Econ exam 2 review- aggregate demand and supply

Use the following graph to answer the next question. In the diagram, the economy's relevant aggregate demand and long-run aggregate supply curves, respectively, are lines -4 and 2 -4 and 1 -2 and 4 -2 and 3

-4 and 1

When looking at data for unemployment and inflation in the 1950s and 1960s there is evidence supporting the short-run Phillips Curve model. -True -False

-True

When looking at data for unemployment and inflation in the 1950s and 1960s there is evidence supporting the short-run Phillips Curve model. -True -False

-True

In the short run there is ______ relationship between the unemployment rate and the rate of inflation. -a positive -a negative -no -an indeterminant

-a negative

The foreign purchases, interest rate, and real-balances effects explain why the -aggregate demand curve is downward-sloping. -aggregate demand curve may shift to the left or right. -economy will adjust towards equilibrium. -aggregate expenditures schedule may shift up or down.

-aggregate demand curve is downward-sloping.

Suppose an economy is in long-run equilibrium when nominal wages decrease. As a result -aggregate supply will increase and real GDP will increase in the short run. -aggregate supply will increase and real GDP will decrease in the short run. -aggregate demand will decrease and real GDP will decrease in the short run. -aggregate demand will increase and real GDP will decrease in the short run.

-aggregate supply will increase and real GDP will increase in the short run.

The Phillips Curve shows that a decrease in the inflation rate is associated with -an increase in unemployment. -a decrease in unemployment. -an increase in real interest rates. -a decrease in real interest rates.

-an increase in unemployment.

Inflation caused by a rise in the prices of inputs is referred to as -cost-push inflation. -demand-pull inflation. -unexpected inflation. -hyperinflation.

-cost-push inflation.

An increase in personal income taxes will cause a(n) -decrease (or shift left) in aggregate demand. -increase (or shift right) in aggregate demand. -decrease in the quantity of real output demanded (or movement up along AD). -increase in the quantity of real output demanded (or movement down along AD).

-decrease (or shift left) in aggregate demand.

Use the following graph, which shows an aggregate demand curve, to answer the next question. If the price level increases from 150 to 250, the real output demanded will -increase by $800 billion. -increase by $200 billion. -decrease by $600 billion. -decrease by $200 billion.

-decrease by $200 billion.

An increase in aggregate demand is most likely to be caused by a(n) -increase in real interest rates. -decrease in government spending. -decrease in expected returns on investment. -decrease in the tax rates on household income.

-decrease in the tax rates on household income.

Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is -expected inflation. -demand-pull inflation. -cost-push inflation. -unexpected inflation.

-demand-pull inflation.

The economy's long-run AS curve assumes that wages and other resource prices -eventually rise and fall to match upward or downward changes in the price level. -are flexible upward but inflexible downward. -rise and fall more rapidly than the price level. -are relatively inflexible both upward and downward.

-eventually rise and fall to match upward or downward changes in the price level.

The short-run version of aggregate supply assumes that product prices are -fixed while resource prices are flexible. -flexible while resource prices are fixed. -both input and product prices are flexible. -both input and product prices are fixed.

-flexible while resource prices are fixed.

An expected increase in the prices of consumer goods in the near future will -decrease (or shift left) in aggregate demand now. -increase (or shift right) in aggregate demand now. -decrease in the quantity of real output demanded (or movement up along AD). -increase in the quantity of real output demanded (or movement down along AD).

-increase (or shift right) in aggregate demand now.

An increase in expected future income will -increase aggregate demand and aggregate supply. -decrease aggregate demand and aggregate supply. -increase aggregate supply. -increase aggregate demand.

-increase aggregate demand.

An increase in productivity will -increase aggregate demand. -increase aggregate supply. -increase aggregate supply and aggregate demand. -decrease aggregate supply and aggregate demand.

-increase aggregate supply.

Use the following graph, which shows an aggregate demand curve, to answer the next question, If the price level decreases from 200 to 100, the real output demanded will -increase by $800 billion. -increase by $200 billion. -decrease by $600 billion. -decrease by $200 billion.

-increase by $200 billion.

The aggregate demand curve shows the -inverse relationship between the price level and the quantity of real GDP purchased. -direct relationship between the price level and the quantity of real GDP produced. -inverse relationship between interest rates and the quantity of real GDP produced. -direct relationship between real-balances and the quantity of real GDP purchased.

-inverse relationship between the price level and the quantity of real GDP purchased.

Use the following graph, which shows an aggregate demand, to answer the next question. If the economy is at point C and the price level increases by 100, then the real balances, interest-rate, and foreign purchases effects will -move the economy to point A. -move the economy to point B. -move the economy to point D. -shift the AD curve to the left.

-move the economy to point A.

Which of the following would not shift the aggregate demand curve? -foreign-exchange rates -real interest rates -income tax rates -productivity rates

-productivity rates

The labels for the axes of an aggregate supply curve should be -real domestic output for the vertical axis and price level for the horizontal axis. -real domestic output for the horizontal axis and price level for the vertical axis. -real employment for the vertical axis and price level for the horizontal axis. -aggregate demand for the vertical axis and real national output for the horizontal axis.

-real domestic output for the horizontal axis and price level for the vertical axis.

A decrease in labor costs will cause aggregate -supply to increase. -demand to increase. -supply to decrease. -demand to decrease.

-supply to increase.

Use the following graph to answer the next question. Which of the following factors does not explain a movement along the AD curve? -the expenditure multiplier effect -the real-balances effect -the interest-rate effect -the foreign purchases effect

-the expenditure multiplier effect

Suppose a decrease in government spending causes the inflation rate to decrease, the Phillips Curve suggests -unemployment will increase. -unemployment will decrease. -real interest rates will increase. -real interest rates will decrease.

-unemployment will increase.