Chapter 33: Aggregate Demand and Aggregate Supply |
1. A severe and
prolonged recessionary phase of a business cycle is sometimes described as
a. an inverted peak.
b. a trough.
c. a recession.
d. a depression.
2. If you and your
friends are still looking for a job eighteen months after graduation, even
after lowering your wage expectations, you are probably in the business cycle
phase of a
a. recession.
b. peak.
c. boom.
d. recovery
3. Ethel maintains
that she can predict when the economy is going to move up or down a business
cycle. In fact
a. most economists can predict the business cycle.
b. the business cycle is quite regular, with a new phase
beginning every 24 months.
c. business cycles are irregular and unpredictable in the
short run.
d. only the Federal Reserve can predict moves in the
business cycle.
4. Recessions do not
last forever because
a. workers get tired of being unemployed.
b. firms eventually have incentives to increase employment
and produce more output.
c. government steps in and boosts spending back to long-run
levels.
d. the Federal Reserve has perfect control over the money
supply.
5. In the long run,
the aggregate demand curve is
a. horizontal.
b. upward sloping.
c. downward sloping.
d. vertical.
6. When studying the
short run, the assumption of money neutrality is
a. not relevant.
b. increasingly important.
c. still relevant but the classical dichotomy no longer
holds.
d. Both b and c are correct.
7. If we are most
interested in short-run changes in economic activity,
a. the classical model is an unreliable guide.
b. total spending can be ignored.
c. labor markets are irrelevant.
d. we should assume that neither expansions nor recessions
can occur.
8. Anyone seeking to
understand the causes of recessions must examine
a. the saving behaviors of different age groups.
b. investment patterns in the housing market.
c. disequilibrium in the manufacturing sector.
d. changes in the level of spending.
9. The wealth effect,
interest rate effect, and foreign trade effect all explain why the aggregate
a. supply curve is horizontal.
b. supply curve is vertical.
c. supply curve is upward sloping.
d. demand curve is downward sloping.
10. According to the
__________ effect, a lower price level decreases interest rates, which results
in additional spending on investment goods and so increases the aggregate
quantity of goods and services demanded.
a. money supply
b. interest rate
c. consumption
d. investment
11. Due to
expectations of a future recession, companies do not think that they can sell
all of their output and therefore purchase less equipment and machinery. As an
immediate result, the aggregate
a. supply curve becomes vertical.
b. supply curve shifts right.
c. demand curve shifts right.
d. demand curve shifts left.
12. Movements along
the aggregate supply curve are caused by changes in
a. technology.
b. government regulations.
c. wages and salaries.
d. the price level.
13. Which of the
following will cause the aggregate supply curve to shift to the right?
a. increases in wages and salaries paid to employees
b. increases in the prices of oil and natural gas
c. increases in taxes for business
d. new work rules that increase the productivity of labor
14. Rising oil prices
in the U.S. during the 1970s caused the economy’s aggregate
a. supply curve to shift to the right.
b. supply curve to shift to the left.
c. demand curve to become vertical.
d. demand curve to become horizontal.
15. To say that
nominal prices are sticky means
a. the average price level seldom changes.
b. relative prices seldom change.
c. it takes at least one year for prices to change to a new
equilibrium level.
d. it takes time for prices to adjust to equilibrium.
16. Which of the
following is not a determinant of long-run aggregate supply?
a. the level of skills in the workforce
b. the price level
c. technology
d. the quantity of capital
17. The long-run
effect of an increase in government spending is to raise
a. both real output and the price level.
b. real output and lower the price level.
c. real output and leave the price level unchanged.
d. the price level and leave real output unchanged.
18. If prices in an
economy are sticky, then a decrease in the money supply
a. will cause a recession.
b. cannot be responsible for causing a recession.
c. will not have adverse effects on the economy.
d. will not affect prices.
19. Many economists
believe that the severity of the Great Depression was due to
a. a flood of imported goods brought about by tariff
reductions.
b. the failure of the Federal Reserve to prevent a large
drop in the money supply.
c. the huge budget deficits of the federal government.
d. hyperinflation that occurred following World War I.
20. Which of the
following will reduce the price level and raise real output?
a. an adjustment of prices to equilibrium
b. an increase in wage rates
c. the short-run aggregate supply curve becoming steeper
d. technical progress
21. Which of the
following will reduce the price level and reduce real output in the short run?
a. an increase in the money supply
b. an increase in oil prices
c. a decrease in the money supply
d. technical progress
22. Which of the
following will cause stagflation?
a. an increase in the money supply
b. an increase in oil prices
c. a decrease in the money supply
d. technical progress
23. Recessions in South
Korea and Indonesia will cause
a. an upward movement along the U.S. AD curve.
b. a downward movement along the U.S. AD curve.
c. the U.S. AS curve to shift to the right.
d. the U.S. AD curve to shift to the left.
24. If there is
speculation that a recession is around the corner, which means that our future
incomes will most likely fall, then the effect of all this on the economy now
will be that the
a. AS curve will shift to the left.
b. AD curve will shift to the right.
c. price level will rise and real output will rise.
d. price level will fall and real output will fall.
25. Any factor that
increases resource availability causes a(n)
a. increase in AD.
b. decrease in AD.
c. increase in AS.
d. decrease in AS.
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