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Which of the following is included in the aggregate demand of goods and services?
A. consumption demand
B. investment demand
C. net exports
D. All of the above are correct

**D. all of the above are correct

When the price level falls, the quantity of...
A. consumption goods demanded rises, while the quantity of net exports demanded both rise
B. consumption goods demanded and the quantity of net exports demanded both rise
C. consumption goods demanded and the quantity of net exports demanded both fall
D. consumption goods demanded falls, while the quantity of net exports demand rises

**B. consumption goods demanded and the quantity of net exports demanded both rise

As the price level falls,
A. the exchange of rate falls, so net exports fall.
B. the exchange rate falls, so net exports rise
C. the exchange of rates rise, so net exports fall
D. the exchange of rate rises, so net exports rise

**B. the exchange rate falls, so net exports rise

From 2001 to 2005 there was a dramatic rise in the price of houses. If this made people feel wealthier, then it would shift
A. aggregate demand right
B. aggregate demand left
C. aggregate supply right
D. aggregate supply left

A. aggregate demand right

The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change
A. in the price level and output
B. in the price level, but not output
C. in output, but not the price level
D. in neither the price level nor output

B. in the price level, but not output

Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP growth and inflation can be explained by
A. continuing technological progress alone
B. continuing increases in the money supply alone
C. continued technological progress and continuing increases in the money supply.
D. none of the above can explain continuing real GDP growth and inflation

C. continued technological progress and continuing increases in the money supply

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected
A. production is more profitable and employment rises
B. production is more profitable and employment falls
C. production is less profitable and employment rises.
D. production is less profitable and employment falls

A. production is more profitable and employment rises

An increase in the expected price level shifts the
A. short-run and long-run aggressive supply curves left
B. The short-run but not the long-run aggregate supply curve left
C. The long-run but not the short-run aggregate supply curve left.
D. neither the long-time

B. the short-run and long-run aggressive supply curves left

Economic expansions in Germany and Japan would cause
A. the U.S. price level and real GDP to rise
B. the U.S. price level and real GDP to fall
C. the U.S. price level to rise and real GDP to fall
D. the U.S. price level to fall and real GDP

A. the U.S. price level and real GDP to rise

Refer to figure 33-1. An increase in the money supply would move the economy from C to
A. B in the short run and the long run
B. D in the short run and the long run
C. B in the short run A in the long run
D. D in the short run and C in the long run

...

In recent years, the Federal Reserve has conducted policy by setting a target for the
A. size of the money supply
B. growth rate of the money supply
C. federal funds rate
D. discount rate

C. federal funds rate

People choose to hold a smaller quantity of money if
A. the interest rate rises, which causes the opportunity cost of holding money to rise
B. the interest rate falls, which causes the opportunity cost of holding money to rise
C. the interest rate rises, which causes the opportunity cost of holding money to fall
D. the interest rate falls, which causes the opportunity cost of holding money to fail

A. the interest rate rises, which causes the opportunity cost of holding to rise

In the graph of the money market, the money supply curve is
A. vertical. IT shifts rightward if the Fed buys bonds.
B. Vertical. it shifts rightward if the Feds sells bonds
C. upward sloping. It shifts rightward if the Fed buys bonds
D. upward sloping. It shifts rightward if Fed sells bonds

A. vertical. it shifts rightward if the Fed buys bonds

According to liquid preference theory, if the price level decreases, then
A. the interest rate falls because money demand shifts right
B. the interest rate falls because money demand shifts left.
C. the interest rate rises money supply shifts right
D. the interest rate rises because money supply shifts left

B. the interest rate falls because money demand shifts right

If the Federal Reserve decided to lower interest rates, it could
A. buy bonds to lower the money supply
B. buy bonds to raise the money supply
C. sell bonds to lower the money supply
D. sell bonds to raise the money supply

B. buy bonds to raise the money supply

if the stock market crashes, then
A. aggregate demand increases, which the Fed could offet by increasing the money supply
B. aggregate demand increases, which the Fed could offset by decreasing the money supply
C. aggregate demand decreases, which the Fed could offset by increasing the money supply
D. aggregate demand decreases which the Fed could offset by decreasing the money supply

