Chapter 12 Aggregate Demand and Aggregate Supply Analysis 12.1 Aggregate Demand

Exercise 6 Answer Key
Chapter 12 Aggregate Demand and Aggregate Supply Analysis

12.1 Aggregate Demand
1) The basic aggregate demand and aggregate supply curve model helps explain
A) short term fluctuations in real GDP and the price level.
B) long term groth.
!) price fluctuations in an individual mar"et.
D) output fluctuations in an individual mar"et.
Anser# A
!omment# $ecurring
Diff# 1 Page $ef# %&&'(&)
Topic# Aggregate Demand
*b+ective# ,*1# -dentify the determinants of aggregate demand and distinguish
beteen a movement along the aggregate demand curve and a shift of the curve.
AA!.B# $eflective Thin"ing
.pecial /eature# 0one
1) 2hen the economy enters into a recession3 your employer is 44444444 to reduce
your ages because 44444444.
A) unli"ely5 output and input prices generally fall during recession
B) unli"ely5 loer ages reduce productivity and morale
!) li"ely5 output prices alays fall during recession
D) li"ely5 aggregate demand is vertical in the long run
Anser# A
Diff# 1 Page $ef# %&%'(&(
Topic# Business !ycle
.pecial /eature# 6conomics in 7*8$ ,-/69# -s an 6mployer ,i"ely to !ut 7our Pay
During a $ecession:
() Because of the slope of the aggregate demand curve3 e can say that
A) a decrease in the price level leads to a loer level of real GDP demanded.
B) an increase in the price level leads to no change in the level of real GDP
demanded.
!) a decrease in the price level leads to a higher level of real GDP demanded.
D) an increase in the price level leads to a higher level of real GDP demanded.
Anser# !
!omment# $ecurring
Diff# 1 Page $ef# %&;'(&<
)) 2hich of the folloing best describes the =ealth effect=:
A) 2hen the price level falls3 the real value of household ealth falls.
B) 2hen the price level falls3 the nominal value of household ealth falls.
!) 2hen the price level falls3 the nominal value of household ealth rises.
D) 2hen the price level falls3 the real value of household ealth rises.
Anser# D
!omment# $ecurring
Diff# 1 Page $ef# %&;'(&<
Topic# 2ealth 6ffect
<) An increase in the price level results in a>n) 44444444 in the ?uantity of real GDP
demanded because 44444444.
A) decrease5 a higher price level reduces consumption3 investment3 and net exports.
B) increase5 a higher price level reduces consumption3 investment3 and net exports.
!) decrease5 a higher price level increases consumption3 investment3 and net exports.
D) increase5 a higher price level increases consumption3 investment3 and net exports.
Anser# A
!omment# $ecurring
Diff# 1 Page $ef# %;@'(&A
A) The international trade effect states that
A) an increase in the price level ill raise net exports.
B) an increase in the price level ill loer net exports.
!) an increase in the price level ill raise exports.
D) an increase in the price level ill loer imports.
Anser# B
!omment# $ecurring
Diff# 1 Page $ef# %&;B%;@'(&<B(&A
Topic# -nternational Trade 6ffect
%) An increase in the price level ill
A) shift the aggregate demand curve to the left.
B) shift the aggregate demand curve to the right.
!) move the economy up along a stationary aggregate demand curve.
D) move the economy don along a stationary aggregate demand curve.
Anser# !
!omment# $ecurring
&) .pending on the ar in -ra? is essentially categoriCed as government purchases.
Do do increases in spending on the ar in -ra? affect the aggregate demand curve:
A) They ill move the economy up along a stationary aggregate demand curve.
B) They ill move the economy don along a stationary aggregate demand curve.
!) They ill shift the aggregate demand curve to the left.
D) They ill shift the aggregate demand curve to the right.
Anser# D
!omment# $ecurring
Topic# .hifts in Aggregate Demand
;) Digher personal income taxes
A) increase aggregate demand.
B) increase disposable income.
!) decrease aggregate demand.
D) both B and !
Anser# !
