Question 1

Consider the following equation where a is a positive number: quantity of output supplied = natural rate of output + a (actual price level - expected price level) . What does this equation represent?

Accepted Answer

A)   an upward-sloping short-run aggregate-supply curve
B)   a vertical long-run supply curve
C)   a downward-sloping aggregate-demand curve
D)   an upward-sloping aggregate-demand curveE) A) and B)
F) A) and C)

Question 2

The explanations for the slopes of the aggregate-demand and aggregate-supply curves are the same as the explanations for the slope of demand and supply curves for specific goods and services.

Accepted Answer

A) True 
 B)False

Question 3

In which situation would stagflation exist?

Accepted Answer

A)   when prices and output rise
B)   when prices rise and output falls
C)   when prices fall and output rises
D)   when prices and output fallE) A) and C)
F) C) and D)

Question 4

After a major flood destroyed a large residential area in Winnipeg, what might have happened?

Accepted Answer

A)   Aggregate demand shifted to the right and prices increased.
B)   Aggregate demand shifted to the left and prices increased.
C)   Aggregate demand shifted to the right and prices decreased.
D)   Aggregate demand shifted to the left and prices decreased.E) A) and D)
F) A) and C)

Question 5

Which statement best explains the downward slope of the aggregate-demand curve?

Accepted Answer

A)   As the Canadian price level increases, the dollar depreciates and people buy more imports.
B)   As the Canadian price level increases, the interest rate falls and firms invest less.
C)   As the Canadian price level increases, people feel less wealthy and buy less goods and services.
D)   As the Canadian price level increases, people buy more substitute goods.E) C) and D)
F) None of the above

Question 6

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)   an increase in the price level
B)   an increase in payroll taxes
C)   an increase in net exports
D)   an investment tax creditE) All of the above
F) A) and B)

Question 7

According to classical economic theory, which of the following do changes in the money supply affect?

Accepted Answer

A)   incentives to invest
B)   prices
C)   unemployment rates
D)   aggregate supplyE) C) and D)
F) A) and C)

Question 8

What does an increase in the interest rate cause?

Accepted Answer

A)   It causes investment to rise and the exchange rate to appreciate.
B)   It causes investment to fall and the exchange rate to depreciate.
C)   It causes investment to rise and the exchange rate to depreciate.
D)   It causes investment to fall and the exchange rate to appreciate.E) B) and C)
F) A) and D)

Question 9

Which relationship does the model of aggregate demand and aggregate supply explain?

Accepted Answer

A)   the relationship between the price and quantity of a particular good
B)   the relationship between the interest rate and output
C)   the relationship between wages and employment
D)   the relationship between real GDP and the price levelE) A) and D)
F) A) and C)

Question 10

What happens when the dollar depreciates?

Accepted Answer

A)   Canadian exports and imports increase.
B)   Canadian exports increase, while imports decrease.
C)   Canadian exports decrease, while imports increase.
D)   Canadian exports and imports decrease.E) A) and B)
F) B) and D)

Question 11

How much has Canada changed its oil consumption since the first OPEC price shock in 1973?

Accepted Answer

A)   increased by 20%
B)   decreased by 30%
C)   increased by 40%
D)   decreased by more than 50%E) All of the above
F) None of the above

Question 12

Suppose there is an increase in the availability of an important major resource, such as oil. Which shift would most likely occur?

Accepted Answer

A)   The aggregate supply would shift right.
B)   The aggregate supply would shift left.
C)   The aggregate demand would shift right.
D)   The aggregate demand would shift left.E) B) and C)
F) A) and C)

Question 13

Suppose the economy is initially in long-run equilibrium. Which statement best describes the state of the economy after an increase in aggregate demand?

Accepted Answer

A)   Prices and output are higher.
B)   Prices and output are lower.
C)   Prices are higher and output is the same.
D)   Prices are the same and output is lower.E) B) and C)
F) All of the above

Question 14

Assuming that a is positive, how are theories of short-run aggregate supply expressed mathematically?

Accepted Answer

A)   quantity of output supplied = natural rate of output + a(actual price level - expected price level) 
B)   quantity of output supplied = natural rate of output + a(expected price level - actual price level) 
C)   quantity of output supplied = a(actual price level - expected price level)  - natural rate of output
D)   quantity of output supplied = a(expected price level - actual price level)  - natural rate of outputE) B) and D)
F) C) and D)

Question 15

Which statement best characterizes the aggregate-demand curve?

