Macroeconomics
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Module: Macro Workings
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7.0.0.0 Modeling the macro economy over the short and long terms
Short Title: Macro Workings
7.1.0.0 Describe the business cycle and its primary phases
Short Title: The Business Cycle
Real GDP grew at 1% during the second quarter of 2015. What is the annualized rate of real GDP growth?
twelve percent
four percent*
one percent
one-quarter percent
// Content Page – Reading: Tracking Real GDP Over Time
// New 10/20/2015
7.1.0.1 The business cycle refers to the:
periodic but irregular up-and-down movement in real GDP.*
periodic but regular up-and-down movement in production.
movement of the economy from its pre-recession peak to its recessionary trough.*
// Content Page – Reading: Phases of the Business Cycle
// Updated 10/20/2015 answer choices edited
7.1.0.2 Which of the following is the alternating periods of expansion and contraction in real GDP?
business cycles*
depressions
economic crises
// Content Page – Reading: Phases of the Business Cycle
// Updated 10/20/2015 question edited
7.1.0.3 The periods of time in which an economic cycle transitions from boom to bust or bust to boom is a:
1. cyclic point.
2. turning point.*
October 23, 2015
3. peak.
// Removed 10/20/2015
// Content Page – Reading: Phases of the Business Cycle
An economy is considered to be in a recession if:
it is moving from the peak toward the trough of the business cycle.*
real GDP has declined for two consecutive quarters.*
it is moving from the trough to the peak of the business cycle.
// Content Page – Reading: Phases of the Business Cycle
// New 10/20/2015
7.1.0.4 Which of the following are economic disturbances that originate outside an economy?
 cycles
 external shocks*
 droughts
// Content Page – Reading: Phases of the Business Cycle
// Removed 10/20/2015
7.1.0.5 Concerning the four phases in the economic cycle, above A shows an economic what?
(img: https://s3-us-west-2.amazonaws.com/oerfiles/Assessments/economics/macro-outcome-7-four-phases.png)
expansion*
trough
recession
// Content Page – Reading: Phases of the Business Cycle
// Updated 10/20/2015 question and answer choices edited
7.1.0.6 Concerning the four phases in the economic cycle, above B shows an economic what?
October 23, 2015
(img: https://s3-us-west-2.amazonaws.com/oerfiles/Assessments/economics/macro-outcome-7-four-phases.png)
trough
peak*
recession
// Content Page – Reading: Phases of the Business Cycle
// Updated 10/20/2015 question and answer choices edited
7.1.0.7 Concerning the four phases in the economic cycle, above C shows an economic what?
(img: https://s3-us-west-2.amazonaws.com/oerfiles/Assessments/economics/macro-outcome-7-four-phases.png)
peak
expansion
recession*
// Content Page – Reading: Phases of the Business Cycle
// Updated 10/20/2015 question and answer choices edited
7.1.0.8 Concerning the four phases in the economic cycle above, D shows an economic what?
October 23, 2015
(img: https://s3-us-west-2.amazonaws.com/oerfiles/Assessments/economics/macro-outcome-7-four-phases.png)
expansion
recession
trough*
// Content Page – Reading: Phases of the Business Cycle; Reading: Tracking Real GDP Over Time
// Updated 10/20/2015 question and answer choices edited
7.1.0.9 Fluctuations in real GDP are called ___________?
business cycles.*
depressions.
recessions.
// Content Page – Reading: Phases of the Business Cycle; Reading: Tracking Real GDP Over Time
// Updated 10/20/2015 question edited
7.1.0.10 The point at which an economy transitions from an expansion to a recession is called a _________.
peak*
trough
expansion
// Updated 10/20/2015 question and answer choices edited
// Content Page – Reading: Phases of the Business Cycle; Reading: Tracking Real GDP Over Time
7.1.0.11 The point of a fluctuation at which an economy turns from a recession to an expansion is called a
_________.
depression
disinflation
trough*
// Content Page – Reading: Phases of the Business Cycle; Reading: Tracking Real GDP Over Time
// Updated 10/20/2015 question edited
7.10.12 The top or bottom of a fluctuation where the economy transitions is called a _________.
1. recovery.
2. turning point.*
3. contraction.