!omment# $ecurring
1@) German luxury car exports ere hurt in 1@@; as a result of the recession. Do
ould this decrease in exports have affected GermanyEs aggregate demand curve:
A) The aggregate demand curve ould have shifted to the right.
B) The aggregate demand curve ould not have shifted3 but there ould have been a
movement up the aggregate demand curve.
!) The aggregate demand curve ould not have shifted3 but there ould have been a
movement don the aggregate demand curve.
D) The aggregate demand curve ould have shifted to the left.
Anser# D
!omment# $ecurring
Diff# 1 Page $ef# %;1'(&%
AA!.B# $eflective Thin"ing3 Fulticultural and Diversity
11) ,ast ee"3 six .edish "ronor could purchase one 8... dollar. This ee"3 it ta"es
eight .edish "ronor to purchase one 8... dollar. This change in the value of the
dollar ill 44444444 exports from the 8nited .tates to .eden and 44444444 8...
aggregate demand.
A) increase5 increase
B) decrease5 decrease
!) increase5 decrease
D) decrease5 increase
Anser# B
!omment# $ecurring
Diff# ( Page $ef# %;1'(&%
11) -f aggregate demand +ust increased3 hich of the folloing may have caused the
increase:
A) an increase in government purchases
B) an increase in the interest rate
!) an increase in the price level
D) an increase in imports
Anser# A
!omment# $ecurring
1() The reduction in German exports resulting from the global recession of 1@@%B
1@@; had hat impact on the German aggregate demand curve:
A) -t shifted to the left.
B) -t shifted to the right.
!) There as a movement up the curve.
D) There as a movement don the curve.
Anser# A
Diff# 1 Page $ef# %;1B%;1'(&%B(&&
.pecial /eature# Fa"ing the !onnection# .hould Germany $educe -ts $eliance on
6xports:
12.2 Aggregate Supply
1) The level of aggregate supply in the longBrun is not affected by
A) changes in technology.
B) changes in the capital stoc".
!) changes in the price level.
D) changes in the number of or"ers.
Anser# !
!omment# $ecurring
Diff# 1 Page $ef# %;)'(;@
Topic# ,ongB$un Aggregate .upply
*b+ective# ,*1# -dentify the determinants of aggregate supply and distinguish
beteen a movement along the shortBrun aggregate supply curve and a shift of the
curve.
1) The longBrun aggregate supply curve
A) has a negative slope.
B) has a steep but positive slope.
!) is horiContal.
D) is vertical.
Anser# D
!omment# $ecurring
curve.
() 2hat is potential GDP:
A) -t is the level of real GDP in the long run.
B) -t is the difference beteen current GDP and maximum GDP.
!) -t is the level of real GDP in the short run.
D) -t is the level of GDP at hich inflation is constant.
Anser# A
!omment# $ecurring
curve.
)) The longBrun aggregate supply curve shos the relationship beteen the 44444444
and 44444444.
A) inflation rate5 ?uantity of real GDP demanded
B) real interest rate5 ?uantity of real GDP supplied
!) nominal interest rate5 ?uantity of real GDP supplied
D) price level5 ?uantity of real GDP supplied
Anser# D
!omment# $ecurring
curve.
<) !hanges in the price level
A) increase the level of aggregate supply in the long run.
B) decrease the level of aggregate supply in the long run.
!) do not affect the level of aggregate supply in the long run.
D) increase the level of aggregate supply in the long run only at very high levels of
output.
Anser# !
!omment# $ecurring
curve.
A) .uppose a developing country receives more machinery and capital e?uipment as
foreign entrepreneurs increase the amount of investment in the economy. As a result3
A) the longBrun aggregate supply curve ill shift to the right.
B) the longBrun aggregate supply curve ill shift to the left.
!) the economy ill move up along the longBrun aggregate supply curve.
D) the economy ill move don along the longBrun aggregate supply curve.
Anser# A
!omment# $ecurring
curve.
%) The shortBrun aggregate supply curve has a>n) 44444444 slope because as prices of
44444444 rise3 prices of 44444444 rise more sloly.