Accepted Answer

A)   It slopes downward because higher prices cause the exchange rate to depreciate.
B)   It slopes downward because higher prices cause real wealth to decrease and interest rates to increase.
C)   It slopes upward because higher prices cause people to increase their production.
D)   It slopes upward because higher prices cause real wealth to increase and interest rates to decrease.E) None of the above
F) B) and C)

Question 16

According to the sticky-wage theory, which statement is consistent with an unexpected fall in the price level?

Accepted Answer

A)   The real wage rises and employment rises.
B)   The real wage rises and employment falls.
C)   The real wage falls and employment rises.
D)   The real wage falls and employment falls.E) C) and D)
F) B) and D)

Question 17

Which of the following shifts the short-run aggregate and the long-run aggregate supply left?

Accepted Answer

A)   a decrease in the price level
B)   a decrease in the expected price level
C)   a decrease in the working age population
D)   a decrease in consumptionE) A) and C)
F) None of the above

Question 18

If the economy is initially in long-run equilibrium, which statement best describes the effects of a shift in aggregate demand?

Accepted Answer

A)   Prices and output are affected in both the short and long run.
B)   Prices and output are affected only in the short run.
C)   Prices are affected in the long and short run, but output only in the short run.
D)   Prices are affected in the long and short run, but output only in the long run.E) C) and D)
F) B) and D)

Question 19

According to classical economic theory, which of the following do changes in the money supply affect?

Accepted Answer

A)   real GDP
B)   real interest rates
C)   the price level
D)   unemploymentE) All of the above
F) B) and C)

Question 20

Below are pairs of GDP growth rates and unemployment rates. Economists would be shocked to see most of these pairs. Which pair of GDP growth rates and unemployment rates is most realistic?

Accepted Answer

A)   -4 percent, 2 percent
B)   -2 percent, 18 percent
C)   1 percent, 7 percent
D)   5 percent, 0 percentE) A) and D)
F) A) and C)

Exam 14: Aggregate Demand and Aggregate Supply

Which statement best explains the downward slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

What happens when the dollar depreciates?

Correct AnswerverifiedShow Answer

Which relationship does the model of aggregate demand and aggregate supply explain?

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the left?

Correct AnswerverifiedShow Answer

Consider the following equation where a is a positive number: quantity of output supplied = natural rate of output + a (actual price level - expected price level) . What does this equation represent?

Correct AnswerverifiedShow Answer

Suppose there is an increase in the availability of an important major resource, such as oil. Which shift would most likely occur?

Correct AnswerverifiedShow Answer

In which situation would stagflation exist?

Correct AnswerverifiedShow Answer

Assuming that a is positive, how are theories of short-run aggregate supply expressed mathematically?

Correct AnswerverifiedShow Answer

How much has Canada changed its oil consumption since the first OPEC price shock in 1973?

Correct AnswerverifiedShow Answer

Which statement best characterizes the aggregate-demand curve?

Correct AnswerverifiedShow Answer

According to classical economic theory, which of the following do changes in the money supply affect?

Correct AnswerverifiedShow Answer

Below are pairs of GDP growth rates and unemployment rates. Economists would be shocked to see most of these pairs. Which pair of GDP growth rates and unemployment rates is most realistic?

Correct AnswerverifiedShow Answer

If the economy is initially in long-run equilibrium, which statement best describes the effects of a shift in aggregate demand?

Correct AnswerverifiedShow Answer

What does an increase in the interest rate cause?

Correct AnswerverifiedShow Answer

After a major flood destroyed a large residential area in Winnipeg, what might have happened?

Correct AnswerverifiedShow Answer

According to classical economic theory, which of the following do changes in the money supply affect?

Correct AnswerverifiedShow Answer

The explanations for the slopes of the aggregate-demand and aggregate-supply curves are the same as the explanations for the slope of demand and supply curves for specific goods and services.

Correct AnswerverifiedShow Answer

Which of the following shifts the short-run aggregate and the long-run aggregate supply left?

Correct AnswerverifiedShow Answer

Suppose the economy is initially in long-run equilibrium. Which statement best describes the state of the economy after an increase in aggregate demand?

Correct AnswerverifiedShow Answer

According to the sticky-wage theory, which statement is consistent with an unexpected fall in the price level?

Correct AnswerverifiedShow Answer

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