Macroeconomics 23

Consider the AD/AS model. A rise in the amount of desired consumption, investment, government purchases, or net exports at any given level of national income A) shifts the AD curve to the right. B) causes a movement along the AE curve. C) causes a shift of the AE curve but no movement of the AD curve. D) shifts the AD curve to the left. E) causes a movement along the AD curve.

A 27)

The "first asymmetry" in the behaviour of aggregate supply refers to the A) increasing slope of the AS curve as output rises. B) decreasing slope of the AS curve as output rises. C) decreasing unit costs of production as output is increased. D) increase in input prices as output is increased. E) increase in input prices as output is decreased.

A 61)

Consider a simple macro model with a given price level and demand-determined output. An exogenous change in the price level changes equilibrium real GDP A) in the opposite direction. B) by a lesser amount in either direction. C) by the same amount in the opposite direction. D) by the same amount in the same direction. E) in the same direction.

A 7)

Consider the basic AD/AS model. A positive aggregate demand shock will cause A) the unemployment rate to remain constant. B) the equilibrium point to move rightward along the AS curve. C) a shift to the right in the AS curve. D) a movement along the AD curve to the right. E) a decrease in the price level.

B 87)

Aggregate supply shocks cause the price level and real GDP to change in A) the same direction and by the same amount. B) opposite directions with price changing by less than output. C) opposite directions but not necessarily by the same amount. D) the same direction with price changing by more than output. E) opposite directions but by the same amount.

C 96)

When the economy's AS curve is positively sloped, the multiplier in the AD/AS model is A) constant. B) equal to one. C) equal to the simple multiplier. D) smaller than the simple multiplier. E) larger than the simple multiplier.

D 110)

Suppose that the economy is hit by a shock and we observe that the price level has decreased whereas real GDP has increased. We can conclude that this shock was A) a positive AD shock. B) a negative AD shock. C) a negative AS shock. D) a negative technology shock. E) a positive AS shock.

E FIGURE 23-3 107)

If the AS curve is vertical and there is a decrease in aggregate demand, the result is A) no change in either price level or real GDP. B) an increase in national income. C) an equal decrease in national income. D) an increase in the price level. E) a decrease in the price level with no change in real GDP.

E 82)

If the economy's AS curve is upward sloping, a positive aggregate demand shock will result in A) a decrease in output and an increase in prices. B) an increase in output but not prices. C) an increase in prices but not output. D) a decrease in both output and prices. E) an increase in both output and prices.

E 86)

Consider a simple macro model with a given price level and demand-determined output. An exogenous change in the price level causes a A) shift in the AE curve and a movement along the AD curve. B) movement along both the AE and AD curves. C) movement along the AE curve and a shift in the AD curve. D) movement along AE but does not affect the AD curve. E) shift in both the AE and AD curves.

A 26)

Consider the basic AD/AS model. Suppose that a rising percentage of high-school graduates are illiterate, resulting in a decrease in average labour productivity. This change will A) shift the AS curve to the left. B) shift the AD curve to the right. C) cause a movement to the right along the AS curve. D) shift the AS curve to the right. E) shift the AD curve to the left.

A 48)

Other things being equal, when the domestic price level falls exogenously, A) the net export function shifts upward. B) Canadian goods become more expensive relative to foreign goods. C) imports of foreign goods rise. D) the aggregate expenditure function shifts downward. E) the net export function shifts downward.

A 5)

The economy's AS curve will shift upward in the short run if there is: A) a decrease in labour productivity. B) a decrease in the cost of capital. C) an improvement in technology. D) a decrease in the price level. E) a decrease in the wage rate.

A 56)

The aggregate supply curve is usually assumed to get progressively steeper at relatively higher levels of output because A) of diminishing marginal productivity of the factors of production. B) of increasing factor prices. C) of rising competition among price setters. D) of excess capacity at higher levels of output. E) of increasing productivity of the factors of production.

