Question 1

Beginning from long-run equilibrium at point E₁ in Exhibit 14A-1,the aggregate demand curve shifts to AD₂ .The real GDP and price level (CPI)in short-run equilibrium will be:
A) $12 billion and 200.
B) $8 billion and 250.
C) $8 billion and 150.
D) $12 billion and 250.

Accepted Answer

In the short run, the aggregate demand curve shifts to AD2, the real GDP will increase to $12 billion, and the price level (CPI) will increase to 200.

Question 2

Beginning from the full-employment level of real GDP,an increase in one of the components of the aggregate demand curve will increase the:
A) average level of prices (CPI).
B) unemployment rate.
C) natural level of real GDP.
D) level of investment spending.
E) level of government spending.

Accepted Answer

The answer of Beginning from the full-employment level of real...

Question 3

Beginning from full-employment macro equilibrium,increase in government spending will cause real GDP to:
A) increase in the short run.
B) decline in the long run.
C) decline in the short run.
D) increase in the long run.

Accepted Answer

An increase in government spending will cause an initial increase in aggregate demand, leading to an increase in output and employment in the short run. However, in the long run, the increase in demand will cause firms to increase their prices, leading to inflation and a decrease in output. Therefore, in the long run, real GDP will decline.

Question 4

Along the short-run supply curve (SRAS),a decrease in the aggregate demand curve will decrease:
A) both the price level and real GDP.
B) real GDP without raising the price level.
C) the price level without affecting real GDP.
D) the price level but reduce real GDP.

Accepted Answer

In the short run, a decrease in aggregate demand leads to a lower price level and reduced real GDP, as firms reduce output in response to decreased demand, which also leads to lower prices.

Question 5

Beginning from a position of long-run equilibrium at the full-employment level of real GDP,the economy's short-run response to a decrease in the aggregate demand curve would be a:
A) movement upward along the short-run aggregate supply curve.
B) movement upward along the long-run aggregate supply curve.
C) downward shift in the short-run aggregate supply curve.
D) movement downward along the short-run aggregate supply curve.

Accepted Answer

A decrease in aggregate demand curve will lead to an excess supply of goods and services in the short-run. Firms will respond by reducing their prices and production levels, resulting in a movement downward along the short-run aggregate supply curve. This will continue until the economy reaches a new equilibrium at a lower level of real GDP and a lower price level, which is represented by the intersection of the new aggregate demand curve with the short-run aggregate supply curve.

Question 6

Beginning in Exhibit 14A-1 from long-run equilibrium at point E₁,the aggregate demand curve shifts to AD₂ .The economy's path to a new long-run equilibrium is represented by a movement from:
A) E₃ to E₁ to E₂.
B) E₁ to E₃ to E₂.
C) E₂ to E₁ to E₂.
D) E₁ to E₂ to E₃.

Accepted Answer

The answer of Beginning in Exhibit 14A-1 from long-run equilibrium...

Question 7

Beginning from a position of long-run equilibrium,suppose there is an increase in the aggregate demand curve.After adjustment and comparing the economy's new long-run equilibrium with its original long-run position,the result would be an increase in:
A) real GDP.
B) the price level (CPI).
C) the unemployment rate.
D) a and b, but not

Accepted Answer

In the long-run, an increase in aggregate demand leads to a higher price level (inflation) but does not change real GDP, as the economy returns to its potential output.

Question 8

Exhibit 14A-2 Macro AD-AS Model
 
-In Exhibit 14A-2,the long-run aggregate supply curve represents:
A) potential real GDP output for this economy.
B) that the economy is experiencing zero inflation.
C) that the economy is experiencing a recessionary gap.
D) the level of real GDP where the unemployment rate is zero.

Accepted Answer

The long-run aggregate supply curve represents the potential real GDP output for this economy, which is the maximum sustainable level of output that can be produced given the economy's resources and technology. It is not necessarily indicative of zero inflation, a recessionary gap, or the level of real GDP where the unemployment rate is zero.

Question 9

Which of the following would cause a decrease (leftward shift)in the short-run aggregate supply curve (SRAS)?
A) An increase in oil prices.
B) An advance in technology.
C) An increase in the CPI.
D) An increase in the long-run aggregate supply curve (LRAS).

Accepted Answer

An increase in oil prices would cause a decrease in the short-run aggregate supply curve because it would increase the cost of production for businesses, leading to a decrease in supply. The other options would cause an increase or no change in the short-run aggregate supply curve.

Question 10

Along the short-run aggregate supply curve (SRAS),an increase (rightward shift)in the aggregate demand curve will increase:
A) both the price level and real GDP.
B) real GDP without raising the price level.
C) the price level without affecting real GDP.
D) the price level but reduce real GDP.