// Content Page – Reading: Phases of the Business Cycle
October 23, 2015
// Removed 10/20/2015
7.1.0.13 Which of the following best describes a business cycle?
The cyclical movement in interest rates.
Regular growth rate of consumer spending.
Periods of increasing and decreasing real GDP.*
Regular fluctuations of prices.
// Content Page – Reading: Phases of the Business Cycle; Reading: Tracking Real GDP Over Time
// Updated 10/20/2015 answer choice edited
7.1.0.14 A drop in the GDP for two successive quarters defines a what?
 recession*
 depression
 contraction
// Content Page – Reading: Phases of the Business Cycle
// Removed 10/20/2015
7.1.0.15 The point of a fluctuation at which economy turns from a peak to a trough is called a:
recession*
peak
expansion
// Content Page – Reading: Phases of the Business Cycle
// New 10/20/2015
7.1.0.16 A business cycle reflects changes in real GDP. The stages of a business cycle are:
trough, expansion, recession, peak
trough, recession, expansion, peak
expansion, trough, recession, peak
expansion, peak, recession, trough*
// Content Page – Reading: Phases of the Business Cycle
// Updated 10/20/2015 answer choice edited
7.1.0.17 Which of the following is true?
 A depression is a recession that is mild and relatively brief.
 The expansions and contractions of real world business cycles last varying lengths of time and often differ
in magnitude.*
 The timing of business fluctuations is regular and therefore easily predictable.
 During the contractionary phase of the business cycle, the rate of unemployment is generally quite low.
// Content Page – Reading: Phases of the Business Cycle; Reading: Tracking Real GDP Over Time
7.1.0.18 The official designation of a recession is a duty of the:
U.S. Treasury.
National Bureau of Economic Research.*
U.S. Department of Commerce.
U.S. Bureau of Economic Analysis.
October 23, 2015
// Content Page – Reading: Phases of the Business Cycle
// New 10/20/2015
7.2.0.0 Define economic growth
Short Title: Defining Economic Growth
7.2.0.1 Economic growth is:
the annual percentage change of real GDP.
a long-run process that occurs as a country’s growth potential increases.*
the quantity of goods produced within four months period.
// Content Page – Reading: The Significance of Economic Growth
// Updated 10/20/2015 answer choice edited
7.2.0.2 A nation can achieve higher economic growth if:
it devotes more resources to research and development.*
the productivity of labor declinestaxes are imposed on investment in capital.
Taxes are imposed on investment capital.
more resources are allocated to consumption goods.
// Content Page – Reading: The Significance of Economic Growth
// Removed 10/20/2015
When a nation achieves higher economic growth when its:
level of potential output increases.*
production possibilities frontier shifts outward.*
real GDP has reached a peak in the business cycle.
// Content Page – Reading: The Significance of Economic Growth
// New 10/20/2015
7.2.0.3 _______________, which can be approximated by the growth of gross domestic product, ultimately
determines the prevailing standard of living in a country.
Trade balance
Inflation
Education
Economic growth*
// Content Page – Reading: The Significance of Economic Growth
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Economic growth is measured by log run trends in:
actual GDP
potential GDP*
business cycles
// Content Page – Reading: The Significance of Economic Growth
// New 10/20/2015
Trends in long-term economic growth:
have led to rising income inequality among countries.*
make it impossible for low-income countries to catch up with the living standards of other countries.
October 23, 2015
have led to broadly similar rates of economic growth across countries.
// Content Page – Reading: The Significance of Economic Growth
// New 10/20/2015
Country A’s real GDP is growing at a rate of 2 percent per year. Using the rule of 72, it will take country A
___________ to double its GDP.
18 years
36 years*
2 years
72 years
// Content Page – Reading: The Significance of Economic Growth
// New 10/20/2015
Over the course of human history:
economic growth has brought about substantial gains in incomes and standards of living in most countries.*
economic growth follows a steady, long-term upward path.
all countries have achieved substantial gains in per capita GDP since the 19th century.
// Content Page – Reading: Economic Growth
// New 10/20/2015
If a country’s real GDP is growing at 4.2 percent annually and its per capita GDP is growing at a rate of 0.4 percent,
then population is growing at a rate of ____________ annually.