A 71)

Consider a simple macro model with demand-determined output. An exogenous increase in the domestic price level will A) pivot the net export function and the AE curve upward. B) shift the net export function upward and the AE curve downward. C) shift both the net export function and the AE curve upward. D) shift both the net export function and the AE curve downward. E) shift the net export function downward and the AE curve upward.

D 11)

Consider a simple macro model with demand-determined output. An exogenous change in the price level shifts the AE curve because the change affects desired ________ and desired ________. A) consumption; imports B) government purchases; net exports C) consumption; investment D) consumption; net exports E) investment; consumption

D 13)

Aggregate supply refers to the A) supply of labour inputs in the economy. B) decisions of firms to decrease inputs in order to produce outputs. C) economy's potential output at each possible labour force. D) total output firms wish to produce at each price level. E) effects of increases in input prices on output.

D 42)

If the AS curve is very steeply sloped, a change in AD leads to a relatively A) small change in price level and a large change in real GDP. B) small change in price level and a small change in real GDP. C) large change in price level and a large change in real GDP. D) large change in price level and a small change in real GDP. E) no change in both price and output.

D 89)

A rise in the amount of desired investment expenditure at each level of national income A) shifts the AD curve to the left. B) causes a movement along the AE curve. C) causes a shift of the AE curve but no movement of the AD curve. D) causes a movement along the AD curve. E) shifts the AD curve to the right.

E 38)

The economy's AS curve will shift upward in the short run if there is: A) an improvement in technology. B) an increase in the price level. C) an increase in labour productivity. D) a decrease in the cost of capital. E) an increase in the wage rate.

E 55)

A leftward shift in the economy's AS curve implies that A) at any given price level, a lower level of output will be supplied. B) at any given price level, a higher level of output will be supplied. C) there is a decrease in aggregate supply. D) there is a demand shock. E) both A and C are correct.

E 59)

Consider the basic AD/AS model. If their unit costs rise as output increases, price-taking firms will be prepared to produce ________ only if ________. A) more; prices decrease B) less; prices increase C) more; the economy is in equilibrium D) their current output; prices increase E) more; prices increase

E 68)

Over the horizontal range of the economy's AS curve (if such a range exists), a leftward shift of the AD curve will result in A) an increase in both real GDP and prices. B) an increase in prices and no change in real GDP. C) an increase in real GDP and no change in prices. D) a decrease in both real GDP and prices. E) a decrease in real GDP but no change in prices.

E 78)

Which of the following will cause a negative aggregate demand shock? A) an increase in tax rates B) an increase in government expenditures C) an increase in the price of raw materials D) an increase in the domestic price level E) a decrease in the domestic price level

A 102)

Refer to Figure 23-2. Suppose that an increase in government purchases by 50 causes the AD curve to shift to the right, as shown. The simple multiplier is ________ and the multiplier is ________. A) 4; 1.2 B) 2.8; 1.2 C) 4; 2.8 D) 4; 3.2 E) 6; 1.2

A 114)

Refer to Figure 23-2. Suppose that an increase in government purchases caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 4, then what is the value of the multiplier? A) 1.4 B) 1.2 C) 2.8 D) 4 E) 3.2

B

Consider the AD/AS model. Suppose there is a decrease in aggregate demand and, simultaneously, an increase in aggregate supply. The result will be a A) rise in real GDP and a fall in the price level. B) an indeterminate change in real GDP and a fall in the price level. C) an indeterminate change in real GDP and a rise in the price level. D) rise in real GDP but price level changes will be indeterminate. E) rise in real GDP and a rise in the price level.

B 100)

Consider the following news headline: "Information technology costs for Canadian firms continue to drop." Choose the statement below that best describes the likely macroeconomic effect. A) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises B) the AS curve shifts to the right; the price level falls and real GDP rises C) the AD curve shifts to the left; the price level falls and real GDP falls D) the AS curve shifts to the left; the price level rises and real GDP falls E) the AD curve shifts to the right; the price level rises and real GDP rises

B 106)

If the economy's AS curve is completely horizontal, the multiplier in the AD/AS model is A) infinitely large. B) equal to the simple multiplier. C) smaller than the simple multiplier. D) is zero. E) negative.

