Econ Quiz 20
Which of the following shifts short-run aggregate-supply curve to the right?
a decrease in price expectations
Which of the following shifts short-run aggregate-supply curve to the right?
a decrease in the expected price level
Which of the following would decrease the price level?
a decrease in the money supply.
Refer to the figure. If the economy starts at Y, then W represents
a recession
According to classical macroeconomic theory, nominal variables, but not real variables, are affected by changes in the
money supply
Other things the same, if the money supply rises by 5% and people were expecting it to rise by 2%, then some firms have
lower than desired prices, which increases their sales.
An increase in the money supply causes output to rise in the short run.
true
Because some economists do not understand what things change GDP, they cannot predict recessions with a fair amount of accuracy.
true
Stagflation results from continued decreases in aggregate supply.
true
The decline in investment spending accounts for approximately how much of the decline in output during a recession?
two thirds
Which classical economist observed that, when the money supply expanded after gold discoveries, it took some time for prices to rise, and in the meantime, the economy enjoyed higher employment and production?
David Hume
An improvement in technology would cause the long-run aggregate-supply curve to shift
right
If countries that imported goods and services from the United States recovered from recession, we would expect that U.S. net exports would
rise, making aggregate-demand curve shift to the right.
From 2001 to 2005 there was a dramatic change in the price of houses. This change made people feel wealthier and shifted aggregate demand curve to the right. The price of houses must have
risen
If the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left, then the price must have
risen
During a recession, unemployment typically
rises
People will want to buy fewer bonds and the interest rate will rise, as the price level
rises
During expansions,
sales and profits rise
Below are pairs of GDP growth rates and unemployment rates. Economists would not be shocked to see most of these pairs in the U.S. Which pair of GDP growth rates and unemployment rates is not realistic?
-2 percent; 2 percent
A candidate for political office announces the following policies which, she says, economics clearly demonstrates will lead to higher output in the long run: 1. decrease immigration from abroad 2. make trade more open between the U.S. and other countries.
1 shifts long-run aggregate-supply curve to the left, 2 shifts long-run aggregate-supply curve to the right.
During the last half of 2012, the U.S. unemployment rate was above the natural rate and real GDP growth was low. Which of the following is the most likely unemployment rate for this time period?
8 percent
Which of the following would not explain why the aggregate demand curve slopes downward?
A higher price level increases real wealth, which stimulates spending on consumption.
Which of the following rises during expansions?
Both employment and consumer spending
Which of the following rise during a recession?
Both losses and unemployment
The Central Bank of Wiknam decreases the money supply at the same time the Parliament of Wiknam repeals a new investment tax credit. Which of these policies shifts aggregate-demand curve to the left?
Both the money supply decrease and the investment tax credit repeal
Which of the following adjusts to bring aggregate demand and aggregate supply into balance?
Both the price level and the quantity of output
Because the price level does not affect the long-run determinants of real GDP, the long-run aggregate-supply curve is upward-sloping.
False
Which of the following would be included in aggregate demand?
Firms' purchases of newly produced machinery
Refer to the figure. Which of the long-run aggregate-supply curves is consistent with long-run equilibrium?
LRAS2
Refer to the figure. Real GDP is represented by
Line A only
Refer to the figures. Unemployment is represented by
Line X only
Which of the following both shift aggregate-demand curve to the left?
Net exports fall for some reason other than a price change and government purchases fall.
An upward-sloping short-run aggregate-supply curve is represented by which of the following equations?
Quantity of output supplied = Natural level of output + a(Actual price level - Expected price level)
Historical evidence for the U.S. economy indicates that changes in investment over the business cycle are the biggest cause of changes in
Real Gdp
Which of the following is correct?
Sometimes recessions are close together.
Suppose a change in the stock market makes people feel wealthier, increases consumption, and shifts the aggregate-demand curve right. What must have happened in the stock market?
Stock prices increased
How does the aggregate-demand curve shift when increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending?
The curve shifts to the left.
Most economists believe that classical theory describes the world in the long run but not in the short run.
True
Which of the following will both make people buy less?
Wealth falls and interest rates rise
Which of the following is not correct?
When real GDP expands, the rate of unemployment rises.
The quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level is shown on the
aggregate-demand curve
Other things the same, when the government spends less, the initial effect is that
aggregate-demand curve shifts left.
Which of the following would cause prices and real GDP to fall in the short run?
aggregate-demand curve shifts to the left
If businesses in general decide that they have underbuilt and so now have too little capital, their response to this would initially shift
aggregate-demand curve to the right.
An increase in the availability of an important major resource such as oil shifts the:
aggregate-supply curve to the right
Which of the following shifts the short-run but not the long-run aggregate-supply curve left?
an increase in the expected price level
As recessions begin, employment
and income both fall
When U.S. net exports fall, which decreases the aggregate quantity of goods and services demanded, the dollar must have
appreciated.
In the model of aggregate demand and aggregate supply, the GDP deflator measures the
average price level
Suppose that there is a decrease in the costs of production that shifts the short-run aggregate-supply curve right. If there is no policy response, then eventually
because unemployment is low, wages will be bid up and short-run aggregate-supply curve will shift left.