3.8 percent *
4.6 percent
3.2 percent
// Content Page – Reading: The Significance of Economic Growth
// New 10/20/2015
7.2.0.4 Since the late 1950s, economists have performed “growth accounting” studies in the United States. These
have determined that ________________ is typically the most important contributor to U.S. economic growth:.
 human capital
 physical capital
 technology*
 a market orientation
// Content Page – Reading: Components of Economic Growth
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7.2.0.4 These are the factors that drive economic growth:
human capital.*
physical capital.*
technology.*
a market orientation.
// Content Page – Reading: Components of Economic Growth
// New 10/20/2015
Which of the following contribute to economic growth:
rule of law.*
October 23, 2015
protection of property rights.*
clear and enforced regulations.*
lenient judicial system.
// Content Page – Reading: Rule of Law and Economic Growth
// New 10/20/2015
7.2.0.5 Which of the following factors contribute to economic growth?
A decrease in the quantity of labor due to emigration.
An increase in university graduates.*
The discovery of a new technology.*
A decline in the stock of physical capital.
// Content Page – Reading: Components of Economic Growth; Reading: Determinants of Economic Growth
// Updated 10/20/2015 answer choices edited
7.2.a.0 Identify the sources of economic growth
Short Title: Sources of Economic Growth
7.2.a.1 When discussing economic growth, it is often useful to focus on ____________, to avoid studying changes
in the size of GDP that represent only having more people in the economy, and focus on those increases in GDP
which represent an actual rise in income of the average person.
economic growth
GDP per capita*
living standards
consumption and expenditures
// Content Page – Reading: The Significance of Economic Growth
// Updated 10/20/2015 question wording improved
7.2.a.2 Investment in human capital:
 is of minor importance to economic growth.
 can be acquired through on-the-job training.*
 is an important source of economic growth.*
 is characterized by both b) and c).*
// Content Page – Reading: Components of Economic Growth
7.2.a.3 Economists typically measure economic growth by tracking:
 the employment rate.
 the unemployment rate.
 averaged GDP growth
 real GDP per capita.*
// Content Page – Reading: Components of Economic Growth
7.2.a.4 Which of the following is most likely to contribute to economic growth as measured by GDP per capita?
Business cycle peaks
increased stock of physical capital*
rapid population growth
// Content Page – Reading: Components of Economic Growth
October 23, 2015
// Updated 10/20/2015 answer choices edited
7.2.a.5 Increased investment alone will guarantee economic growth.
 This is a true statement, because growth occurs only with savings.
 This is a true statement, because money is the only resource needed for growth.
 This is a false statement, because an economy must rely on capital injections from abroad.
 This is a false statement, because economic growth hinges on the quality and type of investment as well
as the human capital and improvements in technology.*
// Content Page – Reading: Components of Economic Growth
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Which of the following describe technical change?
New office equipment.
Upgraded office equipment.*
Improved organization of an assembly line.*
// Content Page – Reading: Components of Economic Growth
// New 10/20/2015
7.2.a.6 A nation might achieve higher economic growth if it:
limits immigration.
taxes investment in capital.
has a clear regulatory process.*
devotes more resources to technology research and development.*
// Content Page – Reading: Components of Economic Growth; Rule of Law and Economic Growth
// Updated 10/20/2015 question and answer choices edited
7.2.a.7 Which of the following is unlikely to affect the rate of economic growth?
the quality of available labor and capital resources
the quantity of available labor and capital resources
the frequency of business cycles *
technological change
// Content page - Reading: Components of Economic Growth
// Updated 10/20/2015 question and answer choices edited
7.2.a.8 Which of the following is unlikely to result in economic growth?
Installing a network of irrigation ditches and pumping stations in order to grow fruits and vegetables in parts
of southern California.
The invention of a threshing machine for harvesting grains.
Increased government funding of post-secondary education.
An increase in consumption and decline in savings.*
// Content page - Reading: Components of Economic Growth
// Updated 10/20/2015 question and answer choices edited
7.2.a.9 Which of the following factors contribute to economic growth?
An increase in population.*
An increase in the standard of living.
October 23, 2015
A decrease in the productivity of labor.