B 109)

Suppose the government embarks on an infrastructure program, spending $8 billion on the construction of new roads and bridges. What is the size of the multiplier if the AS curve is vertical? A) less than 1 B) 0 C) infinity D) greater than 1 E) insufficient information to solve

B 112)

Consider the AD/AS macro model. Suppose there is an increase in aggregate demand and, simultaneously, a decrease in aggregate supply. The result will be a A) an indeterminate change in real GDP and a fall in the price level. B) an indeterminate change in real GDP and a rise in the price level. C) rise in real GDP and a rise in the price level. D) rise in real GDP and a fall in the price level. E) rise in real GDP but price level changes will be indeterminate.

B 99)

When the price level varies, the multiplier is ________ the simple multiplier. A) definitionally the same as B) equal to C) smaller than D) larger than E) not comparable to

C FIGURE 23-2 113)

A positive supply shock could be caused by A) an outbreak of war among oil-exporting countries. B) a general labour strike across the country. C) improved computer literacy for the typical worker. D) an increase in exports. E) bad weather which cripples telecommunications for one month.

C 101)

Which of the following will cause a positive aggregate supply shock? A) a decrease in the price of foreign output B) an increase in the price of foreign output C) a decrease in the price of oil D) a decrease in productivity E) an increase in the price of raw materials

C 103)

Aggregate demand (AD) shocks have a smaller effect on real GDP and a larger effect on the price level, A) the flatter the AS curve. B) on the downward-sloping portion of the AS curve. C) the steeper the AS curve. D) on the upward-sloping portion of the AS curve. E) if the AD curve is flatter.

C 95)

Consider the basic AD/AS model. A rise in an input price like unit labour costs would be expected to create a new macroeconomic equilibrium which in comparison to the original equilibrium has a price level that is A) higher and a real GDP that is the same. B) lower and a real GDP that is higher. C) higher and a real GDP that is lower. D) higher and a real GDP that is higher. E) lower and a real GDP that is lower.

C 98)

Consider Figure 23-3. Initially the economy is in equilibrium at point A. An unexpected shock then shifts both the AD and the AS curves as shown and results in a new equilibrium represented by point B. Which of the following events could cause such a shock? A) a decrease in labour productivity B) a decrease in firms' desired investment expenditures C) an increase in factor prices D) a decrease in the world price of oil E) an increase in the net tax rate

D 108)

If the economy's AS curve is vertical, the multiplier in the AD/AS model is A) infinitely large. B) equal to the simple multiplier. C) smaller than the simple multiplier. D) zero. E) negative.

D 111)

The concept of "demand-determined output" requires ________ to remain constant as output increases. A) technology of production B) government purchases C) the ratio of price setters to price takers D) labour productivity E) firms' unit costs

E FIGURE 23-1 73)

Consider a simple macro-model with demand-determined output. An exogenous increase in the price level will ________ the real value of the private sector's wealth, which leads to ________ in autonomous consumption and thus ________ shift in the AE function. A) increase; an increase; an upward B) increase; a decrease; a downward C) increase; an increase; a downward D) reduce; an increase; an upward E) reduce; a decrease; a downward

E 10)

Which of the following events would cause the AE function to shift upwards in a parallel way? A) an increase in the MPC B) a decrease in the business confidence of firms C) a decrease in the net tax rate D) a decrease in foreign income E) a decrease in the aggregate price level

E 17)

The AD curve relates the price level to A) desired consumption. B) equilibrium savings and wealth. C) equilibrium nominal GDP if output is demand determined. D) desired aggregate expenditure. E) equilibrium real GDP if output is demand determined.

E 20)

Which of the following would likely cause an upward parallel shift in the AE curve and a rightward shift in the AD curve? A) a decrease in the price level B) an increase in the price level C) a reduction in government purchases D) an increase in the MPC E) an increase in the business confidence of firms

E 25)

A rightward shift in the aggregate demand (AD) curve could result from a rise in A) induced imports. B) desired investment. C) autonomous desired consumption. D) desired saving. E) both B and C are correct.