A) positive5 final goods and services5 inputs
B) infinite5 final goods and services5 inputs
!) positive5 inputs5 final goods and services
D) infinite5 inputs5 final goods and services
Anser# A
!omment# $ecurring
Diff# 1 Page $ef# %;AB%;%'(;1B(;(
Topic# .hortB$un Aggregate .upply
curve.
&) An increase in the price level ill
A) shift the shortBrun aggregate supply curve to the left.
B) shift the shortBrun aggregate supply curve to the right.
!) move the economy up along a stationary shortBrun aggregate supply curve.
D) move the economy don along a stationary shortBrun aggregate supply curve.
Anser# !
!omment# $ecurring
Diff# 1 Page $ef# %;%B%;&'(;(B(;)
Topic# .hifts in the .hortB$un Aggregate .upply !urve
curve.
;) The invention of the cotton gin ushered in the -ndustrial $evolution and began a
long period of technological innovation. 2hat did this technological change do the
shortBrun supply curve:
A) -t shifted the shortBrun aggregate supply curve to the left.
B) -t shifted the shortBrun aggregate supply curve to the right.
!) -t moved the economy up along a stationary shortBrun aggregate supply curve.
D) -t moved the economy don along a stationary shortBrun aggregate supply curve.
Anser# B
!omment# $ecurring
Diff# 1 Page $ef# %;%B%;&'(;(B(;)
curve.
AA!.B# $eflective Thin"ing3 8se of -nformation Technology
1@) 2hen the price level rises from 11@ to 11<3 the aggregate level of GDP supplied
rises from G&@ billion to G11@ billion. This 44444444 relationship represents the
44444444 relationship beteen the ?uantity of real GDP firms are illing to supply
and the price level.
A) negative5 shortBrun
B) positive5 shortBrun
!) negative5 longBrun
D) positive5 longBrun
Anser# B
!omment# $ecurring
Diff# 1 Page $ef# %;AB%;%'(;1B(;(
Topic# .hortB$un Aggregate .upply
curve.
11) 2or"ers expect inflation to rise from (H to <H next year. As a result3 this should
A) shift the shortBrun aggregate supply curve to the left.
B) shift the shortBrun aggregate supply curve to the right.
!) move the economy up along a stationary shortBrun aggregate supply curve.
D) move the economy don along a stationary shortBrun aggregate supply curve.
Anser# A
!omment# $ecurring
Diff# 1 Page $ef# %;&'(;)
curve.
11) 2hich of the folloing ould cause the shortBrun aggregate supply curve to shift
to the right:
A) an increase in the price level
B) a decrease in inflation expectations
!) a technological advance
D) an increase in interest rates
Anser# !
!omment# $ecurring
Diff# 1 Page $ef# %;&'(;)
curve.
Figure 12-1
1() Refer to Figure 12-1. Ceteris paribus3 an increase in the labor force ould be
represented by a movement from
A) SRAS
1
to SRAS
1
.
B) SRAS
1
to SRAS
1
.
!) point A to point B.
D) point B to point A.
Anser# A
!omment# $ecurring
Diff# 1 Page $ef# %;;'(;<
."ill# Graphing
curve.
1)) Refer to Figure 12-1. Ceteris paribus3 a decrease in the capital stoc" ould be
A) SRAS
1
to SRAS
1
.
B) SRAS
1
to SRAS
1
.
Anser# B
!omment# $ecurring
."ill# Graphing
curve.
1<) Refer to Figure 12-1. Ceteris paribus3 an increase in productivity ould be
A) SRAS
1
to SRAS
1
.
B) SRAS
1
to SRAS
1
.
Anser# A
!omment# $ecurring
."ill# Graphing
curve.
1A) Refer to Figure 12-1. Ceteris paribus3 an increase in the price level ould be
A) SRAS
1
to SRAS
1
.
B) SRAS
1
to SRAS
1
.
Anser# !
!omment# $ecurring
."ill# Graphing
curve.