An increase in the proportion of the population that is college educated.*
// Content page - Reading: Components of Economic Growth
// Updated 10/20/2015 answer choice edited
7.2.b.0 Explain productivity and relate productivity growth to improvements in the standard of living
Short Title: Productivity
7.2.b.1 An economy’s rate of productivity growth is closely linked to the growth rate of its ______________,
although the two aren’t identical.
 GNP
 output
 GDP per capita*
 Technology
// Content page - Reading: Components of Economic Growth
// Removed 10/20/2015
Which of the following are examples of an economy’s stock of human capital?
Number of engineering degrees held by workers.*
Number of hours worked per year.
Productivity per worker.
// Content page - Reading: Labor Productivity and Economic Growth
// New 10/20/2015
_____________ is the value of output per hour of labor input.
Human capital
Labor productivity*
Investment
GDP per capita
// Content page - Reading: Labor Productivity and Economic Growth
// Updated 10/20/2015 question and answer choices edited
7.2.b.3 To achieve a higher stock of human capital in its economy, a nation should:
use less capital and more labor in the production process.
promote tax-deductible college savings plans.*
encourage population growth.
// Content page - Reading: Labor Productivity and Economic Growth
// Updated 10/20/2015 question and answer choices edited
7.2.b.4 In the long run, important sources of an increase in a nation’s economic growth include(s):
zero rate of population growth.
high college graduation rates.*
high rate of labor force growth.*
// Content page - Reading: Labor Productivity and Economic Growth
// Updated 10/20/2015 question and answer choices edited
October 23, 2015
7.2.b.5 Over the long run, ____________ per hour is the most important determinant of the average
wage level in any economy.
A. demand
B. dollars
C. productivity*
D. supply
// Content page - Reading: The New Economy Controversy
// Removed 10/20/2015
7.2.b.6 In the long run, the most important source of increase in a nation’s standard of living is a:
 zero rate of population growth
 high rate of economic growth.*
 high rate of consumption.
 high rate of labor force growth.
// Content page - Reading: Economic Growth
// Removed 10/20/2015
The New Economy controversy maintains that recent productivity growth resulting from rapid gains in
communications and IT:
are a short-run phenomenon of about one decade.*
will generate productivity gains for decades.*
will generate productivity gains during recessionary periods of the business cycle.
// Content page - Reading: The New Economy Controversy
// New 10/20/2015
7.2.b.7 The value of what is produced per worker, or per hour worked, is called ____________.
A. economic growth
B. human capital
C. productivity*
D. GDP per capita
// Content page - Reading: New Economy Controversy; Reading: Labor Productivity and Economic Growth
// Removed 10/20/2015
The most important determinant of the average wage is ____________.
the number of hours worked
the value of output per hour worked*
total quantity of output
productivity*
// Content page - Reading: New Economy Controversy
// New 10/20/2015
7.2.b.8 To achieve a high standard of living, a nation should:
 increase the tax deduction for child dependents.
 promote economic growth.*
 use less capital and more labor in the production process.
 increase welfare payments to the poor.
October 23, 2015
// Content page - Reading: Components of Economic Growth
// Removed 10/20/2015
7.2.b.8 To achieve economic growth, a nation should:
support capital deepening.
promote research and technological innovation.*
use less capital and more labor in the production process.
increase unemployment benefits.
// Content page - Reading: Components of Economic Growth
// New 10/20/2015
7.3.0.0 Use the AD-AS model to explain the equilibrium levels of real GDP and price level
Short Title: The AD-AS Model and Equilibrium
7.3.0.1 In an AD/AS model:
the potential GDP always slopes downwards.
the price level is shown on the vertical axis.*
real GDP is shown on the horizontal axis.*
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
// Updated 10/20/2015 answer choices edited
The Aggregate Supply curve shows:
relationship between real GDP and the price level.*
the total quantity of output that firms will produce at a given price level.*
the potential output of an economy at an given price level.
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
// New 10/20/2015
Neoclassical economists:
take a classical view of the economy.
subscribe to Say’s law that the macroeconomy is largely determined by supply side factors.*
include some of the greatest economists of the 19th century.
