Question 1

The classical dichotomy and monetary neutrality are represented graphically by
A) an upward-sloping long-run aggregate-supply curve.
B) a vertical long-run aggregate-supply curve.
C) an upward-sloping short-run aggregate-curve.
D) a downward-sloping aggregate-demand curve.

Accepted Answer

The vertical long-run aggregate-supply curve represents the classical dichotomy, which is the separation of the real and nominal sectors of the economy. The monetary neutrality proposition states that changes in the money supply only affect nominal variables, so the vertical LRAS curve implies that changes in the money supply have no effect on real output in the long run.

Question 2

Which of the following is not a determinant of the long-run level of real GDP?
A) the price level
B) the supply of labor
C) available natural resources
D) available technology

Accepted Answer

The price level is not a determinant of the long-run level of real GDP, as it only affects the nominal GDP. The supply of labor, available natural resources, and available technology all affect the long-run level of real GDP.

Question 3

If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S.bonds,
A) the dollar would appreciate which would cause aggregate demand to shift right.
B) the dollar would appreciate which would cause aggregate demand to shift left.
C) the dollar would depreciate which would cause aggregate demand to shift right.
D) the dollar would depreciate which would cause aggregate demand to shift left.

Accepted Answer

The answer of If speculators gained greater confidence in foreign...

Question 4

Political Instability Abroad
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets.
-Refer to Political Instability Abroad.What would happen to the dollar?
A) It would appreciate in foreign exchange markets making U.S goods more expensive compared to foreign goods.
B) It would appreciate in foreign exchange markets making U.S.goods less expensive compared to foreign goods.
C) It would depreciate in foreign exchange markets making U.S.goods more expensive compared to foreign goods.
D) It would depreciate in foreign exchange markets making U.S.goods less expensive compared to foreign goods.

Accepted Answer

The answer of Political Instability Abroad
Suppose that political instability in...

Question 5

Political Instability Abroad
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets.
-Refer to Political Instability Abroad.What would the change in the exchange rate make happen to U.S.net exports and U.S.aggregate demand?
A) Net exports would rise which by itself would increase U.S.aggregate demand.
B) Net exports would rise which by itself would decrease U.S.aggregate demand.
C) Net exports would fall which by itself would increase U.S.aggregate demand.
D) Net exports would fall which by itself would decrease U.S.aggregate demand.

Accepted Answer

The answer of Political Instability Abroad
Suppose that political instability in...

Question 6

If speculators bid up the value of the U.S.dollar in the market for foreign exchange,then
A) U.S.goods become more expensive relative to foreign goods so aggregate demand shifts right.
B) U.S.goods become less expensive relative to foreign goods so aggregate demand shifts right.
C) U.S.goods become more expensive relative to foreign goods so aggregate demand shifts left.
D) U.S.goods become less expensive relative to foreign goods so aggregate demand shifts left.

Accepted Answer

If speculators bid up the value of the U.S. dollar in the foreign exchange market, it means that the U.S. dollar becomes stronger compared to foreign currencies. This makes U.S. goods more expensive relative to foreign goods, which can lead to a decrease in demand for U.S. exports and an increase in demand for imports. As a result, aggregate demand in the U.S. shifts left.

Question 7

If speculators lost confidence in foreign economies and so wanted to buy more U.S.bonds
A) the dollar would appreciate which would cause aggregate demand to shift right.
B) the dollar would appreciate which would cause aggregate demand to shift left.
C) the dollar would depreciate which would cause aggregate demand to shift right.
D) the dollar would depreciate which would cause aggregate demand to shift left.

Accepted Answer

The answer of If speculators lost confidence in foreign economies...

Question 8

The long-run aggregate supply curve shifts left if
A) the capital stock increases.
B) there is a natural disaster.
C) the government removes some environmental regulations that limit production methods.
D) None of the above is correct.

Accepted Answer

Natural disasters, such as hurricanes, earthquakes, floods or fires, can damage the physical capital stock and reduce the availability of resources, causing a decrease in the long-run aggregate supply. The capital stock increasing (A) would shift the long-run aggregate supply curve to the right, and removing environmental regulations (C) would also shift it to the right, as it allows for more efficient production methods.

Question 9

The aggregate demand curve shifts right if either
A) speculators gain confidence in U.S.assets or foreign countries enter into recession.
B) speculators gain confidence in U.S.assets or recessions in foreign countries end.
C) speculators lose confidence in U.S.assets or foreign countries enter into recession.
D) speculators lose confidence in U.S.assets or recessions in foreign countries end.

Accepted Answer

The answer of The aggregate demand curve shifts right if...

Question 10

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.

Accepted Answer

The long-run aggregate supply curve is vertical because in the long run, all factors of production are assumed to be variable. Therefore, a permanent change in aggregate demand would not affect the potential output in the long run. However, it would affect the price level as producers adjust their prices to match the new level of demand. Therefore, the correct answer is that a permanent change in aggregate demand would lead to a long-run change in the price level, but not output.

Question 11

The long-run aggregate supply curve would shift right if immigration from abroad
A) increased or Congress made a substantial increase in the minimum wage.
B) decreased or Congress abolished the minimum wage.
C) increased or Congress abolished the minimum wage.
D) decreased or Congress made a substantial increase in the minimum wage.

Accepted Answer

Immigration from abroad would increase the supply of labor, leading to an increase in potential output and shifting the long-run aggregate supply curve to the right. Congress abolishing the minimum wage would also increase the supply of labor by allowing businesses to hire workers at a lower wage, leading to a similar shift in the long-run aggregate supply curve.