Accepted Answer

Along the short-run aggregate supply curve, an increase in aggregate demand will lead to both an increase in price level and real GDP. This is because in the short run prices are sticky and firms can increase production in response to increased demand without significantly increasing prices. Therefore, the economy will operate at a higher output level and the price level will increase due to higher demand.

Question 11

Beginning from a position of long-run equilibrium at the full-employment level of real GDP,the economy's short-run response to an increase in the aggregate demand curve would be:
A) a movement upward along the short-run aggregate supply curve.
B) a movement upward along the long-run aggregate supply curve.
C) a downward shift in the short-run aggregate supply curve.
D) a shift in both the aggregate demand curve and the short-run aggregate supply curve with a movement along the long-run aggregate supply curve.
E) no change, since the economy is already in equilibrium.

Accepted Answer

An increase in aggregate demand leads to an increase in output prices in the short run, and firms increase output to take advantage of the higher prices. This results in a movement up along the short-run aggregate supply curve, leading to higher output levels and higher prices in the short run. In the long run, the economy will adjust and return to the full-employment level of output, which is determined by the long-run aggregate supply curve.

Question 12

As shown in Exhibit 14A-1 and assuming the aggregate demand curve shifts from AD₁ and AD₂ ,the full-employment level of real GDP is:
A) $12 billion.
B) $8 billion.
C) $150 billion.
D) unable to be determined.

Accepted Answer

The answer of As shown in Exhibit 14A-1 and assuming...

Question 13

Which of the following would cause an increase (rightward shift)in the short-run aggregate supply curve (SRAS)?
A) An increase in the long-run aggregate supply curve (LRAS).
B) A decrease in the CPI.
C) An increase in the CPI.
D) A decrease in oil prices.

Accepted Answer

A decrease in oil prices will reduce production costs for firms and result in an increase in short-run aggregate supply, causing a rightward shift of the SRAS curve. Increases in LRAS (choice A) would shift the LRAS curve, not the SRAS curve. Changes in the CPI (choices B and C) would affect aggregate demand, not aggregate supply.

Question 14

As shown in Exhibit 14A-1,the economy's point of short-run equilibrium,given by the shift of the aggregate demand curve from AD₁ to AD₂ ,is:
A) E₁.
B) E₂.
C) E₃.
D) unable to be determined.

Accepted Answer

The short-run equilibrium point after the shift of the aggregate demand curve from AD₁ to AD₂ is E₂, where the new aggregate demand curve intersects with the short-run aggregate supply curve. This is the point where the quantity of output demanded equals the quantity of output supplied in the short run.

Question 15

Based on Exhibit 14A-1,when the aggregate demand curve shifts to the position AD₂ and the economy is operating at point E₂,the economy's position of long-run equilibrium corresponds to point:
A) E₁.
B) E₂.
C) E₃.
D) E₁ or E₃.

Accepted Answer

Point E₃ is the long-run equilibrium point where aggregate demand intersects with the long-run aggregate supply curve. At this point, the economy is producing at its potential output level and there is no tendency for either inflationary or recessionary pressure in the economy. Point E₁ represents a short-run equilibrium where the economy is producing below its potential output level, and point E₂ represents a temporary equilibrium where the economy is producing above its potential output level, leading to inflationary pressure. Therefore, option C is the correct choice as it corresponds to the long-run equilibrium point.

Question 16

Beginning from short-run equilibrium at point E₂ in Exhibit 14A-1,the economy's movement to a new position of long-run equilibrium would best be described as:
A) a movement along the AD₂ curve with a shift in the SRAS₁ curve.
B) a movement along the SRAS₂ curve with a shift in the AD₂ curve.
C) a shift in the LRAS curve to an intersection at E₁.
D) no shift of any kind.

Accepted Answer

In the short run, the economy can be at a point where aggregate demand (AD) and short-run aggregate supply (SRAS) intersect, but not necessarily at long-run equilibrium. To reach long-run equilibrium, the SRAS curve typically shifts to intersect with the AD curve at the long-run aggregate supply (LRAS) level, indicating full employment and potential output.

Question 17

A decrease in the aggregate demand curve along the LRAS curve,all other things unchanged,will generate ____ in potential real GDP and ____ in the price level.
A) an increase; no change
B) a decrease; no change
C) no change; an increase
D) no change; a decrease

Accepted Answer

The answer of A decrease in the aggregate demand curve...