// Content page – Reading: Macroeconomic Perspectives on Demand and Supply
// New 10/20/2015
7.3.0.2 What term is used to describe the maximum quantity that an economy can produce, in the context of its
existing inputs, market and legal institutions?
 GDP deflator
 AS curve
 potential GDP*
 aggregate supply
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
7.3.0.3 Why is productivity growth considered to be the most important factor in the AD/AS model?
 it shifts the AD curve in the long-term
 it shifts the AD curve in the short-term
October 23, 2015
 it shifts the AS curve in the short-term
 it shifts the AS curve in the long-term*
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
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On the far left side of the AS curve, the economy is producing ________ potential, and on the far right of the
curve, it is producing ___________ potential.
above : below
below : above*
always : at
always : below
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
// New 10/20/2015
7.3.0.4 As the aggregate price level in an economy rises, ____________________.
real GDP increases
aggregate demand increases
aggregate supply increases*
the economy enters a recession
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
// Updated 10/20/2015 answer choices edited
7.3.a.0 Define aggregate demand (AD) and explain the factors that cause it to change
Short Title: Aggregate Demand (AD)
7.3.a.1 Aggregate demand curves slope downwards for each of the following reasons EXCEPT:
The wealth effect: As the price level falls, the buying power of people’s savings increases and induces them to
spend more.
The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other
goods.*
The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the
demand for money, raising interest rates and reducing investment spending.
The foreign price effect: As the price level falls, U.S. become more attractive to foreigners and domestic
residents, increasing net export spending.
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
Components of aggregate demand include:
government spending.*
investment spending.*
firms’ demand for inputs.
import demand.
// Content Page – Reading: Aggregate Demand
// New 10/20/2015
7.3.a.2 In macroeconomics, _____________________ denotes the total quantity of spending on domestic goods
and services.
October 23, 2015
Net trade
aggregate supply (AS)
aggregate demand (AD)*
potential GDP
// Content page - Reading: Aggregate Demand
// Updated 10/20/2015 question and answer choices edited
7.3.a.3 Changes in spending by different components of aggregate demand as the price level changes are reflected
in the AD/ASAD/AS macroeconomic model by a ________________________.
flatter top portion of AD curve
longer distance to equilibrium point
downward sloping AD curve*
shorter distance to equilibrium point
// Content page - Reading: Aggregate Demand
// Updated 10/20/2015 question and answer choices edited
If government spending increases by $3 billion and real GDP increases by $4.5 billion, the expenditure multiplier
must be:
1.5*
4.5
3.0
0.5
// Content Page – Reading: Aggregate Demand
// New 10/20/2015
7.3.a.4 Aggregate Demand (AD) = C + I + G + (X-M). C = ________.
cost
consumption spending*
customers
// Content page - Reading: Shifts in Aggregate Demand
// Updated 10/20/2015 answer choice edited
7.3.a.5 Aggregate Demand (AD) = C + I + G + (X-M). I = ________.
interest rates
industry
investment spending*
// Content page - Reading: Shifts in Aggregate Demand
// Updated 10/20/2015 answer choice edited
7.3.a.6 Aggregate Demand (AD) = C + I + G + (X-M). G = ________.
government spending*
guest workers
gross investment
// Content page - Reading: Shifts in Aggregate Demand
7.3.a.7 Aggregate Demand (AD) = C + I + G + (X-M). X = ________.
October 23, 2015
 X factor
 exports*
 exchange
// Content page - Reading: Shifts in Aggregate Demand
7.3.a.8 Aggregate Demand (AD) = C + I + G + (X-M). M = ________.
 investments
 imports*
 income
// Content page - Reading: Shifts in Aggregate Demand
7.3.a.9 Aggregate Demand (AD) = C + I + G + (X-M). The aggregate demand is the demand for _____ of a country.
