Macroeconomic Trends and Fluctuations-2
51) The Federal Reserve lowers interest rates. As a result, in the short run, real GDP ________ and the price level ________.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
Answer: A
52) The government increases taxes. As a result, in the short run, real GDP ________ and the price level ________.
A) increases; rises
B) decreases; falls
C) decreases; rises
D) increases; falls
Answer: B
53) In the short run, an increase in government expenditure on goods and services ________ real GDP and ________ the price level.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
Answer: A
54) In the short-run, a decrease in government expenditure ________ real GDP and ________ the price level.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Answer: D
55) In the short run, an increase in aggregate demand
A) lowers the price level and decreases real GDP.
B) lowers the price level and increases real GDP.
C) raises the price level and increases real GDP.
D) raises the price level and decreases real GDP.
Answer: C
56) A lower price level combined with a decrease in real GDP occurs when the
A) short-run aggregate supply curve shifts rightward.
B) short-run aggregate supply curve shifts leftward.
C) aggregate demand curve shifts rightward.
D) aggregate demand curve shifts leftward.
Answer: D
57) 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) A tax hike.
B) Government expenditures on goods and services increased.
C) Winter storms cause factories in the north to be shut down for several weeks.
D) Money wage rates rose
Answer: B
58) Suppose the economy is at point B. If firms expect profits will be higher in the future, to what point
might the economyʹs move in the short run?
A) It stays at point B.
B) It shifts to a point such as A.
C) It shifts to a point such as C.
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.
Answer: C
59) Suppose the economy is at point B. If a recession in another country decreases exports, to what point
might economy move in the short run?
A) It stays at point B.
B) It shifts to a point such as A.
C) It shifts to a point such as C.
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.
Answer: B
60) The figure illustrates aggregate demand and aggregate supply in Sparta. Which of the following events
will decrease Sparta’s real GDP in the short run?
A) a decrease in taxes
B) a fall in resource prices
C) a decrease in government expenditure
D) an increase in investment
Answer: C
61) The figure above illustrates aggregate demand and aggregate supply in Sparta. Sparta’s price level will rise above 100 if ________.
A) government expenditure decreases
B) the quantity of money increases
C) the quantity of capital increases
D) taxes increase
Answer: B
62) In a short-run macroeconomic equilibrium, potential GDP exceeds real GDP. If aggregate demand does not change, then the
A) short-run aggregate supply curve will shift rightward as the money wage rate falls.
B) short-run aggregate supply curve will shift leftward as the money wage rate rises.
C) long-run aggregate supply curve will shift leftward as the money wage rate rises.
D) long-run aggregate supply curve will shift leftward as the money wage rate falls.
Answer: A
63) In a short-run macroeconomic equilibrium, real GDP exceeds potential GDP. If aggregate demand does not change, then the
A) short-run aggregate supply curve will shift rightward as the money wage rate falls.
B) short-run aggregate supply curve will shift leftward as the money wage rate rises.
C) long-run aggregate supply curve will shift leftward as the money wage rate rises.
D) long-run aggregate supply curve will shift leftward as the money wage rate falls.
Answer: B
64) The country of Stanley is at an above-full employment equilibrium. Which of the following events will return Stanley to full-employment?
A) an increase in government expenditures
B) a decrease in the interest rate
C) an increase in the money wage rate
D) an increase in the quantity of money
Answer: C
65) An economy currently has a inflationary gap. An increase in the money wage rate will ________ the inflationary gap and ________ the price level.
A) decrease; decrease
B) increase; increase
C) increase; decrease
D) decrease; increase
Answer: D
66) Suppose the current situation is such that the price level is 120, real GDP is $13 trillion, and GDP along the long-run aggregate supply curve is $12.6 trillion. What will take place to restore the long-run equilibrium?
A) The price level will fall until long-run aggregate supply increases to $13 trillion.
B) The price level will fall and money wage rates will rise until real GDP along the long-run aggregate supply curve is $13 trillion.
C) Money wage rates will rise until real GDP is $12.6 trillion.
D) Aggregate demand will increase until both short-run and long-run aggregate supply equal $13 trillion.
Answer: C
67) The long-run aggregate supply curve is vertical at $12 trillion but the short-run aggregate supply curve intersects the aggregate demand curve at $13 trillion. We know that
A) the economy is producing below full employment in the short run, and will adjust by
hiring more workers, thus decreasing unemployment.