C. aggregate demand decreases, which the Fed could offset by increasing the money supply.

If MPC = 3/5, then the government purchases multiplier is
A. 5/3
B. 5/2
C. 5
D. 15

B. 5/2

On the figure, MS represents money supply and MD represents money demanded
Figure 34-4 A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?
A. The government cuts taxes, resulting in an increase in people's incomes.
B. The government reduces government spending, resulting in decrease in people's incomes
C. The Federal Reserve increases the supply of money which decreases the interest rate.
D. All of the above are correct

B. The government reduces government spending, resulting in a decrease in people's incomes

Which of the following correctly explains the crowding-out effect?
A. an increase in government expenditures decreases the interest rate and so increases investment spending
B. An increase in government expenditures increases the interest rate and reduces investment spending
C. A decrease in government expenditures increases the interest rate and so increases investment spending.
D. A decrease in government expenditures increases the interest rate and so reduces investment spending

B. An increase in government expenditures increases the interest rate and reduces investment spending

if households view a tax cut as temporary, then the tax cut
A. has no affect on aggregate demand
B. has more of an affect on aggregate demand than if households view it as permanent
C. has the same affect as when households view the cut as permanent
D. has less of an affect on aggregate demand than if households view it as permanent

D. has less of an affect on aggregate demand than if households view it as permanent

The short-run Phillips curve shows the combinations of
A. unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve
B. unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve
C. real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve
D. none of the above is correct

A. unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve

In the late 1960s, economist Edmund Phelps published a paper that
A. argued that there was no long-run tradeoff between inflation and unemployment
B. disproved Friedman's claim that monetary policy was effective in controlling inflation
C. showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent
D. argued that the Phillips curve was stable and that it would not shift

A. argued that there was no long-run tradeoff between inflation and unemployment

Refer to figure 35-3. In this order, which curve is a long-run Phillips curve and which is a short-run Phillips curve?
A. A, B
B. A, D
C. C, B
D. None of the above is correct

B. A, D

An increase in expected inflation shifts
A. the long-run Phillips curve right
B. The short-run Phillips curve right
C. neither the short-run nor the long-run Phillips curve right
D. Both the short-run and the long-run Phillips curve right

B. the short-run Phillips curve right

Friedman and Phelps concluded that
A. in the long run the Phillips curve is downward sloping, which is consistent with classical theory.
B. In the long run the Phillips curve is downward sloping, which is inconsistent with classical theory
C. In the long run the Phillips curve is vertical, which is consistent with classical theory
D. In the long run the Phillips curve is vertical, which is inconsistent with classical theory

C. in the long run the Phillips curve is vertical, which is consistent with classical theory

a policy intended to reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to
A. both higher inflation and higher unemployment in the long run
B. higher inflation and no change in unemployment in the long run
C. the same inflation rate and lower employment in the long run
D. higher inflation and lower unemployment in the long run

B. higher inflation and no change in unemployment in the long run

An adverse supply shock will shift short-run aggregate supply
A. right, making prices rise
B. left, making prices rise
C. right, making prices fall
D. left, making prices fall

B. left, making prices rise

If there is an adverse supply shock, then
A. unemployment rises and the short-run Phillips curve shifts right
B. Unemployment rises and the short-run Phillips curve shifts left
C. Unemployment falls and the short-run Phillips curve shifts right
D.unemployment falls and the short run Phillips curve shifts left

A. unemployment rises and the short-run Phillips curve shifts right

The sacrifice ratio is the
A. sum of the inflation and unemployment rates
B. inflation rate divided by the unemployment rate
C. number of percentage points annual output falls for each percentage point reduction in inflation
D. number of percentage points employment rises for each percentage point reduction in inflation

C. number of percentage points annual output falls for each percentage point reduction in inflation

If people believe that the central bank is going to reduce inflation
A. the short-run Phillips curve shifts right and the sacrifice ratio will rise
B. the short-run Phillips curve shifts right and the sacrifice ratio will fall
C. The short-run Phillips curve shifts left and the sacrifice ratio will rise
D. the short-run Phillips curve shifts left and the sacrifice ratio will fall

D. the short-run Phillips curve shifts left and the sacrifice ratio will fall

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