E 32)

The AD curve shows the relationship between A) AS and AE. B) real national income and AE. C) AS and real national income. D) the price level and desired consumption. E) the price level and the equilibrium level of demand-determined national income.

E 37)

Desired aggregate expenditure is composed of desired consumption, investment, government purchases and net exports (C+I+G+NX). As the price level rises exogenously, the aggregate expenditure (AE) function shifts A) down and the economy will move upward to the left along the AD curve. B) down and the economy will move downward to the right along the AD curve. C) upward and the economy moves upward to the left along the AD curve. D) to the right and the AD curve will also shift to the right. E) upward and the economy moves downward to the right along the AD curve.

A 18)

Over the horizontal range of the economy's AS curve (if such a range exists), a rightward shift of the AD curve will result in A) an increase in real GDP and no change in prices. B) a decrease in both real GDP and prices. C) an increase in both real GDP and prices. D) an increase in prices and no change in real GDP. E) a decrease in real GDP but no change in prices.

A 77)

Consider the basic AD/AS model. Real GDP is demand determined along the A) horizontal portion of the AS curve. B) vertical portion of the AS curve. C) upward-sloping portion of the AS curve. D) downward-sloping portion of the AS curve. E) none of the above real GDP cannot be demand determined.

A 84)

In the basic AD/AS model, the effect of an aggregate demand shock is divided between a change in output and a change in the price level. How the effect is divided depends on the A) slope of the AS curve. B) slope of the AD curve. C) amount of inflation in the economy. D) position of the AE curve. E) size of the simple multiplier.

A 90)

Which of the following would cause a positive aggregate demand shock, but leave the aggregate supply curve unaffected? A) A free trade agreement between Canada and the United States that leads Canadian businesses to increase investment expenditures. B) A medical report confirming that improved health for Canadian workers caused fewer lost days of production. C) A severe drought lasting for six months that destroys agricultural and forestry production. D) An improvement in the computer literacy of workers. E) A substantial increase in world oil prices.

A 91)

If the economy is in macroeconomic equilibrium with a vertical AS curve, and then aggregate demand increases, we expect the AE function to shift to a A) higher level but then return to its original position as the price level rises. B) higher level, but then shift part of the way down to its original position as the price level rises. C) lower level and stay there. D) higher level and stay there. E) lower level, but then return to its original position as the price level rises.

A 93)

Other things being equal, a rise in the price level will imply ________ in wealth for the bondholder but ________ in the wealth of the issuer of the bond. A) an increase; a decline B) a decline; an increase C) a decline; a decline D) an increase; an increase E) a decline; no change

B 15)

Other things being equal, an exogenous increase in the price level causes the aggregate wealth of bondholders and bond issuers to A) increase. B) not change since the changes in the wealth of bondholders and bond issuers offset each other. C) either increase or decrease depending on other factors. D) decrease. E) none of the above

B 16)

Desired aggregate expenditure is composed of desired consumption, investment, government purchases and net exports (C+I+G+NX). As the price level falls exogenously, the aggregate expenditure (AE) function shifts A) to the left, as does the AD curve. B) upward and the economy moves downward along the AD curve. C) upward and the economy moves upward along the AD curve. D) down and the economy will move downward along the AD curve. E) down and the economy will move upward along the AD curve.

B 19)

Consider the basic AD/AS model. A fall in the amount of desired consumption, investment, government purchases, or net exports at any given level of national income A) causes a shift of the AE curve but no movement of the AD curve. B) shifts the AD curve to the left. C) shifts the AD curve to the right. D) causes a movement along the AD curve. E) causes a movement along the AE curve.

B 28)

A leftward shift of the aggregate demand (AD) curve could result from a fall in A) the net tax rate. B) autonomous government purchases. C) autonomous desired saving. D) induced imports. E) the price level.

B 29)

One reason why the aggregate demand (AD) curve slopes downward is that A) aggregate expenditure increases as the price level rises. B) decreases in the price level cause increases in private-sector wealth which lead to increases in desired consumption. C) increased production results in lower production costs. D) when the price level falls consumers increase their saving rate. E) when the price level falls firms must compete more when output increases.

