ECN CH.15 Aggregate Demand and Aggregate Supply Quiz

Which of the following is not a reason why the aggregate-demand curve slopes downward?

the classical dichotomy/monetary neutrality effects

Which of the following statements about economic fluctuations is true?

A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together.

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

Output and the price level are unchanged from their initial values.

Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Prices fall; output falls

Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

Prices fall; output is unchanged from its initial value.

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Prices rise; output falls

Which of the following would not cause a shift in the long-run aggregate-supply curve?

an increase in price expectations

Which of the following events shifts the short-run aggregate-supply curve to the right?

drop in oil prices

Which of the following statements is true regarding the long-run aggregate-supply curve? The long-run aggregate-supply curve

is vertical because an equal change in all prices and wages leaves output unaffected

According to the wealth effect, aggregate demand slopes downward (negatively) because

lower prices increase the value of money holdings and consumer spending increases

According to the interest-rate effect, aggregate demand slopes downward (negatively) because

lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases.

Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the

misperceptions theory of the short-run aggregate-supply curve

Suppose the economy is operating in a recession such as point B in Exhibit 4. If policymakers allow the economy to adjust to the long-run natural level on its own,

people will reduce their price expectations and the short-run aggregate supply will shift right

Policymakers are said to "accommodate" an adverse supply shock if they

respond to the adverse supply shock by increasing aggregate demand, which further raises prices

Stagflation occurs when the economy experiences

rising prices and falling output

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to

shift aggregate demand to the right

Suppose the price level falls. Because of fixed nominal wage contracts, firms become less profitable and they cut back on production. This is a demonstration of the

sticky-wage theory of the short-run aggregate-supply curve

The natural level of output is the amount of real GDP produced

when the economy is at the natural rate of unemployment

According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause

prices to rise and output to remain unchanged