Question 1 of 501.

0 Points
If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level
leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and
induce firms to reduce the quantity of goods and services they produce.
A. True
B. False

Answer Key: True

Question 2 of 501.0 Points
When the Fed buys bonds the supply of money

 A. increases and so aggregate demand shifts right.

 B. decreases and so aggregate demand shifts left.

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 C. decreases and so aggregate demand shifts right.

 D. increases and so aggregate demand shifts left.

Answer Key: A
Question 3 of 501.0 Points
People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire
Company increases the number of workers it employs. What could explain this?

 A. Both sticky price theory and sticky wage theory

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 B. Sticky price theory but not sticky wage theory

 C. Sticky wage theory but not sticky price theory

 D. Neither sticky wage theory nor sticky price theory

Answer Key: A
Question 4 of 501.0 Points
If U.S. speculators gained greater confidence in foreign economies so that they wanted to move more of
their wealth into foreign countries, the dollar would

 A. appreciate which would cause aggregate demand to shift right.

 B. appreciate which would cause aggregate demand to shift left.

 C. depreciate which would cause aggregate demand to shift right.

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 D. depreciate which would cause aggregate demand to shift left.

Answer Key: C
Question 5 of 501.0 Points
In 2009, Congress passed legislation providing states with funds to build roads and bridges. It also
instituted tax cuts. Which of these shifts aggregate demand right?

 A. Only the increased funding for states

 B. Only the tax cuts

 C. Both the increased funding for states and the tax cuts
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 D. Neither the increased funding for states nor the tax cuts

Answer Key: C
Question 6 of 501.0 Points
The aggregate-demand curve shows the quantity of domestic goods and services that households, firms,
the government, and customers abroad want to buy at each price level.
A. True
B. False

Answer Key: True

Question 7 of 501.0 Points
From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel
wealthier, then it would have shifted aggregate

 A. demand right.
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 B. demand left.

 C. supply right.

 D. supply left.

Answer Key: A
Question 8 of 501.0 Points
Which of the following shifts the long-run aggregate supply curve to the left?
  A. Either an increase in the price of imported natural resources or a reduction in trade restrictions

 B. Neither an increase in the price of imported natural resources or a reduction in trade

restrictions
 C. An increase in the price of imported natural resources and an increase in trade restrictions

 D. An increase in trade restrictions and a decrease in the price of imported natural resources
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Answer Key: C
Question 9 of 501.0 Points
Other things the same, as the price level decreases it induces greater spending on

 A. both net exports and investment.

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 B. net exports but not investment.

 C. investment but not net exports.

 D. neither net exports nor investment.

Answer Key: A
Question 10 of 501.0 Points
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

 A. the slope of short-run aggregate supply.

 B. the slope of long-run aggregate supply.

 C. the slope of the aggregate-demand curve.

 D. shifts in the aggregate-demand curve.

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Answer Key: C
Question 11 of 501.0 Points
The effect of an increase in the price level on the aggregate-demand curve is represented by a

 A. shift to the right of the aggregate-demand curve.

 B. shift to the left of the aggregate-demand curve.

  C. movement to the left along a given aggregate-demand curve.
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 D. movement to the right along a given aggregate-demand curve.

Answer Key: C
Question 12 of 501.0 Points
Classical economist David Hume observed that as the money supply expanded after gold discoveries it
took some time for prices to rise and in the meantime the economy enjoyed higher employment and
production. This is inconsistent with monetary neutrality because monetary neutrality would mean that

 A. neither prices nor production should have risen.

 B. production should have risen, but prices should not have.

 C. the prices should have risen, but production should not have changed.
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 D. the prices and production should both have fallen.

Answer Key: C
Question 13 of 501.0 Points
Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters
most are their real values.
A. True
B. False

Answer Key: True

Question 14 of 501.0 Points
When the price level rises unexpectedly, some businesses may mistake part of the increase for an increase
in the price of their product relative to others and so decrease their production.
A. True
B. False

Answer Key: False

Question 15 of 501.0 Points
The initial impact of an increase in an investment tax credit is to shift aggregate

 A. demand right.
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 B. demand left.
  C. supply right.

 D. supply left.

Answer Key: A
Question 16 of 501.0 Points
A decrease in the money supply causes the interest rate to rise so that investment falls.
A. True
B. False

Answer Key: True

Question 17 of 501.0 Points
Most economist agree that money changes real GDP in both the short and long run.
A. True
B. False

Answer Key: False

Question 18 of 501.0 Points
The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that
wages are sticky in the short run.
A. True
B. False

Answer Key: False

Question 19 of 501.0 Points
Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well
as an increase in taxes, 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.
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Answer Key: D
Question 20 of 501.0 Points
We can explain continued increases in both output and the price level by supposing that only aggregate
demand shifted right over time.
A. True
B. False

Answer Key: False

Question 21 of 501.0 Points
The effect of a change in the value of the dollar in the foreign exchange market due to a change in the
price level helps explain the slope of aggregate demand, but does not shift it. The effects of a change in
the value of the dollar in the foreign exchange market due to speculation is shown by shifting the
aggregate demand curve.
A. True
B. False

Answer Key: True

Question 22 of 501.0 Points
An increase in household saving causes consumption to

 A. rise and aggregate demand to increase.

 B. rise and aggregate demand to decrease.

 C. fall and aggregate demand to increase.

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 D. fall and aggregate demand to decrease.