A vertical long-run aggregate-supply curve represents
both the classical dichotomy and monetary neutrality.
Fluctuations in real GDP are caused
by changes in aggregate demand and/or changes in aggregate supply.
Refer to the figure. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2
causes the economy to experience a decrease in the unemployment rate.
The belief by most economists that real and nominal variables are essentially determined separately in the long run is characteristic of the ________ model.
classical
Imagine a hypothetical world in which, over the last fifty years, both real GDP and prices have trended downward in most countries. Continuing falls in the level of real GDP and the price level can be explained by
continuing losses in technological ability and continuing decreases in the money supply.
Other things the same, continued losses in technological ability and continued decreases in the money supply would unambiguously lead to
declining real GDP only.
A change in weather patterns that makes farming more difficult would ____
decrease long-run aggregate supply.
A decrease in a supply of oil could ____
decrease long-run aggregate supply.
People hold less money and lend more and the interest rate falls when the price level
decreases
When U.S. net exports rise, which increases the aggregate quantity of goods and services demanded, the dollar must have
depreciated
The separation of real and nominal variables is referred to as the classical a.diseconomy.
dichotemy
According to the classical model, both prices and nominal income would double if the quantity of money
doubled
Real GDP is most commonly used to monitor short-run changes in
economic activity
The long-run aggregate-supply curve shifts left if
either emigration abroad increases or important technology is outlawed.
Although wages, incomes, and interest rates are most often discussed in real terms, what matters most are their nominal values.
false
If aggregate demand and aggregate supply both shift left, we can be sure that the price level is higher in the short run.
false
Increased optimism about the future leads to falling prices and falling unemployment in the short run.
false
Recessions occur at regular intervals and are possible to predict with much accuracy.
false
The aggregate-demand curve shows the quantity of goods and services that firms choose to produce and sell at each price level.
false
The logic of the wealth effect begins with a change in the price level changing the interest rate.
false
When the price level rises,
firms will spend less on new business buildings and business equipment, and households will want to spend less on building new homes.
Other things the same, if the price level is higher than expected, then some firms believe that the relative price of what they produce has
increased, so they increase production.
We need to study a model in which real and nominal variables interact in order to understand how the economy works
in the short run but not the long run.
The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will decrease if the price level
increases by less than expected so that firms believe the relative price of their output has decreased.
Which of the following macroeconomic variables is a small part of real GDP, yet accounts for a large share of the fluctuation in real GDP?
investment
Recessions occur at ________ intervals and are ________ to predict with much accuracy.
irregular; almost impossible
If the economy is initially at long-run equilibrium and aggregate demand expands, then in the long run the price level
is higher and output is the same as the original long-run equilibrium.
If there is a natural disaster, the long-run aggregate-supply curve shifts
left
Tax increases shift aggregate-demand curve to the:
left, while increases in government spending shift the aggregate-demand curve to the right.
unemployment
moves in the opposite direction as real GDP
Like real GDP, investment fluctuates, but it fluctuates ________ real GDP.
much more than
Refer to the figure. Y2 represents the
natural level of output
In the short run a decrease in the costs of production makes
output rise and prices fall.
The vertical axis of the aggregate demand and aggregate supply graph has the
price level
When comparing the slopes of the aggregate-demand and aggregate-supply curves to the slopes of demand and supply curves for specific goods and services, the explanations are
quite different for the aggregate curves from the specific market curves.
If wages are sticky, then a smaller than expected increase in the price level
raises the real costs of production, so the aggregate quantity of goods and services declines.
If the government institutes an investment tax credit and decreases income taxes,
real GDP and the price level rise
Suppose the economy is in long-run equilibrium. If there is a decrease in the supply of labor as well as a decrease in the money supply, then we would expect that in the short run,
real GDP will fall and the price level might rise, fall, or stay the same.
During recessions, changes in investment spending are the biggest contributor to changes in
real GDP.
If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to ________ the quantity of goods and services they produce.
reduce
A change in weather could ____
shift the long-run aggregate-supply curve.
Refer to the figure. A move by the economy from Z to P3 and Y1 would be consistent with
stagflation
When prices and unemployment rise, such an event is sometimes called
stagflation
The long-run effect of a decrease in household consumption is to lower
the price level and leave real output unchanged.
Suppose the economy is in long-run equilibrium. In a short span of time, there is a large emigration of skilled workers, a major depletion of oil fields, and a major new regulation limiting electricity production. In the short run, we would expect
the price level to rise and real GDP to fall.
Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes lowered. At the same time, Senator B succeeds in getting major restrictions on logging enacted. In the short run
the price level will rise, and real GDP might rise, fall, or stay the same.
Imagine two economies that are identical except that, for a long time, economy A has had a money supply of $1,000 billion while economy B has had a money supply of $1,500 billion. It follows that
the price level, but not real GDP is higher in country B.
Most economists believe that real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its persistent trend in
the short run
The idea that nominal wages are slow to adjust to changing economic conditions can explain the ________ slope of the short-run aggregate-supply curve.
upward
The classical view that money does not matter is sometimes described by the saying, "Money is a
veil."