Question 12

If banks and speculators in the U.S.decided to exchange U.S.dollars for the foreign currencies of other countries,but foreigners do not desire to increase their holdings of U.S.dollars,then U.S.net exports would
A) rise and aggregate demand would shift left.
B) rise and aggregate demand would shift right.
C) fall and aggregate demand would shift left.
D) fall and aggregate demand would shift right.

Accepted Answer

The answer of If banks and speculators in the U.S.decided...

Question 13

Which of the following shifts long-run aggregate supply right?
A) an increase in either the physical or human capital stock
B) an increase in the human but not the physical capital stock
C) an increase in the physical capital stock,but no the human capital stock
D) neither an increase in the physical capital stock or the human capital stock

Accepted Answer

An increase in either the physical or human capital stock will increase the economy's productive capacity and shift the long-run aggregate supply curve to the right.

Question 14

Political Instability Abroad
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets.
-Refer to U.S.Financial Crisis.U.S.net exports would
A) rise which by itself would increase aggregate demand.
B) rise which by itself would decrease aggregate demand.
C) fall which by itself would increase aggregate demand.
D) fall which by itself would decrease aggregate demand.

Accepted Answer

Political instability abroad would increase the desire for U.S assets which would increase U.S net exports. An increase in net exports would lead to an increase in aggregate demand.

Question 15

Which of the following is correct?
A) The short-run,but not the long-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables.
B) The long-run,but not the short-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables.
C) The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real variables.
D) Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables affect real variables.

Accepted Answer

The long-run aggregate supply curve is consistent with the idea that nominal variables do not affect real variables because in the long run, prices and wages are flexible and adjust to changes in inflation or nominal variables. However, in the short run, prices and wages are sticky, and changes in nominal variables can affect output and employment. Therefore, the short-run aggregate supply curve is not consistent with the idea that nominal variables do not affect real variables.

Question 16

The long-run aggregate supply curve shifts right if
A) immigration from abroad increases.
B) the capital stock increases.
C) technology advances.
D) All of the above are correct.

Accepted Answer

All of the given options (A, B, and C) will shift the long-run aggregate supply curve to the right. Immigration from abroad increases the number of workers available, which increases production capacity. An increase in the capital stock (e.g. through investments) leads to greater productivity and output. Technological advances can improve production efficiency, leading to higher output levels.

Question 17

The long-run aggregate supply curve
A) is vertical.
B) is a graphical representation of the classical dichotomy.
C) indicates monetary neutrality in the long run.
D) All of the above are correct.

Accepted Answer

The long-run aggregate supply curve is vertical, indicating that changes in aggregate demand will only affect the price level in the long run and not real GDP. This is a graphical representation of the classical dichotomy, which assumes that changes in the money supply only affect prices and not real variables. Therefore, the long-run aggregate supply curve indicates monetary neutrality in the long run. All of these statements are correct, making choice D the best answer.

Question 18

Political Instability Abroad
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets.
-Refer to U.S.Financial Crisis.What would happen in the market for foreign-currency exchange?
A) the supply of dollars would shift right and the exchange rate would rise.
B) the supply of dollars would shift right and the exchange rate would fall.
C) the supply of dollars would shift left and the exchange rate would rise.
D) None of the above is correct.

Accepted Answer

The answer of Political Instability Abroad
Suppose that political instability in...

Question 19

Political Instability Abroad
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets.
-Refer to Political Instability Abroad.What would the change in the interest rate created by foreigners wanting to buy more U.S.assets do to investment spending in the U.S.?
A) make it rise which by itself would increase U.S.aggregate demand.
B) make it rise which by itself would decrease U.S.aggregate demand.
C) make it fall which by itself would increase U.S.aggregate demand.
D) make it fall which by itself would decrease U.S.aggregate demand.

Accepted Answer

The answer of Political Instability Abroad
Suppose that political instability in...

Question 20

The position of the long-run aggregate supply curve
A) is determined by the things that determine output in the classical model.
B) is at the point where the unemployment rate is zero.
C) shifts to the right when the price level increases.
D) is at the point where the economy would cease to grow.

Accepted Answer

The long-run aggregate supply curve is determined by the factors that affect the economy's potential output, such as the availability of resources, technology, and institutions. It is not directly affected by changes in the price level or the level of unemployment, but rather reflects the maximum sustainable level of output. Therefore, option A is the best choice.

Quiz 23: Aggregate Demand and Aggregate Supply

The classical dichotomy and monetary neutrality are represented graphically by

Which of the following is not a determinant of the long-run level of real GDP?

If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S.bonds,

Political Instability Abroad Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. -Refer to Political Instability Abroad.What would happen to the dollar?

If speculators bid up the value of the U.S.dollar in the market for foreign exchange,then

If speculators lost confidence in foreign economies and so wanted to buy more U.S.bonds

The long-run aggregate supply curve shifts left if

The aggregate demand curve shifts right if either

The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change

The long-run aggregate supply curve would shift right if immigration from abroad

If banks and speculators in the U.S.decided to exchange U.S.dollars for the foreign currencies of other countries,but foreigners do not desire to increase their holdings of U.S.dollars,then U.S.net exports would

Which of the following shifts long-run aggregate supply right?

Political Instability Abroad Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. -Refer to U.S.Financial Crisis.U.S.net exports would

Which of the following is correct?

The long-run aggregate supply curve shifts right if

The long-run aggregate supply curve

Political Instability Abroad Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. -Refer to U.S.Financial Crisis.What would happen in the market for foreign-currency exchange?

The position of the long-run aggregate supply curve