 Gross National Product
 Output
 Gross Domestic Product*
// Content page - Reading: Shifts in Aggregate Demand
// Removed 10/20/2015
7.3.a.10 The aggregate demand is the demand for _______________.
a nation’s domestic output of goods and services*
a nation’s total budget
the total supply of domestic and imported goods*
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
// Updated 10/20/2015 answer choices edited
7.3.a.11 The aggregate demand is also _____.
 a nation’s output of goods and services.
 a nation’s total budget.
 the effective demand *
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
// Removed 10/20/2015
If equilibrium occurs in the flat range of the AS curve, then the:
economy is producing at its potential GDP.
economy is experiencing unemployment.*
price level is stable.*
// Content Page – Reading: Growth and Recession in the AS-AD Diagram
// New 10/20/2015
7.3.a.12 Some define the aggregate demand as a measure of which of the following?
a nation’s total budget
ability to spend*
output of goods and services
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
// Removed 10/20/2015
October 23, 2015
If the AS-AD curves are in equilibrium in the vertical range of the AS curve, then:
the economy is producing at or near its potential GDP.*
the economy is experiencing unemployment.
there is inflationary pressure on the price level.*
// Content Page – Reading: Growth and Recession in the AS-AD Diagram
// New 10/20/2015
7.3.a.13 Aggregate Demand (AD) = C + I + G + (X-M). There are other determinants to the AD. One is ____, which
affects the cost of borrowing and impacts consumption and investment.
 consumption rate
 unemployment rate
 interest rate*
// Content page - Reading: Aggregate Demand
// Removed 10/20/2015
Due to the wealth effect, an increase in prices will cause:
consumer spending to decline.*
consumers’ savings to lose buying power.*
consumers to save less and spend more.
// Content Page – Reading: Building a Model of Aggregate Supply and Aggregate Demand
// New 10/20/2015
7.3.a.14 Aggregate Demand (AD) = C + I + G + (X-M). There are other determinants to the AD. One is the ________
which is made up of government purchases.
 consumption rate
 federal deficit*
 interest rate
// Content page - Reading: Aggregate Demand
// Removed 10/20/2015
As interest rates rise, the effect on aggregate demand is to:
reduce consumer borrowing and consumption spending.
increase firm borrowing and investment spending.
increase consumer borrowing and saving.
// Content Page – Reading: Building a Model of Aggregate Supply and Aggregate Demand
// New 10/20/2015
7.3.a.15 Which of the following items can directly cause an increase / decrease in the aggregate demand?
 consumption rate
 federal deficit
 exchange rate*
// Content page - Reading: Aggregate Demand
// Removed 10/20/2015
A fall in foreign prices relative to the price level in the U.S. will cause:
U.S. net exports to rise.*
October 23, 2015
U.S. net exports to fall.
U.S. aggregate demand to fall.
// Content Page – Reading: Building a Model of Aggregate Supply and Aggregate Demand
// New 10/20/2015
7.3.a.16 The largest component of aggregate demand is ______?
 federal deficient
 exports
 consumer spending*
// Content page - Reading: Shifts in Aggregate Demand
// Removed 10/20/2015
7.3.a.17 Exports will add to the AD only if which of the following occurs?
 The exchange rates are equal.
 Value of exports exceeds value of imports.*
 They are not taxed.
// Content Pages – Reading: Shifts in Aggregate Demand; Reading: Growth and Recession in the AS–AD Diagram
// Removed 10/20/2015
7.3.a.17 An increase in exports will cause aggregate demand to increase only if which of the following also occurs?
The U.S. price level remains unchanged.
The increase in value of exports exceeds any increase in value of imports.*
The increase in value of exports is less than any increase in the value of imports.
// Content Pages – Reading: Shifts in Aggregate Demand; Reading: Growth and Recession in the AS–AD Diagram
// New 10/20/2015
7.3.a.18 Imports will reduce the AD if which of the following occurs?
 they exceed the value of imports.*
 they are taxed too high.
 exchange rates are not equal.
// Content Pages – Reading: Shifts in Aggregate Demand; Reading: Growth and Recession in the AS–AD Diagram
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7.3.a.18 An increase in imports will reduce aggregate demand if which of the following occurs?
The increase in value of imports exceeds any increase in value of exports.*
The increase in value of imports is less than any increase in value of exports.
The price level remains unchanged.