1%) Refer to Figure 12-1. Ceteris paribus3 an increase in the expected future price
level ould be represented by a movement from
A) SRAS
1
to SRAS
1
.
B) SRAS
1
to SRAS
1
.
Anser# B
!omment# $ecurring
."ill# Graphing
curve.
1&) Refer to Figure 12-1. Ceteris paribus3 an increase in or"ers and firms ad+usting
to having previously overestimated the price level ould be represented by a
movement from
A) SRAS
1
to SRAS
1
.
B) SRAS
1
to SRAS
1
.
Anser# A
!omment# $ecurring
."ill# Graphing
curve.
1;) Refer to Figure 12-1. Ceteris paribus3 an increase in the expected price of an
important natural resource ould be represented by a movement from
A) SRAS
1
to SRAS
1
.
B) SRAS
1
to SRAS
1
.
Anser# B
!omment# $ecurring
."ill# Graphing
curve.
12.3 Macroeconomic Equilibrium in the Long un and the Short un
1) ,ongBrun macroeconomic e?uilibrium occurs hen
A) aggregate demand e?uals shortBrun aggregate supply.
B) aggregate demand e?uals shortBrun aggregate supply and they intersect at a point
on the longBrun supply curve.
!) structural and frictional unemployment e?uals Cero.
D) output is above potential GDP.
Anser# B
!omment# $ecurring
Diff# 1 Page $ef# &@@'(;A
Topic# ,ongB$un Facroeconomic 6?uilibrium
*b+ective# ,*(# 8se the aggregate demand and aggregate supply model to illustrate
the difference beteen shortBrun and longBrun macroeconomic e?uilibrium.
1) .uppose there has been an increase in investment. As a result3 real GDP ill
44444444 in the short run3 and 44444444 in the long run.
A) increase5 increases further
B) increase5 decrease to its initial value
!) decrease5 decrease further
D) decrease5 increase to its initial level
Anser# B
!omment# $ecurring
Diff# 1 Page $ef# &@@B&@)'(;AB)@@
Topic# .hortB$un and ,ongB$un 6ffects of a !hange in Aggregate Demand
() An increase in aggregate demand causes an increase in 44444444 only in the short
run3 but causes an increase in 44444444 in both the short run and the long run.
A) the price level5 real GDP
B) real GDP5 real GDP
!) the price level5 the price level
D) real GDP5 the price level
Anser# D
!omment# $ecurring
Diff# 1 Page $ef# &@@B&@)'(;AB)@@
Topic# .hortB$un and ,ongB$un 6ffects of a !hange in Aggregate Demand
)) 2hen the aggregate demand curve and the shortBrun aggregate supply curve
intersect3
A) the longBrun aggregate supply curve must also intersect at the same point.
B) inflation must be increasing.
!) structural and frictional unemployment e?ual Cero.
D) the economy is in shortBrun macroeconomic e?uilibrium.
Anser# D
!omment# $ecurring
Diff# 1 Page $ef# &@@'(;A
Topic# .hort B$un Facroeconomic 6?uilibrium
<) A decrease in aggregate demand in the economy ill have hat effect on
macroeconomic e?uilibrium in the long run:
A) The price level ill fall3 and the level of GDP ill be unaffected.
B) The price level ill fall3 and the level of GDP ill fall.
!) The price level ill rise3 and the level of GDP ill fall.
D) The price level ill rise3 and the level of GDP ill be unaffected.
Anser# A
!omment# $ecurring
Diff# 1 Page $ef# &@1B&@('(;&B(;;
A) The process of an economy ad+usting from a recession bac" to potential GDP in the
long run ithout any government intervention is "non as
A) monetary policy.
B) an automatic mechanism.
!) =releasing stic"y prices=.
D) fiscal policy.
Anser# B
!omment# $ecurring
Diff# 1 Page $ef# &@1B&@('(;&B(;;
%) .uppose the economy is at a shortBrun e?uilibrium GDP that lies belo potential
GDP. 2hich of the folloing ill occur because of the automatic mechanism
ad+usting the economy bac" to potential GDP:
A) *utput ill decrease.
