Question 1

The recessions of the 1970s are often attributed to
A)declining inflation expectations.
B)an increase in oil prices.
C)declines in the price of stock.
D)decreases in the money supply.

Accepted Answer

The recessions of the 1970s were largely caused by the oil price shocks of that decade. OPEC, the organization of oil-exporting countries, declared an oil embargo in 1973, causing oil prices to quadruple. This led to stagflation, a combination of high inflation and high unemployment, and contributed to two major recessions in the United States.

Question 2

Suppose the economy is in long-run equilibrium.Senator Aviary succeeds in getting a major new highway project for his state.At the same time,Senator Green succeeds in getting major new restrictions on logging enacted.In the short run,we would expect
A)real GDP will rise and the price level might rise, fall, or stay the same.
B)real GDP will fall and the price level might rise, fall, or stay the same.
C)the price level will rise, and real GDP might rise, fall, or stay the same.
D)the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

The highway project increases aggregate demand, while logging restrictions decrease aggregate supply. This combination is likely to increase the price level, while the effect on real GDP is uncertain.

Question 3

Suppose the economy is in long-run equilibrium.If there is a tax cut at the same time that major new sources of oil are discovered in the country,then in the short-run we would expect
A)real GDP will rise and the price level might rise, fall, or stay the same.
B)real GDP will fall and the price level might rise, fall, or stay the same.
C)the price level will rise, and real GDP might rise, fall, or stay the same.
D)the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

A tax cut would increase disposable income and stimulate consumption, leading to an increase in real GDP. The discovery of major new sources of oil would reduce production costs and increase the supply of goods and services, also leading to an increase in real GDP. However, the effect on the price level would depend on the relative magnitude of the two shocks. The tax cut would increase aggregate demand and could lead to inflationary pressures, while the discovery of new oil would increase aggregate supply and could lead to deflationary pressures. Therefore, the price level might rise, fall, or stay the same, but we would expect real GDP to rise in the short-run.

Question 4

Imagine the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then we would expect that in the short run,
A)real GDP will rise and the price level might rise, fall, or stay the same.
B)real GDP will fall and the price level might rise, fall, or stay the same.
C)the price level will rise, and real GDP might rise, fall, or stay the same.
D)the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

The answer of Imagine the economy is in long-run equilibrium.If...

Question 5

Changes in the price of oil
A)can only lead to recessions.
B)have not contributed much to output fluctuations in the United States.
C)change the economy principally by changing aggregate demand.
D)created both inflation and recession in the United States in the 1970s.

Accepted Answer

Changes in the price of oil created both inflation and recession in the United States in the 1970s. While changes in the price of oil can affect aggregate demand, it can also have broader impacts on inflation and other factors impacting the economy. Additionally, changes in the price of oil have contributed to output fluctuations in the United States in the past. Therefore, choices A and B are incorrect, and choice C is too narrow in its focus on aggregate demand.

Question 6

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,then we would expect that in the short-run,
A)real GDP will rise and the price level might rise, fall, or stay the same.
B)real GDP will fall and the price level might rise, fall, or stay the same.
C)the price level will rise, and real GDP might rise, fall, or stay the same.
D)the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

A sharp increase in the minimum wage will increase labor costs for businesses, leading to a decrease in aggregate supply. The increase in pessimism about future business conditions may also reduce investment and aggregate demand, leading to a decrease in equilibrium output and a likely decrease in price level. Therefore, we can expect real GDP to fall and the price level might rise, fall, or stay the same in the short-run.

Question 7

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp decline in the stock market,a tax cut,an increase in the money supply and a decline in the value of the dollar.In the short run,we would expect
A)the price level and real GDP both to rise.
B)the price level and real GDP both to fall.
C)the price level and real GDP both to stay the same.
D)All of the above are possible.

Accepted Answer

In the short run, the decline in the stock market would lead to a fall in consumption spending, leading to a fall in real GDP. However, the tax cut and increase in the money supply would increase aggregate demand, leading to a rise in real GDP. The decline in the value of the dollar would also increase net exports, further increasing aggregate demand. Overall, the effects of these variables on price level and real GDP can be ambiguous and depend on the magnitude of their impacts. Therefore, all options are possible in the short run.

Question 8

In 1986,OPEC countries increased their production of oil.This caused
A)the price level to rise.
B)aggregate supply to shift right.
C)unemployment to rise.
D)None of the above is correct.