B) the price level is too high. The long-run equilibrium will occur with a lower price level.
C) adjustments will occur so that the long-run aggregate supply equals $13 trillion.
D) adjustments will occur so that the short-run aggregate supply eventually intersects the aggregate demand curve at $12 trillion.
Answer: D
69) In long-run macroeconomic equilibrium, the
A) real wage rate has adjusted so that the economy is on the short-run aggregate supply curve but not on the long-run aggregate supply curve.
B) long-run aggregate supply curve has shifted so that potential GDP equals real GDP.
C) aggregate demand curve adjusts to the point where the long-run aggregate supply curve and the short-run aggregate supply curve intersect.
D) None of the above answers is correct.
Answer: D
70) If the economy is in long run equilibrium and then aggregate demand increases, in the long run the increase in aggregate demand means that the
A) price level will be higher but real GDP will be unaffected.
B) real GDP will be larger but the price level will be unaffected.
C) the price level will be higher and real GDP will be larger.
D) neither the price level nor real GDP will be unaffected.
Answer: A
71) In the long-run equilibrium, an increase in the quantity of capital leads to
A) an increase in the equilibrium price level and an increase in equilibrium real GDP.
B) a decrease in the equilibrium price level and an increase in equilibrium real GDP.
C) a decrease in the equilibrium price level, but no change in equilibrium real GDP.
D) no change in the equilibrium price level, but an increase in equilibrium real GDP.
Answer: B
72) In the above figure, at the point where AD equals SAS,
A) real GDP exceeds potential GDP.
B) potential GDP exceeds real GDP.
C) the economy is in a recession.
D) the unemployment rate is zero.
Answer: A
73) In the above figure, as the economy adjusts toward equilibrium, the
A) AD curve will shift rightward.
B) SAS curve will shift rightward.
C) AD curve will shift leftward.
D) SAS curve will shift leftward.
Answer: D
74) In the above figure, when the economy is in a long-run equilibrium, the price level will be
A) 90.
B) 100.
C) 110.
D) 120.
Answer: D
75) In the above figure, when the economy is in a long-run equilibrium, real GDP will be
A) $12.5 trillion.
B) $13.0 trillion.
C) $13.5 trillion.
D) $14.0 trillion.
Answer: B
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
Answer: A
52) The government increases taxes. As a result, in the short run, real GDP ________ and the price level ________.
A) increases; rises
B) decreases; falls
C) decreases; rises
D) increases; falls
Answer: B
53) In the short run, an increase in government expenditure on goods and services ________ real GDP and ________ the price level.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
Answer: A
54) In the short-run, a decrease in government expenditure ________ real GDP and ________ the price level.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Answer: D
55) In the short run, an increase in aggregate demand
A) lowers the price level and decreases real GDP.
B) lowers the price level and increases real GDP.
C) raises the price level and increases real GDP.
D) raises the price level and decreases real GDP.
Answer: C
56) A lower price level combined with a decrease in real GDP occurs when the
A) short-run aggregate supply curve shifts rightward.
B) short-run aggregate supply curve shifts leftward.
C) aggregate demand curve shifts rightward.
D) aggregate demand curve shifts leftward.
Answer: D
57) 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) A tax hike.
B) Government expenditures on goods and services increased.
C) Winter storms cause factories in the north to be shut down for several weeks.
D) Money wage rates rose
Answer: B
58) Suppose the economy is at point B. If firms expect profits will be higher in the future, to what point
might the economyʹs move in the short run?
A) It stays at point B.
B) It shifts to a point such as A.
C) It shifts to a point such as C.
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.
Answer: C
59) Suppose the economy is at point B. If a recession in another country decreases exports, to what point
might economy move in the short run?
A) It stays at point B.
B) It shifts to a point such as A.
C) It shifts to a point such as C.
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.
Answer: B
60) The figure illustrates aggregate demand and aggregate supply in Sparta. Which of the following events
will decrease Sparta’s real GDP in the short run?
A) a decrease in taxes
B) a fall in resource prices
C) a decrease in government expenditure
D) an increase in investment
Answer: C
61) The figure above illustrates aggregate demand and aggregate supply in Sparta. Sparta’s price level will rise above 100 if ________.