Question 18

Given the shift of the aggregate demand curve from AD₁ to AD₂ in Exhibit 14A-1,the real GDP and price level (CPI)in long-run equilibrium will be:
A) $8 billion and 150.
B) $12 billion and 200.
C) $8 billion and 250.
D) $8 billion and 200.

Accepted Answer

The answer of Given the shift of the aggregate demand...

Question 19

Suppose that the economy is in a position of short-run equilibrium at a point where real GDP is below the full-employment level.Assuming no further change in aggregate demand and self-correction,the movement to a new long-run equilibrium includes a decrease in which of the following?
A) The unemployment rate.
B) The price level (CPI).
C) The level of nominal wages and salaries.
D) All of the above.

Accepted Answer

In the long run, the economy will self-correct and move towards the full-employment level of output. This will lead to a decrease in the unemployment rate as the economy moves towards its potential output. As the output gap closes, there will be less pressure on prices, resulting in a decrease in the price level (CPI). Finally, as nominal wages and salaries adjust to the new equilibrium, they will decrease as well, contributing to a lower overall cost of production in the economy. Therefore, all of the above options - A, B, and C - would decrease in the movement towards a new long-run equilibrium.

Question 20

Exhibit 14A-2 Macro AD-AS Model
 
-In Exhibit 14A-2,the intersection of AD with SRAS indicates:
A) a short-run equilibrium.
B) a long-run equilibrium.
C) that the economy needs policies to reduce unemployment.
D) that the economy is at full employment.

Accepted Answer

The intersection of AD (aggregate demand) with SRAS (short-run aggregate supply) indicates a short-run equilibrium, where the economy is producing at the level of output that is consistent with the current level of aggregate demand. However, this point may not represent full employment or long-run equilibrium, as it depends on the current level of prices and the flexibility of input prices. Therefore, choices B, C, and D are incorrect.

Quiz 14: A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Beginning from long-run equilibrium at point E₁ in Exhibit 14A-1,the aggregate demand curve shifts to AD₂ .The real GDP and price level (CPI) in short-run equilibrium will be:

Beginning from the full-employment level of real GDP,an increase in one of the components of the aggregate demand curve will increase the:

Beginning from full-employment macro equilibrium,increase in government spending will cause real GDP to:

Along the short-run supply curve (SRAS) ,a decrease in the aggregate demand curve will decrease:

Beginning from a position of long-run equilibrium at the full-employment level of real GDP,the economy's short-run response to a decrease in the aggregate demand curve would be a:

Beginning in Exhibit 14A-1 from long-run equilibrium at point E₁,the aggregate demand curve shifts to AD₂ .The economy's path to a new long-run equilibrium is represented by a movement from:

Beginning from a position of long-run equilibrium,suppose there is an increase in the aggregate demand curve.After adjustment and comparing the economy's new long-run equilibrium with its original long-run position,the result would be an increase in:

Exhibit 14A-2 Macro AD-AS Model -In Exhibit 14A-2,the long-run aggregate supply curve represents:

Which of the following would cause a decrease (leftward shift) in the short-run aggregate supply curve (SRAS) ?

Along the short-run aggregate supply curve (SRAS) ,an increase (rightward shift) in the aggregate demand curve will increase:

Beginning from a position of long-run equilibrium at the full-employment level of real GDP,the economy's short-run response to an increase in the aggregate demand curve would be:

As shown in Exhibit 14A-1 and assuming the aggregate demand curve shifts from AD₁ and AD₂ ,the full-employment level of real GDP is:

Which of the following would cause an increase (rightward shift) in the short-run aggregate supply curve (SRAS) ?

As shown in Exhibit 14A-1,the economy's point of short-run equilibrium,given by the shift of the aggregate demand curve from AD₁ to AD₂ ,is:

Based on Exhibit 14A-1,when the aggregate demand curve shifts to the position AD₂ and the economy is operating at point E₂,the economy's position of long-run equilibrium corresponds to point:

Beginning from short-run equilibrium at point E₂ in Exhibit 14A-1,the economy's movement to a new position of long-run equilibrium would best be described as:

A decrease in the aggregate demand curve along the LRAS curve,all other things unchanged,will generate in potential real GDP and in the price level.

Given the shift of the aggregate demand curve from AD₁ to AD₂ in Exhibit 14A-1,the real GDP and price level (CPI) in long-run equilibrium will be:

Suppose that the economy is in a position of short-run equilibrium at a point where real GDP is below the full-employment level.Assuming no further change in aggregate demand and self-correction,the movement to a new long-run equilibrium includes a decrease in which of the following?

Exhibit 14A-2 Macro AD-AS Model -In Exhibit 14A-2,the intersection of AD with SRAS indicates: