Study Questions 7 (AS-AD)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The supply of real GDP is a function of
A) only the state of technology.
B) the sum of wages, salaries, corporate profits, rents and interest.
C) the total expenditures of consumers, investors and government.
D) the quantities of labor, capital and the state of technology.
1)
2) The quantity of real GDP supplied at different price levels is reflected by the
A) aggregate demand curve.
B) total expenditure curve.
C) real wealth curve.
D) aggregate supply curve.
2)
3) We distinguish between the long-run aggregate supply curve and the short-run aggregate supply
curve. In the long run
A) technology is fixed but not in the short run.
B) the price level is constant but in the short run it fluctuates.
C) real GDP equals potential GDP.
D) the aggregate supply curve is horizontal while in the short run it is upward sloping.
3)
4) Which of the following is true about the long-run aggregate supply curve?
A) It is vertical at the level of potential GDP.
B) It does not shift in response to temporary changes in aggregate demand.
C) It shows the relationship between the price level and real GDP when wages and other costs
are at an equilibrium level.
D) All of the above are true.
4)
5) The positive relationship between short-run aggregate supply and the price level indicates that, in
the short run,
A) the money wage rate increases when moving along the short-run aggregate supply curve.
B) firms produce more output as the price level falls.
C) firms produce more output as the price level rises.
D) lower price levels are more profitable for firms.
5)
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6) In the figure above, potential GDP equals
A) $12.5 trillion.
C) $12.0 trillion.
B) $11.5 trillion.
D) None of the above answers is correct.
6)
7) In the figure above, the economy is at point A when the price level rises to 120. Money wage rates
and other resource prices remain constant. Firms are willing to supply output equal to
A) $12.0 trillion.
B) $12.5 trillion.
C) $11.5 trillion.
D) None of the above answers is correct.
7)
8) In the figure above, the economy is at point A when the price level falls to 100. Money wage rates
and all other resource prices remain constant. Firms are willing to supply output equal to
A) $11.5 trillion.
B) $12.5 trillion.
C) $12.0 trillion.
D) None of the above answers is correct.
8)
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9) In the above figure, which movement illustrates the impact of a falling price level and a constant
money wage rate?
A) E to H
B) E to J
C) E to I
D) E to F
10) In the above figure, which movement illustrates the impact of a rising price level and a constant
money wage rate?
A) E to F
B) E to G
C) E to I
D) E to K
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9)
10)
11) In the above figure, the short-run aggregate supply curve is SAS1 . Suppose that the price level in
the economy increases. As a result there is
A) a downward movement along SAS1 .
11)
B) a shift to SAS0.
D) a shift to SAS2.
C) an upward movement along SAS1 .
12) In the above figure, B is the current long-run aggregate supply curve and E is the current short-run
aggregate supply curve. Technological advances mean the long-run aggregate supply curve and
short-run aggregate supply curve
A) shift to C and F, respectively.
B) shift to C and remain E, respectively.
C) shift to A and D, respectively.
D) remain B and E.
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12)
13) When the price level increases, ________.
A) aggregate demand increases
B) aggregate demand decreases
C) real GDP remains constant
D) the quantity of real GDP demanded decreases
13)
14) The quantity of real GDP demanded equals $12.4 trillion when the GDP deflator is 95. If the GDP
deflator falls to 90, the quantity of real GDP demanded equals
A) less than $12.4 trillion.
B) $12.4 trillion.
C) more than $12.4 trillion.
D) more information is needed to determine if the quantity of real GDP demanded increases,
decreases, or does not change.
14)
15) One reason that the aggregate demand curve has a negative slope is because
A) people buy fewer goods and save more when the price level rises because their real wealth
decreases.
B) The premise of the question is wrong because the aggregate demand curve has a positive
slope.
C) people earn more money when output rises.
D) firms produce more when the price rises.
15)
16) When the prices of U.S.-produced goods rise and the price of foreign-produced goods do not
change, the result is
A) a decrease in exports.
B) a decrease in imports.
C) an increase in exports.
D) no change in imports or exports.
16)
17) A decrease in expected future income
A) decreases the aggregate quantity demanded.
B) decreases aggregate demand.
C) increases the aggregate quantity demanded.
D) increases aggregate demand.
17)
18) If taxes are increased, the AD curve
A) shifts rightward and aggregate demand decreases.
B) shifts leftward and aggregate demand decreases.
C) does not shift but there is a movement down along the curve.
D) is not affected because a change in taxes is a nominal change not real change.
18)
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19) In the above figure, the shift from point C to point B might be the result of
A) an increase in the price level.
B) an increase in the quantity of money.
C) a decrease in government expenditures.
D) a decrease in the price level.
19)
20) In the figure above, in the short-run macroeconomic equilibrium,
A) there is no structural unemployment.
B) real GDP is greater than potential GDP.
C) real GDP is less than potential GDP.
D) real GDP equals potential GDP.
20)
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21) In the above figure, suppose the economy had been at point A and now is at B. What could have
lead to the movement to B?
A) Money wage rates rose.
B) Government expenditures on goods and services increased.
C) Winter storms cause factories in the north to be shut down for several weeks.
D) A tax hike.
21)
22) A classical economist believes that
A) the economy is self-regulating and will normally, though not always, operate at full
employment if monetary policy is not erratic.
B) the economy is self-regulating and always at full employment.
C) if the economy was left alone, it would rarely operate at full employment.
D) the economy is self-regulating and will normally, though not always, operate at full
employment if fiscal policy is not erratic.
22)
23) A Keynesian economist believes that
A) the economy is self-regulating and will normally, though not always, operate at full
employment if fiscal policy is not erratic.
B) the economy is self-regulating and will normally, though not always, operate at full
employment if monetary policy is not erratic.
C) if the economy was left alone, it would rarely operate at full employment.
D) the economy is self-regulating and always at full employment.
23)
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Answer Key
Testname: STUDY QUESTIONS 6 (AS-AD)
1) D
2) D
3) C
4) D
5) C
6) C
7) B
8) A
9) C
10) A
11) C
12) A
13) D
14) C
15) A
16) A
17) B
18) B
19) C
20) C
21) B
22) B
23) C
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