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5 Written Questions

5 Matching Questions

  1. If firms reduce investment spending and the economy slumps into a recession, which of the following
    contributes to the adjustment that causes the economy to return to its long-run equilibrium?
    a. the eventual agreement by workers to accept lower wages
    b. the decision by firms to charge higher prices
    c. both of the above
    d. none of the above
  2. What is a supply shock?
  3. If workers and firms across the economy adjust to the fact that the price level is higher than they had
    expected it to be,
    a. there will be a movement up and to the right along a stationary aggregate supply curve.
    b. there will be a movement down and to the left along a stationary aggregate supply curve.
    c. the short-run aggregate supply curve will shift to the left.
    d. the short-run aggregate supply curve will shift to the right.
  4. 7. Higher personal income taxes
    A) increase aggregate demand.
    B) increase disposable income.
    C) decrease aggregate demand.
    D) both b and c.
  5. If oil prices rise unexpectedly,
    a. there will be a movement up and to the right along a stationary aggregate supply curve.
    b. there will be a movement down and to the left along a stationary aggregate supply curve.
    c. the short-run aggregate supply curve will shift to the left.
    d. the short-run aggregate supply curve will shift to the right
  1. a c. the short-run aggregate supply curve will shift to the left
  2. b C) decrease aggregate demand.
  3. c c. the short-run aggregate supply curve will shift to the left.
  4. d a. the eventual agreement by workers to accept lower wages
  5. e an
    unexpected event that causes the short-run aggregate supply curve to shift

5 Multiple Choice Questions

  1. As the price level increases, the real value of household wealth falls, and
    so will consumption. In contrast, if the price level declines, real household wealth rises and so
    does consumption.
  2. 1. the wealth effect
    2. the interest rate effect
    3. the international effect
  3. C) GDP will be below potential GDP
  4. d. the same as the long-run aggregate supply curve.
  5. A higher price level will make U.S. goods relatively more
    expensive compared to other countries' goods. This will reduce exports, increase imports,
    and, therefore, reduce net exports.

5 True/False Questions

  1. Describe the interest rate effect.A higher price level will tend to increase interest rates. Higher
    interest rates will reduce investment spending by firms as borrowing costs rise. Additionally,
    higher interest rates will also reduce consumption spending.

          

  2. After an unexpected increase in the price of oil, the long-run adjustment ________ the price level and ________
    the unemployment rate as they return to their original levels.
    A) decreases; increases
    B) decreases; decreases
    C) increases; increases
    D) increases; decreases
    b. an adverse supply shock

          

  3. Why does the short-run aggregate supply curve slope upward?
    a. because profits rise when the prices of the goods and services firms sell rise more rapidly than the
    prices they pay for inputs
    b. because an increase in market price results in an increase in quantity supplied, as stated by the
    law of supply
    c. because, as the number of workers, machinery, equipment, and technological changes increase,
    quantity supplied increases
    d. all of the above
    a. because profits rise when the prices of the goods and services firms sell rise more rapidly than the
    prices they pay for inputs

          

  4. Potential GDP is also referred to as
    A) balanced-budget GDP
    B) realized GDP
    C) full-employment GDP
    D) politico-economic GDP
    C) decrease aggregate demand.

          

  5. Which of the following factors will shift the short-run aggregate supply to the right?
    a. an increase in the price level
    b. an increase in the wage rate
    c. an increase in the cost of producing output
    d. the labor force increases
    d. the labor force increases

          

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