B 36)

Consider the AD/AS model. Suppose there is an increase in autonomous desired consumption at a given price level. The result is A) the AE curve shifts downward and the AD curve shifts to the left. B) the AE curve shifts upward and the AD curve shifts to the right. C) the AE curve shifts downward and the AD curve shifts to the right. D) the AE curve shifts upward and the AD curve shifts to the left. E) no change in either the AE or the AD curve.

B 39)

Other things being equal, a closed economy will have a ________ marginal propensity to spend and thus a ________ AD curve compared to an open economy with foreign trade. A) lower; leftward shift of the B) higher; flatter C) lower; rightward shift of the D) higher; steeper E) lower; flatter

B 41)

The economy's aggregate supply (AS) curve shows the relationship between the A) equilibrium real GDP and desired consumption. B) price level and the total output that firms wish to produce and sell, with technology and input prices held constant. C) price level and the total output that firms wish to produce and sell, as technology and input prices vary. D) equilibrium real GDP and marginal cost. E) price level and the marginal propensity to consume (MPC).

B 43)

The economy's aggregate supply (AS) curve shows the relationship between the price level and the total A) investment that firms wish to make, as input prices vary. B) output that firms wish to produce and sell, with input prices given. C) investment that firms wish to make, with input prices given. D) output that firms wish to produce and sell, as input prices vary. E) wealth accumulated by households, with national income given.

B 44)

Consider the basic AD/AS model. If major labour unions succeed in increasing wages across the economy, the AS curve will shift A) downward (to the right), reducing the price level. B) upward (to the left), increasing the price level. C) upward (to the left) and then return immediately to its original position. D) downward (to the right) and then return immediately to its original position. E) none of the above -- there will no effect on the AS curve.

B 53)

Other things being equal, when the domestic price level rises exogenously, A) the net export function shifts upward. B) Canadian goods become more expensive relative to foreign goods. C) imports of foreign goods fall. D) the aggregate expenditure function shifts upward. E) the desired investment function shifts upward.

B 6)

Other things being equal, unit wage costs will tend to increase if A) wages rise. B) wage increases exceed productivity increases. C) the government reduces payroll taxes. D) there is a rise in the price of oil. E) wage and price controls are in effect.

B 62)

If the economy's AS curve is upward sloping, a negative shock to aggregate demand will result in A) an increase in both real GDP and prices. B) a decrease in both real GDP and prices. C) an increase in real GDP and no change in prices. D) an increase in prices and no change in real GDP. E) a decrease in prices but no change in real GDP.

B 79)

Consider the nature of macroeconomic equilibrium. If, at a particular price level, aggregate output demanded is less than that supplied by producers, then A) the aggregate supply curve will shift to the left, re-establishing an equilibrium. B) the price level will decline toward its equilibrium value. C) the aggregate demand curve will shift to the right, re-establishing an equilibrium. D) the price level will rise toward its equilibrium value. E) none of the above.

B 80)

If the economy's AS curve is very steep and the AD curve shifts to the left, the result will be A) no change in either price level or output. B) a decrease in the price level with almost no change in national income. C) a decrease in the price level and an increase in national income. D) an increase in the price level and a decrease in national income. E) both an increase in price level and national income.

B 88)

If the economy's AS curve is very steep and there is an increase in aggregate demand, the result will be A) a very small decrease in the price level and a decrease in real GDP. B) an increase in the price level with a small increase in real GDP. C) a decrease in the price level and a very small decrease in real GDP. D) a very small increase in prices but a large increase in real GDP. E) an equal increase in the price level and in real GDP.

B 92)

Consider the basic AD/AS macro model. A rise in an input price like the price of oil would be expected to cause a new macroeconomic equilibrium in which the price level A) is lower and real GDP higher than in the initial equilibrium. B) is higher and real GDP lower than in the initial equilibrium. C) and real GDP are lower than in the initial equilibrium. D) is higher and real GDP remained the same as in the initial equilibrium. E) and real GDP are higher than in the initial equilibrium.

B 97)

Refer to Figure 23-2. Suppose that an increase in government purchases caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 5, then how much was the increase in government purchases? A) 30 B) not enough information to know C) 40 D) 12 E) 50

C 115)

Consider a simple macro model with demand-determined output. Other things being equal, the price level and desired aggregate expenditure are related to each other A) exponentially. B) proportionally. C) negatively. D) progressively. E) positively.

C 12)

Suppose there is an exogenous increase in the domestic price level. Which of the individuals listed below would experience an increase in wealth? A) a person with deposits in a bank savings account. B) a person with a government bond that promises to pay the holder $1000, 5 years hence. C) a person with a 25-year home mortgage. D) a person with a corporate bond that promises to repay the face value of the bond in the future. E) a person with cash under the mattress.

C 14)

Other things being equal, a rise in the domestic price level A) makes foreign goods less attractive to domestic residents. B) raises the real burden of repaying a fixed money value debt. C) lowers the real value of all assets denominated in money units. D) causes a decrease in saving. E) makes domestic goods more attractive to foreigners.

C 2)

All points on an economy's AD curve A) show the direct relationship between the price level and net exports. B) show only changes in relative prices and quantities. C) relate a particular price level to the total demand for output at that price level. D) correspond to a particular point on industry demand curves for a particular product. E) show the direct relationship between the price level and the demand for consumer goods.

C 21)

In a macro model with a constant price level, an increase in autonomous desired consumption will cause the AE curve to shift A) downward and the AD curve to shift to the left. B) downward and the AD curve to shift to the right. C) upward and the AD curve to shift to the right. D) upward and the AD curve to shift to the left. E) upward and a movement to the right along the AD curve.

C 22)

In a macro model with a constant price level, an increase in government purchases will cause the AE curve to shift A) downward and the AD curve to shift to the right. B) downward and a movement to the right along the AD curve. C) upward and the AD curve to shift to the right. D) downward and the AD curve to shift to the left. E) upward and the AD curve to shift to the left.

C 23)

On a graph that shows the derivation of the AD curve, an exogenous change in the price level causes A) a movement along the AE curve but not along the AD curve. B) a movement along both the AE and AD curves. C) a shift in the AE curve and a movement along the AD curve. D) a movement along the AE curve and a shift in the AD curve. E) a shift in both the AE and AD curves.

C 24)

Oher things being equal, a fall in the domestic price level leads to a rise in private-sector wealth and thus A) an increase in saving. B) a downward shift in the AE curve. C) an increase in desired consumption. D) a downward shift in net exports. E) domestic goods appearing less attractive to foreigners.

C 3)

A leftward shift of the aggregate demand (AD) curve could result from a rise in A) government purchases. B) desired investment. C) the net tax rate. D) government transfer payments to households. E) desired exports.

C 31)

Consider the basic AD/AS model in the short run. When there is a change in autonomous desired expenditure, the simple multiplier is equal to the A) product of the horizontal shift of the AD curve times the change in autonomous expenditure. B) product of the vertical movement along the AD curve times the change in autonomous expenditure. C) ratio of the horizontal shift of the AD curve to the change in autonomous expenditure. D) ratio of the vertical shift of the AD curve to the change in autonomous expenditure. E) ratio of the vertical movement along the AD curve to the change in autonomous expenditure.

C 34)

One reason why the aggregate demand (AD) curve slopes downward is that A) increased production results in lower production costs. B) aggregate expenditure increases as the price level rises. C) increases in the price level cause consumers to substitute foreign goods for domestic goods. D) when the price level falls firms must compete more when output increases. E) when the price level falls consumers increase their saving rate.

C 35)

Other things being equal, an exogenous rise in the domestic price level will A) decrease desired real expenditure only if it is accompanied by a change in the current income of households. B) have no effect on the level of desired real expenditure. C) decrease desired real expenditure because it will affect the real value of wealth. D) cause net exports to rise. E) increase the level of desired real expenditure.

C 4)

Other things being equal, a ________ marginal propensity to spend will lead to a ________ AD curve. A) lower; rightward shift of the B) lower; flatter C) higher; flatter D) higher; steeper E) lower; leftward shift of the

C 40)

In building a macro model with an AS curve, it is assumed that producers will A) decrease their prices when they expand output. B) produce as much as possible at the existing price level. C) produce more output only if prices rise. D) decrease their prices without changing output. E) increase prices without changing their output.

C 46)

The economy's aggregate supply (AS) curve is assumed to slope upward because A) firms' unit costs fall as ouptut increases. B) aggregate demand increases at higher levels of national income. C) firms' unit costs rise as output increases. D) inputs become more expensive at higher levels of output. E) inputs become less expensive at higher levels of output.

C 47)

A decrease in aggregate supply in the short run is A) interpreted to mean that more national output will be supplied at any given price level. B) reflected in a shift to the right in the AS curve. C) reflected in a shift to the left in the AS curve. D) caused by an increase in the price level. E) caused by a decrease in the price level.

C 50)

The aggregate supply curve will shift as a result of a change in any of the following EXCEPT A) the cost of capital. B) labour productivity. C) the price level. D) technology. E) the wage rate.

C 69)

If firms' unit costs remained constant as they increased their output level, this would lead to a A) horizontal AE curve. B) horizontal AD curve. C) horizontal AS curve. D) vertical AS curve. E) vertical AD curve.

C 72)

Consider the AD/AS model. An increase in government purchases will have no impact on equilibrium real GDP if A) the simple multiplier is very small. B) the marginal propensity to spend is very small. C) the AS curve is vertical. D) the AS curve is horizontal. E) the AS curve slopes upward.

C 83)

An exogenous fall in the domestic price level causes an increase in wealth and A) a fall in government purchases. B) a downward shift of the net export function. C) a rise in desired consumption. D) a fall in desired investment. E) a downward shift in the AE curve.

C 9)

If the economy is in macroeconomic equilibrium with a vertical AS curve, and then aggregate demand decreases, we expect the AE function to shift to a A) higher level but then return to its original position as the price level falls. B) higher level, but then shift part of the way down to its original position as the price level falls. C) lower level, but then return to its original position as the price level falls. D) higher level and stay there. E) lower level and stay there.

C 94)

A leftward shift in the aggregate demand (AD) curve could result from a rise in A) autonomous exports. B) government transfer payments to households. C) autonomous government purchases. D) autonomous desired savings. E) desired investment.

D 30)

Consider the basic AD/AS model. Suppose that high-school graduates have better computing skills than did graduates in the past, resulting in an increase in average labour productivity. This change will A) shift the AD curve to the left. B) cause a movement along the AS curve to the right. C) shift the AD curve to the right. D) shift the AS curve to the right. E) shift the AS curve to the left.

D 49)

Consider the basic AD/AS model. If there is a decrease in the cost of non-labour inputs to production, the result will be to A) shift the AD curve to the left. B) cause a movement to the left along the AS curve. C) shift the AS curve to the left. D) shift the AS curve to the right. E) shift the AD curve to the right.

D 52)

A movement along the economy's AS curve could be caused by a change in A) technology. B) the wage rate. C) the cost of capital. D) the price level, caused in turn by an AD shock. E) labour productivity.

D 54)

A rightward shift in the economy's AS curve implies that A) at any given price level, a lower level of output will be supplied. B) there is a demand shock. C) there is a decrease in aggregate supply. D) at any given price level, a higher level of output will be supplied. E) the same output will be produced, but only at a higher price level.

D 58)

When wage rates rise faster than the increase in labour productivity, the A) AD curve shifts left. B) AS curve shifts downward. C) output gap falls. D) AS curve shifts upward. E) output gap increases.

D 64)

The aggregate supply (AS) curve is drawn with which variables on the axes of the graph? A) national income on the vertical axis and total desired consumption on the horizontal axis B) the price level on the vertical axis and MPC on the horizontal axis C) national income on the vertical axis and marginal cost on the horizontal axis D) the price level on the vertical axis and real national income on the horizontal axis E) the price level on the vertical axis and real disposable income on the horizontal axis

D 65)

Suppose there is a drop in the price of an important factor input. What will be the effect on the aggregate supply curve? A) The AS curve will shift to the left. B) There will be movement to the right, along the AS curve. C) There will be movement to the left, along the AS curve. D) The AS curve will shift to the right. E) There will be no change in the AS curve.

