ECO 2013 Chapter 10 Study Guide Questions

During the 1990s, a financial crisis spread throughout Asia causing those economies to drop into recessions. Other things constant, how would such a decrease in the income of foreign trading partners have influenced the price level and output of the United States? a. Both real output and the price level would have fallen. b. Both real output and the price level would have risen. c. Real output would have fallen, and the price level would have risen. d. Real output would have risen, and the price level would have fallen.

a. Both real output and the price level would have fallen.

Refer to Figure 10-19. Consumers and businesses all suddenly decide that the future looks much better than it previously had. a. The aggregate demand curve would shift to the right. b. The aggregate demand curve would shift to the left. c. The short-run aggregate supply curve would shift to the right. d. The short-run aggregate supply curve would shift to the left.

a. The aggregate demand curve would shift to the right.

Which of the following will most likely occur in the United States as the result of an unexpected rapid growth in real income in Japan and Europe? a. a short-run increase in U.S. employment and output b. a short-run decrease in U.S. employment and output c. a short-run decline in prices in the United States d. a reduction in the natural rate of unemployment in the United States

a. a short-run increase in U.S. employment and output

Which of the following will most likely increase the economy's long-run aggregate supply? a. advances in technology b. unfavorable weather conditions in agricultural areas c. an increase in the expected inflation rate d. a low rate of investment

a. advances in technology

Which of the following is most likely to accompany an unanticipated increase in short-run aggregate supply? a. an increase in real GDP b. a decrease in real GDP c. an increase in the price level d. an increase in the unemployment rate

a. an increase in real GDP

Which of the following is most likely to accompany a fully anticipated reduction in short-run aggregate supply? a. an increase in the price level b. a decrease in the price level c. a decrease in real GDP d. both a and c

a. an increase in the price level

If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur? a. an increase in the price level (inflation) b. an increase in the rate of unemployment c. a reduction in the growth rate of real GDP d. a decrease in LRAS to restore full employment

a. an increase in the price level (inflation)

In the aggregate demand/aggregate supply model, an economy operating below its long-run potential capacity will experience a. falling real wages and resource prices that will increase SRAS, moving the economy back toward full employment. b. rising interest rates that will increase SRAS, moving the economy back toward full employment. c. inflation that will stimulate additional spending and thereby restore full employment. d. a prolonged economic depression unless consumer optimism is increased.

a. falling real wages and resource prices that will increase SRAS, moving the economy back toward full employment.

Which of the following statements is most consistent with the view that the economy has a self-corrective mechanism? a. When the economy is in a recession, it will remain there until the government steps in to bring the economy out of the recession. b. When the economy is in a recession, falling resource prices and declining interest rates will direct the economy back to full employment. c. During economic booms, interest rates will fall, causing the economy to fall into a recession. d. In a market economy, resource prices, such as wages, can only increase; they can never decrease.

b. When the economy is in a recession, falling resource prices and declining interest rates will direct the economy back to full employment.

Which of the following would not cause a shift in the short-run aggregate supply curve? a. a supply shock b. a decrease in the real interest rate c. a decrease in the expected rate of inflation d. an increase in resource prices

b. a decrease in the real interest rate

An increase in the long-run aggregate supply curve shifts a. both LRAS and AD to the right. b. both LRAS and SRAS to the right. c. both LRAS and AD to the left. d. only LRAS to the right.

b. both LRAS and SRAS to the right.

During recessions, interest rates tend to fall because a. consumers attempt to borrow money to make up for their falling income. b. business borrowing for investment purposes tends to fall during recessions. c. lower real resource prices create profit opportunities for banks. d. recessions shift the economy's long-run aggregate supply curve to the left.

b. business borrowing for investment purposes tends to fall during recessions.

Which of the following will reduce aggregate demand? a. an increase in real wealth b. lower real incomes of the country's foreign trade partners c. increased consumer and business optimism about the future d. an increase in the expected rate of inflation

b. lower real incomes of the country's foreign trade partners

Refer to Figure 10-19. A major technological advance occurs. a. The aggregate demand curve would shift to the right. b. The aggregate demand curve would shift to the left. c. Both the short-run and the long-run aggregate supply curves would shift to the right. d. Both the short-run and the long-run aggregate supply curves would shift to the left.

c. Both the short-run and the long-run aggregate supply curves would shift to the right.

Refer to Figure 10-19. Good weather allows agricultural output to double. a. The aggregate demand curve would shift to the right. b. The aggregate demand curve would shift to the left. c. The short-run aggregate supply curve would shift to the right. d. The short-run aggregate supply curve would shift to the left.

c. The short-run aggregate supply curve would shift to the right.

Which of the following is most likely to result from an unanticipated increase in short-run aggregate supply due to favorable weather conditions in agricultural areas? a. an increase in the inflation rate b. an increase in the unemployment rate c. a decrease in the price level d. a decrease in the natural rate of unemployment

c. a decrease in the price level

When an economy is in a recession, a. strong demand for investment funds will push interest rates upward. b. strong demand for resources will push the prices of resources upward. c. weak demand for investment funds will cause the real interest rate to decline. d. the unemployment rate will be less than its natural rate.

c. weak demand for investment funds will cause the real interest rate to decline.

In the short run, equilibrium output in the goods and services market may be either above or below the full employment level, but in the long run, it a. must be less than full-employment output. b. must be greater than full-employment output. c. will move to full-employment output. d. depends on aggregate demand, not just long-run aggregate supply.

c. will move to full-employment output.

Refer to Figure 10-19. There is an increase in the expected rate of inflation. a. The aggregate demand curve would shift to the right. b. The short-run aggregate supply curve would shift to the left. c. The price level would rise and real GDP would remain the same. d. All of the above are correct.

d. All of the above are correct.

If an economy was initially in long-run equilibrium, an unanticipated increase in aggregate demand will tend to cause a. an increase in unemployment. b. a decrease in the price of resources. c. a reduction in real output that will spiral downward into a prolonged recession. d. a temporarily high level of output and employment that cannot be maintained.

d. a temporarily high level of output and employment that cannot be maintained.

If an economy is in equilibrium at a given price level and a given output level, the aggregate demand/aggregate supply (AD/AS) model indicates that an unanticipated decrease in aggregate demand will cause a. real output to decline. b. the price level to fall. c. unemployment to increase. d. all of the above.

d. all of the above.

Which of the following is most likely to accompany an unanticipated reduction in aggregate demand? a. an increase in the price level b. a decrease in unemployment c. an increase in real GDP d. an increase in the unemployment rate

d. an increase in the unemployment rate

If improvements in education and training programs increased the productivity of persons in the labor force, a. aggregate demand would decrease. b. short-run aggregate supply would increase, but long-run aggregate supply would not change. c. long-run aggregate supply would increase, but short-run aggregate supply would not change. d. both short-run and long-run aggregate supply would increase.

d. both short-run and long-run aggregate supply would increase.