Accepted Answer

When OPEC countries increased their production of oil in 1986, it resulted in an increase in the aggregate supply of oil in the market. As a result, the supply curve shifted to the right, which caused a decrease in the price level of oil. It led to a decrease in the cost of production of goods, which eventually led to an increase in economic growth and employment opportunities. Therefore, option B is the correct answer.

Question 9

In the mid-1970s the price of oil rose dramatically.This
A)shifted aggregate supply left.
B)caused U.S.prices to fall.
C)was the consequence of OPEC increasing oil production.
D)All of the above are correct.

Accepted Answer

The rise in oil prices would have increased the cost of production for businesses, leading to a decrease in aggregate supply as firms are willing to produce less at any given price level.

Question 10

Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,the value of the dollar falls.In the short-run we would expect
A)real GDP will rise and the price level might rise, fall, or stay the same.
B)real GDP will fall and the price level might rise, fall, or stay the same.
C)the price level will rise, and real GDP might rise, fall, or stay the same.
D)the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

The significant restriction on electricity production will reduce the supply of goods and services, which will decrease real GDP. However, the fall in the value of the dollar will increase net exports, which will increase aggregate demand. The overall effect will be a reduction in the quantity of goods and services supplied and an increase in the quantity of goods and services demanded. This will lead to an increase in the price level and a potential increase, decrease, or no change in real GDP. Therefore, we would expect the price level to rise, and real GDP might rise, fall, or stay the same in the short run.

Question 11

Suppose the economy is in long-run equilibrium.In a short span of time,there is a large influx of skilled immigrants,a major new discovery of oil,and a major new technological advance in electricity production.In the short run,we would expect
A)the price level to rise and real GDP to fall.
B)the price level to fall and real GDP to rise.
C)the price level and real GDP both to stay the same.
D)All of the above are possible.

Accepted Answer

The answer of Suppose the economy is in long-run equilibrium.In...

Question 12

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,then we would expect that in the short run,real GDP will
A)rise and the price level might rise, fall, or stay the same.In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.
B)fall and the price level might rise, fall, or stay the same.In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.
C)rise and the price level might rise, fall, or stay the same.In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.
D)fall and the price level might rise, fall, or stay the same.In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.

Accepted Answer

The answer of Suppose the economy is in long-run equilibrium.If...

Question 13

Keynes explained that recessions and depressions occur because of
A)excess aggregate demand.
B)inadequate aggregate demand.
C)excess aggregate supply.
D)inadequate aggregate supply.

Accepted Answer

Keynes believed that recessions and depressions occur when there is inadequate aggregate demand in the economy. This can happen when consumers and firms are not spending enough to keep the economy running at full capacity.

Question 14

Imagine the U.S.economy is in long-run equilibrium.Then suppose the value of the U.S.dollar increases.At the same time,people in the U.S.revise their expectations so that the expected price level falls.We would expect that in the short-run
A)real GDP will rise and the price level might rise, fall, or stay the same.
B)real GDP will fall and the price level might rise, fall, or stay the same.
C)the price level will rise, and real GDP might rise, fall, or stay the same.
D)the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

An increase in the value of the U.S. dollar should lead to a decrease in net exports, which in turn decreases aggregate demand. If people revise their expectations so that the expected price level falls, this would also decrease aggregate demand. As a result, there would be a leftward shift in the aggregate demand curve, leading to a decrease in both real GDP and the price level. Therefore, we would expect the price level to fall, and real GDP might also fall, rise, or stay the same depending on the relative magnitudes of the shifts in aggregate demand and supply.

Question 15

In the short-run an increase in the costs of production makes
A)output and prices rise.
B)output rise and prices fall.
C)output fall and prices rise.
D)output and prices fall.

Accepted Answer

An increase in costs of production will lead to a decrease in the quantity supplied as it reduces the profit margin of the firm. This will cause a decrease in output, which will result in upward pressure on prices due to the decrease in supply. Therefore, the answer is C - output falls and prices rise.

Question 16

Suppose the economy is in long-run equilibrium.In a short span of time,there is a decline in the money supply,a tax increase,a pessimistic revision of expectations about future business conditions,and a rise in the value of the dollar.In the short run,we would expect
A)the price level and real GDP both to rise.
B)the price level and real GDP both to fall.
C)the price level and real GDP both to stay the same.
D)All of the above are possible.

Accepted Answer

A decline in the money supply and a tax increase both lead to a decrease in aggregate demand, causing both the price level and real GDP to fall in the short run. The pessimistic revision of expectations about future business conditions and the rise in the value of the dollar both lead to a decrease in aggregate demand, which also contributes to the short-run fall in both price level and real GDP.