D 66)

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell, given the assumption that A) unit costs remain constant. B) technology and the prices of all factors of production do not remain constant. C) all firms are price takers. D) technology and the prices of all factors of production remain constant. E) all firms are price setters.

D 67)

The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above ________ and ________ are rising rapidly. A) equilibrium output; unit costs B) equilibrium output; total costs C) equilibrium output; average costs D) capacity; unit costs E) profit-maximizing output; total costs

D 70)

Other things being equal, when the price level rises, the real value of money holdings _______; when the price level falls, the real value of money holdings ________. A) rises; falls B) is not affected; falls C) is not affected; rises D) falls; rises E) falls; is not affected

D 8)

Consider the nature of macroeconomic equilibrium. If, at a particular price level, the total output demanded is greater than that supplied by producers, then A) the aggregate demand curve will shift to the left, re-establishing an equilibrium. B) the aggregate supply curve will shift to the right, re-establishing an equilibrium. C) the price level will decline toward its equilibrium value. D) the price level will rise toward its equilibrium value. E) none of the above.

D 81)

Aggregate demand shocks have a large effect on real GDP and a small effect on the price level A) when the AS curve is vertical. B) if the AD curve is steep. C) on the downward-sloping portion of the AS curve. D) the flatter the AS curve. E) the steeper the AS curve.

D 85)

Consider the following news headline: "World commodity prices rise sharply." Choose the statement below that best describes the likely macroeconomic effects in Canada. (Remember that Canada is both a producer and a consumer of commodities.) A) the AD curve shifts to the left and the AS curve shifts to the right; the price level falls and the effect on real GDP is indeterminate B) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP increases C) the AD and AS curves both shift to the left; the effect on the price level is indeterminate and real GDP decreases D) there is no change in either the AD or the AS curves E) the AD curve shifts to the right and the AS curve shifts to the left; the price level rises and the effect on real GDP is indeterminate

E 104)

Consider the following news headline: "Governments plan massive hospital construction programs across the country." Choose the statement below that best describes the likely macroeconomic effects. A) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises B) the AD curve shifts to the left; the price level falls and real GDP falls C) the AD curve shifts to the right and the AS curve shifts to the left; the price level rises and the effect on real GDP is indeterminate D) the AD curve shifts to the left and the AS curve shifts to the right; the price level falls and the effect on real GDP is indeterminate E) the AD curve shifts to the right; the price level rises and real GDP rises

E 105)

The economy's AS curve is often assumed to be relatively flat at low levels of real GDP. The underlying reasoning is that A) profits are normally high in this section of the AS curve, so firms are willing to expand output. B) consumer demand for most goods tends to be price-elastic when output is low. C) consumer demand for most goods tends to be price-inelastic when output is low. D) the price level is constant. E) at low levels of GDP, firms are faced with unused capacity and thus can increase output without significantly increasing their costs.

E 60)

Refer to Figure 23-1. Which of the following events could cause the upward shift of the AS curve? A) an increase in the price of raw materials B) a decrease in the world supply of oil as a result of a major hurricane C) rapid technological advances in mass production D) improved quality of the national education system E) both A and B are correct

E 74)

Refer to Figure 23-1. The shift of the AS curve shown in the diagram is referred to as a(n) A) increase in aggregate supply. B) decrease in aggregate supply. C) negative aggregate supply shock. D) positive aggregate supply shock. E) both B and C are correct.

E 75)

Macroeconomic equilibrium is described as the combination of A) all individual demand curves and all individual supply curves. B) all individual demand curves and potential GDP. C) real GDP and price level that is on both the AD curve and 45-degree line. D) potential output and price level that is on both the AD curve and AS curve. E) real GDP and price level that is on both the AD curve and AS curve.

E 76)