// Content Pages – Reading: Shifts in Aggregate Demand; Reading: Growth and Recession in the AS–AD Diagram
// New 10/20/2015
7.3.a.19 In the 1970s, the price of oil was extremely high. This shock caused a:
shift to the left in the aggregate supply curve.
change in the slope of the aggregate supply curve.
shift to the left in the aggregate demand curve.*
// Content page - Reading: Shifts in Aggregate Supply
// Updated 10/20/2015 question and answer choices edited
October 23, 2015
7.3.a.20 During the winter of 2014 / 2015 oil prices dropped by a large percentage compared to the summer of
2014. By March 2015, what changed?
A change in the slope of the aggregate supply curve.
A shift to the right in the aggregate demand curve.*
A shift to the left in the aggregate demand curve.
// Content page - Reading: Shifts in Aggregate Supply
// Updated 10/20/2015 answer choices edited
7.3.a.21 There is a positive to falling aggregate demand. What could be considered positive in these situations?
Unemployment falls.
Unions lose clout.
Inflation slows*
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7.3.a.22 There is a negative to rising aggregate demand. What could be considered a negative impact in these
situations?
Unemployment falls.*
Foreign investment rises.
The inflation rate gets larger.*
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7.3.a.23 A sudden unexpected event that causes a large change in the aggregate demand is called what?
 a demand shock*
 a recession
 a rampant inflation
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7.3.a.23 Events that can cause a shift in the aggregate demand might be?
Business expectations of a strong holiday season.*
Loss of consumer confidence.*
Technological innovation.
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7.3.b.0 Define aggregate supply (AS) and explain the factors that cause it to change
Short Title: Aggregate Supply (AS)
7.3.b.1 During the winter of 2014 / 2015, oil prices dropped by a large percentage compared to the summer of
2014. By March 2015, what changed?
 A shift to the left in the aggregate supply curve.*
 A shift to the right in the aggregate demand curve.
 A shift to the left in the aggregate demand curve.
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Events that can shift the aggregate supply curve include(s):
technological innovation*
wealth effect
foreign price effect.
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7.3.b.2 In the chart below concerning the shifts in Aggregate Supply, Arrow A represents an economy that is
moving toward __________.
(img: https://s3-us-west-2.amazonaws.com/oerfiles/Assessments/economics/macro-outcome-7-shifts-AS.png)
loss in productivity*
higher input price*
lower consumer confidence
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7.3.b.3 In the chart below concerning the shifts in aggregate supply. Arrow B represents an economy that is
moving toward __________.
(img: https://s3-us-west-2.amazonaws.com/oerfiles/Assessments/economics/macro-outcome-7-shifts-AS.png)
Technological innovations*
Wealth effect
Recession
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7.3.b.4 When an economy’s output increases and the price level decreases, the _________ curve has shifted to the
____________.
AS : left
AD : left
AD : right
AS : right*
// Content page - Reading: Building a Model of Aggregate Supply and Aggregate Demand
7.3.b.5 Aggregate supply curves are _________________ for low levels of output, and
____________________________ for high levels of output.
relatively flat : remain flat
relatively steep : remain steep
relatively flat : relatively steep *
relatively steep : relatively flat
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7.3.b.6 Which of the following must be present in order for the aggregate supply curve to form an upward slope?
 the lure of higher profits to induce continued production
 fixed cost of inputs combined with rising prices for outputs *
 rise in aggregate quantity of supplied goods and services
 constant price level for intermediate goods and services
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In the long run, actual GDP will:
be close to or at its potential GDP.*
be close to or on the vertical part of the AS curve.*
be close to or on the horizontal part of the AS curve.
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7.3.b.7 Aggregate supply (AS) denotes the relationship between the __________________ that firms choose to
produce and sell and the _________________, holding the price of inputs fixed.
total quantity : price level for output*
type of goods : input price of raw materials
price of goods : number of employees
total inputs : types of goods
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7.3.b.8 The term “full employment GDP” is synonymous with which of the following?
 aggregate GDP
 Keynesian zone
 macroeconomic equilibrium
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 potential GDP*
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7.3.b.9 The maximum quantity that an economy can produce, given its existing levels of labor, physical capital,
technology, and institutions, is called:
 real GDP.
 potential GDP.*
 aggregate supply.
 aggregate demand.
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7.3.b.10 The change in inventories, a component of aggregate supply, comprises roughly __________ of GDP.
