federal deficit, automatic tax increases and drastic cuts in government spending would take effect. What would happen if the fiscal cliff occurred? A) The aggregate demand curve shifts leftward, the price level falls and real GDP decreases. B) The aggregate demand curve shifts rightward, the price level rises and real GDP increases. C) The short run aggregate supply curve shift leftward, the price level rises and real GDP decreases. D) The short run aggregate supply curve shifts rightward, the price level falls and real GDP increases.

The aggregate demand curve shifts leftward, the price level falls and real GDP decreases.

An economy is at full employment. Which of the following events can create a recessionary gap? A) an increase in foreign income B) an increase in taxes C) a decrease in the quantity of capital D) a decrease in money wages

an increase in taxes

Which of the following increases aggregate demand and shifts the AD curve rightward? A) a fall in the price level B) an increase in the quantity of money and a resulting fall in the interest rate C) predictions of a recession that lead to expectations of lower future income D) an increase in the exchange rate that makes imports less expensive

an increase in the quantity of money and a resulting fall in the interest rate

A short-run macroeconomic equilibrium occurs A) at the intersection of the short-run aggregate supply curve and the long-run aggregate supply curve. B) at the intersection of the short-run aggregate supply curve and the aggregate demand curve. C) at the intersection of the short-run aggregate supply curve, the long-run aggregate supply curve, and the aggregate demand curve. D) when the rate at which prices of goods and services increase equals the rate at which money wage rates increase.

at the intersection of the short-run aggregate supply curve and the aggregate demand curve.

If aggregate demand grows only slightly faster than potential GDP, then the economy will ________. A) experience economic growth with high inflation B) experience recession C) experience economic growth with low inflation D) be at a business-cycle peak

experience economic growth with low inflation.

Which of the following issues prominent in the presidential election of 2012 shifts the aggregate demand curve rightward? A) raising taxes on the rich B) increasing Medicare, Medicaid, and Social Security payments C) loosening immigration policies D) allowing more oil drilling on Federal lands

increasing Medicare, Medicaid, and Social Security payments

An increase in the money wage rate shifts the short-run aggregate supply curve ________; an increase in technology shifts the long-run aggregate supply curve ________. A) rightward; rightward B) rightward; leftward C) leftward; rightward D) leftward; leftward

leftward; rightward

Suppose that the money wage in the economy increases by 8 percent. As a result the A) long-run aggregate supply will decrease. B) long-run and the short-run aggregate supply both decrease. C) short-run aggregate supply will decrease. D) long-run aggregate supply will increase and the short-run aggregate supply will decrease.

short-run aggregate supply will decrease.

A key issue in the presidential election of 2012 between President Obama and Mr. Romney concerned tax rates. President Obama favored increasing taxes, especially on the rich. As a result of a tax increase, A) the aggregate demand curve shifts leftward. B) the aggregate demand curve shifts rightward. C) the aggregate supply curve shifts leftward. D) the aggregate supply curve shifts rightward.

the aggregate demand curve shifts leftward.