Question 17

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the minimum wage,a major new discovery of oil,a large influx of immigrants,and new environmental regulations that reduce electricity production.In the short run,we would expect
A)the price level to rise and real GDP to fall.
B)the price level to fall and real GDP to rise.
C)the price level and real GDP both to stay the same.
D)All of the above are possible.

Accepted Answer

All of the above outcomes are possible depending on the magnitudes of the effects of each factor. For example, the increase in the minimum wage may lead to higher production costs and price level increases, while the discovery of oil may lead to increased output and real GDP growth. The influx of immigrants may affect the labor market and potentially impact the price level and output, while the new environmental regulations reducing electricity production could decrease output and result in higher prices. Overall, the short-term effects of these changes are dependent on the specific circumstances and their interactions.

Question 18

In 1936,John Maynard Keynes published a book,The General Theory,which attempted to explain
A)stagflation.
B)the classical dichotomy.
C)short-run economic fluctuations.
D)how changes in the money supply had created the Great Depression.

Accepted Answer

The General Theory attempted to explain short-run economic fluctuations through Keynes' concept of aggregate demand and the role of government intervention in stabilizing the economy. It did not specifically address stagflation, the classical dichotomy, or the role of changes in the money supply in causing the Great Depression.

Question 19

Which of the following shifts short-run aggregate supply left?
A)an increase in price expectations
B)an increase in the actual price level
C)a decrease in the money supply
D)a decrease in the price of oil

Accepted Answer

The answer of Which of the following shifts short-run aggregate...

Question 20

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then we would expect that in the short run,
A)real GDP will rise and the price level might rise, fall, or stay the same.In the long-run, real GDP will rise and the price level might rise, fall, or stay the same.
B)the price level will fall, and real GDP might rise, fall, or stay the same.In the long-run, real GDP and the price level will be unaffected.
C)the price level will rise, and real GDP might rise, fall, or stay the same.In the long run, real GDP will rise and the price level will fall.
D)the price level will fall, and real GDP might rise, fall, or stay the same.In the long run, real GDP will rise and the price level will fall.

Accepted Answer

A decline in the stock market typically leads to a decrease in consumption and investment spending, which will reduce aggregate demand (AD). At the same time, an increase in skilled workers may increase aggregate supply (AS) in the short run. Thus, the economy will experience a short-run equilibrium at a lower price level and possibly lower real GDP. However, in the long run, the increase in skilled workers will increase the economy's potential output, leading to an increase in AS, and the economy will return to its long-run equilibrium with a lower price level and higher real GDP.

Quiz 33: Aggregate Demand and Aggregate Supply

The recessions of the 1970s are often attributed to

Suppose the economy is in long-run equilibrium.Senator Aviary succeeds in getting a major new highway project for his state.At the same time,Senator Green succeeds in getting major new restrictions on logging enacted.In the short run,we would expect

Suppose the economy is in long-run equilibrium.If there is a tax cut at the same time that major new sources of oil are discovered in the country,then in the short-run we would expect

Imagine the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then we would expect that in the short run,

Changes in the price of oil

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,then we would expect that in the short-run,

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp decline in the stock market,a tax cut,an increase in the money supply and a decline in the value of the dollar.In the short run,we would expect

In 1986,OPEC countries increased their production of oil.This caused

In the mid-1970s the price of oil rose dramatically.This

Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,the value of the dollar falls.In the short-run we would expect

Suppose the economy is in long-run equilibrium.In a short span of time,there is a large influx of skilled immigrants,a major new discovery of oil,and a major new technological advance in electricity production.In the short run,we would expect

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,then we would expect that in the short run,real GDP will

Keynes explained that recessions and depressions occur because of

Imagine the U.S.economy is in long-run equilibrium.Then suppose the value of the U.S.dollar increases.At the same time,people in the U.S.revise their expectations so that the expected price level falls.We would expect that in the short-run

In the short-run an increase in the costs of production makes

Suppose the economy is in long-run equilibrium.In a short span of time,there is a decline in the money supply,a tax increase,a pessimistic revision of expectations about future business conditions,and a rise in the value of the dollar.In the short run,we would expect

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the minimum wage,a major new discovery of oil,a large influx of immigrants,and new environmental regulations that reduce electricity production.In the short run,we would expect

In 1936,John Maynard Keynes published a book,The General Theory,which attempted to explain

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

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then we would expect that in the short run,