Question 1

The position of the long-run aggregate supply curve is determined by

Accepted Answer

A)   the long-run aggregate demand curve.
B)   the production possibilities curve.
C)   the open economy effect.
D)   the interest rate effect.E) A) and C)
F) A) and D)

Question 2

The aggregate demand curve differs from an individual demand curve in that

Accepted Answer

A)   the aggregate demand curve may not slope down while an individual demand curve must always slope down.
B)   the aggregate demand curve looks at the entire circular flow of income and product, while an individual demand curve looks at one good, holding everything else constant.
C)   prices change along an individual demand curve but prices are held constant along an aggregate demand curve.
D)   the aggregate demand curve slopes up while an individual demand curve slopes down.E) A) and B)
F) None of the above

Question 3

Suppose the central bank implements expansionary monetary policy where the money supply increases. Which of the following will tend to occur in the long run as a result of this monetary policy action?

Accepted Answer

A)   Output and the price level will both increase.
B)   Output will increase with no change in the price level.
C)   an increase in the price level and no change in output
D)   no change in either the price level or outputE) All of the above
F) A) and B)

Question 4

The vertical axis for an aggregate demand curve measures

Accepted Answer

A)   quantity demanded of the representative good.
B)   real Gross Domestic Product (GDP) .
C)   the interest rate.
D)   the price level.E) B) and C)
F) A) and C)

Question 5

The aggregate demand curve shows the relationship between planned purchases of

Accepted Answer

A)   all final goods and services and interest rates.
B)   all final goods and services and the price level.
C)   all final goods and services and nominal GDP.
D)   all final goods and services and total planned production.E) All of the above
F) A) and B)

Question 6

Which of the following would cause aggregate demand to decrease?

Accepted Answer

A)   The government increases taxes on both business and personal income.
B)   A drop in the foreign exchange value of the dollar
C)   The Fed increases the amount of money in circulation.
D)   Businesses and households believe that the economy is headed for good times, so they begin to feel increased security about their jobs.E) A) and B)
F) A) and C)

Question 7

What is measured on the horizontal axis on the aggregate demand graph?

Accepted Answer

A)   nominal income
B)   real GDP per year
C)   the price level
D)   unemploymentE) B) and C)
F) C) and D)

Question 8

The aggregate demand curve

Accepted Answer

A)   is like individual demand curves in that prices of other goods are held constant.
B)   is like individual demand curves in that income is constant.
C)   differs from individual demand curves in that the aggregate demand curve is not downward sloping.
D)   differs from individual demand curves in that the aggregate demand curve looks at the entire circular flow of income and product while the individual demand curve looks at only one good.E) None of the above
F) B) and D)

Question 9

The interest rate effect is part of the reason

Accepted Answer

A)   the short-run aggregate supply curve is upward sloping.
B)   the long-run aggregate supply curve is vertical.
C)   the aggregate demand curve is upward sloping.
D)   the aggregate demand curve is downward sloping.E) B) and C)
F) A) and D)

Question 10

Which of the following would cause the long-run aggregate supply curve to shift to the left?

Accepted Answer

A)   an increase in wages
B)   a decrease in aggregate demand
C)   a decrease in labor productivity
D)   a decrease in taxes on profitsE) A) and B)
F) A) and C)

Question 11

The U. S. has experienced inflation every year since 1959 due to

Accepted Answer

A)   a sustained decrease in aggregate demand.
B)   a sustained increase in aggregate demand accompanied by an even larger decrease in LRAS.
C)   a sustained decrease in aggregate supply.
D)   a sustained increase in aggregate supply accompanied by an even larger increase in aggregate demand.E) B) and D)
F) B) and C)

Question 12

Which of the following statements is TRUE about the interest rate effect?

Accepted Answer

A)   The interest rate effect is why the aggregate demand curve is upward sloping.
B)   A lower price level lowers the interest rate, which causes businesses and consumers to increase their desired spending.
C)   A higher price level lowers the interest rate, which causes business and consumers to increase their desired spending.
D)   Expenditures will change as a result of a change in the real value of money balances when there is a change in the price level.E) B) and C)
F) A) and D)

Question 13

Aggregate supply

Accepted Answer

A)   is the total amount of raw materials available in an economy.
B)   is the overall wealth within an economy.
C)   is the total amount of money circulating in an economy.
D)   is the total amount of planned production in an economy.E) A) and C)
F) B) and C)

Question 14

Secular deflation

Accepted Answer

A)   has been a serious problem during the last three decades in the United States.
B)   although present, has not been a problem during the last three decades in the United States.
C)   has not been present in the United States since 1960.
D)   cannot exist in a capitalistic economy.E) A) and C)
F) None of the above

Question 15

Economic growth takes place

Accepted Answer

A)   only when both aggregate demand and aggregate supply increase.
B)   when aggregate supply increases.
C)   when aggregate demand decreases.
D)   only if the price level is constant or rising.E) All of the above
F) A) and B)

Question 16

What is measured on the horizontal axis of the aggregate demand/aggregate supply model?

Accepted Answer

A)   real Gross Domestic Product (GDP) 
B)   nominal income
C)   the price level
D)   the interest rateE) C) and D)
F) B) and D)

Question 17

-Consider the above figure. At a price level of 120

Accepted Answer

A)   total planned real expenditures exceed total planned production.
B)   total planned production exceeds total planned expenditures.
C)   prices would fall.
D)   inventories would begin to accumulate.E) None of the above
F) A) and B)

Question 18

How can the long-run equilibrium level of real Gross Domestic Product (GDP) increase without the price level changing?

Accepted Answer

Since the long-run aggregate supply curv...

Question 19

Total planned expenditures for domestically produced goods and services consist of

Accepted Answer

A)   government spending, business spending, and import spending only.
B)   consumer spending, business spending, and net export spending only
C)   consumer spending, business spending, government spending, and net export spending.
D)   consumer spending, business spending, government spending, and import spending.E) A) and C)
F) B) and D)

Question 20

In the long run, a decrease in government spending, other things equal, generates

Accepted Answer

A)   a lower real GDP in the long run.
B)   a higher real GDP in the short run.
C)   a lower price level.
D)   both a higher real GDP and a lower price level.E) A) and B)
F) B) and C)

Exam 10: Real GDP and the Price Level in the Long Run

Secular deflation

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How can the long-run equilibrium level of real Gross Domestic Product (GDP) increase without the price level changing?

Correct AnswerverifiedSince the long-run aggregate supply curv...View AnswerShow Answer

Economic growth takes place

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Suppose the central bank implements expansionary monetary policy where the money supply increases. Which of the following will tend to occur in the long run as a result of this monetary policy action?

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What is measured on the horizontal axis of the aggregate demand/aggregate supply model?

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The U. S. has experienced inflation every year since 1959 due to

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-Consider the above figure. At a price level of 120

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Aggregate supply

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The position of the long-run aggregate supply curve is determined by

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Which of the following statements is TRUE about the interest rate effect?

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Which of the following would cause aggregate demand to decrease?

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The interest rate effect is part of the reason

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In the long run, a decrease in government spending, other things equal, generates

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What is measured on the horizontal axis on the aggregate demand graph?

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The aggregate demand curve shows the relationship between planned purchases of

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Total planned expenditures for domestically produced goods and services consist of

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The vertical axis for an aggregate demand curve measures

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The aggregate demand curve differs from an individual demand curve in that

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Which of the following would cause the long-run aggregate supply curve to shift to the left?

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The aggregate demand curve

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Since the long-run aggregate supply curv...
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