B) Prices ill increase.
!) 8nemployment ill rise.
D) .hortBrun aggregate supply ill shift to the right.
Anser# D
!omment# $ecurring
Diff# ( Page $ef# &@('(;;
Topic# 6xpansion in the ,ong $un
&) The automatic mechanism 44444444 the price level in the case of 44444444 and
44444444 the price level in the case of 44444444.
A) raises5 recession5 loers5 expansion
B) raises5 expansion raises5 recession
!) loers5 expansion5 loers5 recession
D) loers5 recession5 raises5 expansion
Anser# D
!omment# $ecurring
Diff# 1 Page $ef# &@1B&@('(;&B(;;
;) 44444444 of unemployment during 44444444 ma"e it easier for or"ers to
44444444 ages.
A) Digh levels5 a recession5 negotiate higher
B) ,o levels5 an expansion5 negotiate higher
!) ,o levels5 a recession5 accept loer
D) Digh levels5 an expansion5 accept loer
Anser# B
!omment# $ecurring
Diff# 1 Page $ef# &@('(;;
Topic# 6xpansion and Automatic Ad+ustment
1@) -n the long run3
A) GDP I potential GDP.
B) unemployment is at its natural rate.
!) LRAS and SRAS lie on the same line.
D) the inflation rate is Cero.
Anser# B
!omment# $ecurring
Diff# 1 Page $ef# &@(B&@)'(;;B)@@
Topic# .upply .hoc"
12.! A Dynamic Aggregate Demand and Aggregate Supply Model
1) 2hich of the folloing is not an assumption made by the dynamic model of
aggregate demand and aggregate supply:
A) Potential real GDP increases continuously.
B) The aggregate demand curve shifts to the right during most periods.
!) The shortBrun aggregate supply curve shifts to the right except during periods
hen or"ers and firms expect higher ages.
D) Aggregate demand and potential real GDP decrease continuously.
Anser# D
!omment# $ecurring
Diff# 1 Page $ef# &@<B&@A')@1B)@1
Topic# Dynamic Aggregate Demand and Aggregate .upply Fodel
*b+ective# ,*)# 8se the dynamic aggregate demand and aggregate supply model to
analyCe macroeconomic conditions.
Figure 12-2
1) Refer to Figure 12-2. -n the figure above3 LRAS
1
and SRAS
1
denote LRAS and
SRAS in year 13 hile LRAS
1
and SRAS
1
denote LRAS and SRAS in year 1. Given the
economy is at point A in year 13 hat is the groth rate in potential GDP in year 1:
A) &H
B) ;.1H
!) 1@H
D) 11H
Anser# !
!omment# $ecurring
Diff# ( Page $ef# &@AB&@%')@1B)@(
."ill# Graphing
AA!.B# Analytic ."ills
() Refer to Figure 12-2. Given the economy is at point A in year 13 hat is the
inflation rate beteen year 1 and year 1:
A) @.;H
B) 1.&H
!) 1.%H
D) (.@H
Anser# B
!omment# $ecurring
Diff# ( Page $ef# &@AB&@%')@1B)@(
."ill# Graphing
)) Refer to Figure 12-2. Given the economy is at point A in year 13 hat ill happen
to the unemployment rate in year 1:
A) -t ill rise.
B) -t ill fall.
!) -t ill remain constant.
D) not enough information to anser the ?uestion
Anser# A
!omment# $ecurring
Diff# ( Page $ef# &@AB&@%')@1B)@(
."ill# Graphing
<) -n the dynamic aggregated demand and aggregate supply model3 if AD shifts faster
than AS
A) inflation occurs.
B) deflation occurs.
!) stagflation occurs.
D) disinflation occurs.
Anser# A
!omment# $ecurring
Diff# 1 Page $ef# &@<B&@A')@1B)@1

Chapter 12 Aggregate Demand and Aggregate Supply Analysis 12.1 Aggregate Demand

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Exercise 6 Answer Key

Chapter 12 Aggregate Demand and Aggregate Supply Analysis

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