Question 1

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
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 aggregate demand (AD) and shift the AD curve to the right, leading to an increase in both real GDP and the price level in the short-run. The new sources of oil would increase aggregate supply (AS) and shift the AS curve to the right, leading to a decrease in the price level and an increase in real GDP. However, the effect on the price level might be offset by the increase in aggregate demand from the tax cut. Therefore, real GDP will rise, and the price level might rise, fall or stay the same, depending on the magnitude and direction of these two effects.

Question 2

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 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 sharp decline in the stock market will decrease aggregate demand and shift the AD curve leftward, causing a short-run equilibrium with lower output and prices. An increase in skilled immigration, on the other hand, will increase aggregate supply, shifting the AS curve rightward. The combination of these two shocks will lead to a short-run equilibrium with lower prices and an indeterminate level of output, which depends on the relative magnitudes of demand and supply shocks.

In the long run, however, the increase in skilled immigration will increase the economy's potential output and shift the LRAS curve rightward. This will enable the economy to produce at a higher level of output while maintaining a lower price level, resulting in a long-run equilibrium with higher output and lower prices compared to the initial equilibrium. Therefore, choice D is the best answer.

Question 3

Which of the following affected aggregate demand during the recession of 2008-2009?
A)a decline in residential construction and a decrease in lending
B)a decline in residential construction but not a decrease in lending
C)a decrease in lending but not a decline in residential construction
D)neither a decrease in residential construction nor a decrease in lending

Accepted Answer

During the recession of 2008-2009, there was a significant decline in residential construction and a decrease in lending. This had a major impact on the housing market, as well as on consumer spending and business investment, which ultimately led to a decrease in aggregate demand.

Question 4

Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes raised. At the same time, Senator B succeeds in getting major new restrictions on logging enacted. 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

Raising taxes and imposing new restrictions on logging would cause a decrease in aggregate demand, leading to a fall in real GDP in the short run. The effect on the price level is unclear and may depend on a mix of supply and demand factors. In the long run, the economy will adjust to the new equilibrium, which may involve lower prices, a smaller output level, and higher taxes.

Question 5

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....

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 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....

Question 7

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 raise the cost of electricity production. In the short run
A)the price level will rise and real GDP will fall.
B)the price level will fall and real GDP will rise.
C)the price level and real GDP will both stay the same.
D)All of the above are possible.

Accepted Answer

Each of the events listed can have different effects on the economy, so each of the scenarios described in the answer choices are possible. The increase in minimum wage may raise production costs and lead to higher prices, causing inflation and a fall in real GDP. The discovery of oil may increase production and lead to a rise in real GDP, while the influx of immigrants can increase the labor force and promote economic growth. However, the new environmental regulations may raise production costs, leading to higher prices and a fall in real GDP. Therefore, all of the possible outcomes are plausible in the short run.

Question 8

During the 2008-2009 recession real GDP fell by about
A)2%
B)4%
C)6%
D)8%

Accepted Answer

The answer of During the 2008-2009 recession real GDP fell...

Question 9

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 (assuming no other changes occur) would lead to a decrease in net exports, which would cause aggregate demand to shift leftward. If people revise their expectations so that the expected price level falls, this would also shift aggregate demand leftward. As a result, the short-run equilibrium would feature a lower output level and a lower price level than the initial equilibrium.

Question 10

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, this led to a shift in aggregate supply to the right. This means that there was an increase in the total quantity of goods and services in the economy, which should lead to a decrease in price levels. However, in the case of oil, it is a crucial input in many production processes and therefore, if the price drops, production costs will decrease as well, which at the end will positively offset the effects of the overall increase of production. Therefore, in the short run, it is possible that the price level will remain the same or even increase due to increased demand for goods resulting from an increase in production. There should also be no direct impact on unemployment from increased oil production by OPEC countries.

Question 11

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 are often attributed to an increase in oil prices. The OPEC oil embargo in 1973 and the Iranian Revolution in 1979 caused significant increases in oil prices, which led to inflation and economic downturns in many countries, including the United States.

Question 12

During the 2008-2009 unemployment rose from about 4.4% to about
A)6%
B)8%
C)10%
D)12%

Accepted Answer

According to the information given, the unemployment rate rose from about 4.4% to a higher number. The only option that fits this criteria is C, which states that unemployment rose to 10%. Therefore, the correct answer is C.

Question 13

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 firms' costs, which will reduce their profits and lead to a decrease in their willingness to hire workers. This will cause a decrease in employment and real GDP in the short-run. The increase in pessimism about future business conditions will likely reduce investment and aggregate demand, which will further decrease real GDP. The direction of the price level is uncertain because the decrease in aggregate supply will put upward pressure on prices, while the decrease in aggregate demand will put downward pressure on prices. Therefore, real GDP will fall and the price level might rise, fall, or stay the same.

Question 14

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 caused a decrease in aggregate supply due to higher production costs for firms.

Question 15

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 would both lead to a decrease in aggregate demand and therefore a decrease in both the price level and real GDP. The pessimistic revision of expectations would further decrease investment and consumption, exacerbating this effect. A rise in the value of the dollar would also decrease net exports, decreasing aggregate demand even further. Therefore, both the price level and real GDP are expected to fall in the short run.

Question 16

Which of the following did the Fed do during the recession of 2008-2009?
A)lowered the federal funds rate and sold securities and loans
B)lowered the federal funds rate and purchased securities and loans
C)raised the federal funds rate and sold securities and loans
D)raised the federal funds rate and purchased securities and loans

Accepted Answer

During the recession of 2008-2009, the Fed lowered the federal funds rate to encourage borrowing and spending. They also purchased securities and loans to inject more money into the economy and provide liquidity to financial institutions. The combination of these actions is known as quantitative easing.

Question 17

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

Question 18

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

The statement "created both inflation and recession in the United States in the 1970s" accurately reflects the impact of changes in the price of oil on the US economy during that time period. While changes in oil prices can impact aggregate demand, they can also have significant and multifaceted effects on the overall economy, including inflationary pressures and recessionary trends. Additionally, while oil price changes may not always have a direct impact on output fluctuations in the US, they can certainly influence other factors that contribute to economic growth or contraction.

Question 19

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
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 Suppose the economy is in long-run equilibrium....

Question 20

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
A)the price level and real GDP will both rise.
B)the price level and real GDP will both fall.
C)neither the price leave nor real GDP will change.
D)All of the above are possible.

Accepted Answer

All of the above are possible because the effects of each of these events on the economy in the short run are ambiguous and depend on a variety of factors including the size and duration of the events, as well as how individuals, firms, and government react to them. For example, the decline in the stock market could lead to a decrease in consumer and business confidence, causing a decrease in aggregate demand and a fall in real GDP and the price level. However, the tax cut and increase in the money supply could stimulate aggregate demand, causing an increase in real GDP and the price level. The decline in the value of the dollar could have mixed effects, depending on whether the economy is open or closed and whether exports or imports are more affected. Therefore, it is difficult to predict the net effect of these events on the economy without further information.

Quiz 20: Aggregate Demand and Aggregate Supply

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

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 in the short run,

Which of the following affected aggregate demand during the recession of 2008-2009?

Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes raised. At the same time, Senator B succeeds in getting major new restrictions on logging enacted. In the short run

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 in the short run, real GDP will

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 raise the cost of electricity production. In the short run

During the 2008-2009 recession real GDP fell by about

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

The recessions of the 1970s are often attributed to

During the 2008-2009 unemployment rose from about 4.4% to about

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,

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

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

Which of the following did the Fed do during the recession of 2008-2009?

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

Changes in the price of oil

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

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