A) government expenditure decreases
B) the quantity of money increases
C) the quantity of capital increases
D) taxes increase
Answer: B
62) In a short-run macroeconomic equilibrium, potential GDP exceeds real GDP. If aggregate demand does not change, then the
A) short-run aggregate supply curve will shift rightward as the money wage rate falls.
B) short-run aggregate supply curve will shift leftward as the money wage rate rises.
C) long-run aggregate supply curve will shift leftward as the money wage rate rises.
D) long-run aggregate supply curve will shift leftward as the money wage rate falls.
Answer: A
63) In a short-run macroeconomic equilibrium, real GDP exceeds potential GDP. If aggregate demand does not change, then the
A) short-run aggregate supply curve will shift rightward as the money wage rate falls.
B) short-run aggregate supply curve will shift leftward as the money wage rate rises.
C) long-run aggregate supply curve will shift leftward as the money wage rate rises.
D) long-run aggregate supply curve will shift leftward as the money wage rate falls.
Answer: B
64) The country of Stanley is at an above-full employment equilibrium. Which of the following events will return Stanley to full-employment?
A) an increase in government expenditures
B) a decrease in the interest rate
C) an increase in the money wage rate
D) an increase in the quantity of money
Answer: C
65) An economy currently has a inflationary gap. An increase in the money wage rate will ________ the inflationary gap and ________ the price level.
A) decrease; decrease
B) increase; increase
C) increase; decrease
D) decrease; increase
Answer: D
66) Suppose the current situation is such that the price level is 120, real GDP is $13 trillion, and GDP along the long-run aggregate supply curve is $12.6 trillion. What will take place to restore the long-run equilibrium?
A) The price level will fall until long-run aggregate supply increases to $13 trillion.
B) The price level will fall and money wage rates will rise until real GDP along the long-run aggregate supply curve is $13 trillion.
C) Money wage rates will rise until real GDP is $12.6 trillion.
D) Aggregate demand will increase until both short-run and long-run aggregate supply equal $13 trillion.
Answer: C
67) The long-run aggregate supply curve is vertical at $12 trillion but the short-run aggregate supply curve intersects the aggregate demand curve at $13 trillion. We know that
A) the economy is producing below full employment in the short run, and will adjust by
hiring more workers, thus decreasing unemployment.
B) the price level is too high. The long-run equilibrium will occur with a lower price level.
C) adjustments will occur so that the long-run aggregate supply equals $13 trillion.
D) adjustments will occur so that the short-run aggregate supply eventually intersects the aggregate demand curve at $12 trillion.
Answer: D
69) In long-run macroeconomic equilibrium, the
A) real wage rate has adjusted so that the economy is on the short-run aggregate supply curve but not on the long-run aggregate supply curve.
B) long-run aggregate supply curve has shifted so that potential GDP equals real GDP.
C) aggregate demand curve adjusts to the point where the long-run aggregate supply curve and the short-run aggregate supply curve intersect.
D) None of the above answers is correct.
Answer: D
70) If the economy is in long run equilibrium and then aggregate demand increases, in the long run the increase in aggregate demand means that the
A) price level will be higher but real GDP will be unaffected.
B) real GDP will be larger but the price level will be unaffected.
C) the price level will be higher and real GDP will be larger.
D) neither the price level nor real GDP will be unaffected.
Answer: A
71) In the long-run equilibrium, an increase in the quantity of capital leads to
A) an increase in the equilibrium price level and an increase in equilibrium real GDP.
B) a decrease in the equilibrium price level and an increase in equilibrium real GDP.
C) a decrease in the equilibrium price level, but no change in equilibrium real GDP.
D) no change in the equilibrium price level, but an increase in equilibrium real GDP.
Answer: B
72) In the above figure, at the point where AD equals SAS,
A) real GDP exceeds potential GDP.
B) potential GDP exceeds real GDP.
C) the economy is in a recession.
D) the unemployment rate is zero.
Answer: A
73) In the above figure, as the economy adjusts toward equilibrium, the
A) AD curve will shift rightward.
B) SAS curve will shift rightward.
C) AD curve will shift leftward.
D) SAS curve will shift leftward.
Answer: D
74) In the above figure, when the economy is in a long-run equilibrium, the price level will be
A) 90.
B) 100.
C) 110.
D) 120.
Answer: D
75) In the above figure, when the economy is in a long-run equilibrium, real GDP will be
A) $12.5 trillion.
B) $13.0 trillion.
C) $13.5 trillion.
D) $14.0 trillion.
Answer: B
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