 20%
 10%
 1%
 0.5%*
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In the long run, the most important factor that shifts the aggregate supply curve is:
technological change.*
change in prices of inputs.
business confidence.
change in net trade.
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7.3.c.0 Use the AD-AS model to explain periods of recession, and expansion, demand-pull inflation and costpush inflation
Short Title: The AD-AS Model and Recession, Expansion and Inflation
7.3.c.1 Whether the economy is in a recession is illustrated in the AD/AS model by how close the
_____________________ is to the potential GDP line.
 AS curve
 AD curve
 equilibrium*
 AS and AD curve
// Content page - Reading: Growth and Recession in the AS–AD Diagram
7.3.c.2 In an AD/AS diagram, __________________________ could explain a rise in cyclical unemployment.
a shift in AS to the left*
a shift in AS to the right
a shift in AD to the left*
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7.3.c.3 In an AD/AS diagram, an increase in structural unemployment will:
 shift AS to the right.
 have no effect on AS or AD.*
 shift AS to the left.
 shift AD to the left.
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7.3.c.4 When prices of outputs in an economy become sufficiently high, causing production to exceed potential
GDP, the result is that:
hyper-intense production will be unsustainable in the long run.*
higher wages will encourage workers to take more leisure time.
lower prices will lead to a lower quantity of demand.
the long run aggregate supply curve will shift to the right.
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7.3.c.5 Due to inflationary pressures, the national income of households has been spread across a higher overall
price base for goods and services. How will this effect be shown in an AD/AS model?
 nearly vertical AS slope at the far right
 nearly horizontal AD curve at the far left
 a downward sloping AD curve*
 a downward sloping AS curve
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In the AS-AD model, cyclical unemployment:
is the gap between actual and potential real GDP in the equilibrium of the AD and short-run AS curves.*
is not shown in the AS-AD model.
occurs when the economy is not at a short run equilibrium in the AS-AD model.
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7.3.c.6 In an AD/AS model, the point where the economy has excess capacity is called the:
 Keynesian zone of the AS curve*
 intermediate zone of the AS curve
 neoclassical zone of the AS curve
 crossing point of the potential GDP line
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Inflationary pressure in the AS-AD model can be shown as a:
rightward shift of the AD curve when the economy is already producing at its potential GDP*
leftward shift of the AD curve when the economy is already producing at its potential GDP.
supply shock that shifts the AS to the left.*
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11.6.b.1 If the economy is in a recession, appropriate policies to pursue may include:
an income tax cut that shifts the AD curve to the right.*
an increase in government spending that shifts the AD curve to the right.*
investment in technology that shifts the AS curve to the right.
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11.6.b.2 If the economy is in an expansionary period, appropriate policies to pursue may include:
an income tax cut that shifts the AD curve to the right.
a reduction in government spending that shifts the AD curve to the left.*
business investment incentives that shift the AD curve to the left.
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11.6.b.3 If the economy has cyclical unemployment, appropriate policies to pursue may include:
income tax cuts that shift the AS curve to the right.
increased government spending that shifts the AD curve to the right.*
increased technological innovation that shifts the AD curve to the right.
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7.3.d.0 Use the AD-AS model to explain periods of economic growth
Short Title: The AD-AS Model and Economic Growth
7.3.d.1 In macroeconomics, the connection from inputs to outputs for the entire economy is called
_______________.
 a production function
 an aggregate production function*
 human capital
 physical capital
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Economic growth is shown in the AS-AD model as a:
rightward shift in the long run AS curve.*
rightward shift in the AD curve.
leftward shift in the short run AS curve.
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7.3.d.2 _______________________ happens when the economy is producing at its potential and unemployment is
at the natural rate of unemployment.
 The foreign price effect
 Stagflation
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 Full employment GDP*
 The interest rate effect
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7.3.d.3 Aggregate supplies and aggregate demands adjust naturally to offset pressures for long-term
unemployment or substantial economic inefficiency. This is a definition of ___________?
 a market economy
 communism
 classical economics*
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The AS-AD model can be used to analyze:
economic growth.*
price levels and inflation.*
short run cyclical unemployment.*
speed of adjustment from recessions to expansions.
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