Answer Key: D
Question 23 of 501.0 Points
Which of the following is most commonly used to monitor short-run changes in economic activity?

 A. The inflation rate

 B. Real GDP
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 C. Interest rates

 D. Value of the U.S. dollar in the foreign exchange market

Answer Key: B
Question 24 of 501.0 Points
Investment is

 A. a small part of real GDP, so it accounts for a small share of the fluctuation in real GDP.

 B. a small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
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 C. a large part of real GDP, so it accounts for a large share of the fluctuation in real GDP.

 D. a large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP.

Answer Key: B
Question 25 of 501.0 Points
An increase in the money supply shifts the long-run aggregate supply curve to the right.
A. True
B. False

Answer Key: False

Question 26 of 501.0 Points
The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more
than expected, production is

 A. more profitable and employment and output rises.

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 B. more profitable and employment and output falls.

 C. less profitable and employment and output rises.

 D. less profitable and employment and output falls.

Answer Key: A
Question 27 of 501.0 Points
The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by
5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have

 A. higher than desired prices, which leads to an increase in the aggregate quantity of goods and
services supplied.
 B. higher than desired prices, which leads to a decrease in the aggregate quantity of goods and
services supplied.
  C. lower than desired prices, which leads to an increase in the aggregate quantity of goods and
services supplied.
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 D. lower than desired prices, which leads to a decrease in the aggregate quantity of goods and
services supplied.

Answer Key: C
Question 28 of 501.0 Points
If speculators bid up the value of the dollar in the market for foreign-currency exchange, U.S. aggregate
demand would shift to the left.
A. True
B. False

Answer Key: True

Question 29 of 501.0 Points
Which of the following would not be directly included in aggregate demand?

 A. An increase in firms' inventories

 B. Purchases of goods by households

 C. Firms' purchases of newly produced machinery

 D. Government's tax collections

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Answer Key: D
Question 30 of 501.0 Points
The aggregate demand and aggregate supply model helps us to understand both short-run economic
fluctuations and how the economy moves from the short to the long run.
A. True
B. False

Answer Key: True

Question 31 of 501.0 Points
The recessions associated with the business cycle come at regular intervals.
A. True
B. False

Answer Key: False

 Question 32 of 501.0 Points
When output rises, unemployment falls.
A. True
B. False

Answer Key: True

Question 33 of 501.0 Points
Other things the same, a decrease in the price level makes the interest rate decrease, which leads to a
depreciation of the dollar in the market for foreign-currency exchange.
A. True
B. False

Answer Key: True

Question 34 of 501.0 Points
Most macroeconomic variables that measure some type of income, spending, or production fluctuate
closely together.
A. True
B. False

Answer Key: True

Question 35 of 501.0 Points
Which of the following would shift the long-run aggregate supply curve right?

 A. Both an increase in the capital stock and an increase in the price level

 B. An increase in the capital stock, but not an increase in the price level
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 C. An increase in the money supply, but not an increase in the capital stock

 D. Neither an increase in the money supply nor an increase in the capital stock

Answer Key: B
Question 36 of 501.0 Points
Recessions come at

 A. regular intervals. During recessions consumption spending falls relatively more than
investment spending.
 B. regular intervals. During recessions investment spending falls relatively more than
consumption spending.
  C. irregular intervals. During recessions consumption spending falls relatively more than
investment spending.
 D. irregular intervals. During recessions investment spending falls relatively more than
consumption spending.
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Answer Key: D
Question 37 of 501.0 Points
Like real GDP, investment fluctuates, but it fluctuates much less than real GDP.
A. True
B. False

Answer Key: False

Question 38 of 501.0 Points
The price level rises in the short run if

 A. aggregate demand or aggregate supply shifts left.

 B. aggregate demand shifts right or aggregate supply shifts left.

 C. aggregate demand shifts left or aggregate supply shifts right.

 D. aggregate demand or aggregate supply shifts right.

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Answer Key: B
Question 39 of 501.0 Points
An increase in the money supply causes output to rise in the long run.
A. True
B. False

Answer Key: False

Question 40 of 501.0 Points
According to classical macroeconomic theory, changes in the money supply change real GDP but not the
price level.
A. True
B. False

Answer Key: False

 Question 41 of 501.0 Points
In 2008, the United States was in recession. Which of the following things would you not expect to have
happened?

 A. Increased layoffs and firings

 B. A higher rate of bankruptcy

 C. Increased claims for unemployment insurance

 D. Increased real GDP

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Answer Key: D
Question 42 of 501.0 Points
"Money is a veil" best describes

 A. the general view of the economy.

 B. the historical view of the economy.

 C. classical view of the economy.

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 D. economy in the short run but not the long run.

Answer Key: C
Question 43 of 501.0 Points
Other things the same, technological progress raises the price level.
A. True
B. False

Answer Key: False

Question 44 of 501.0 Points
All explanations for the upward slope of the short-run aggregate supply curve suppose that the quantity of
output supplied increases when the actual price level exceeds the expected price level.
A. True
B. False

Answer Key: True

Question 45 of 501.0 Points
In countries that have high minimum wages and require a lengthy and costly process to get permission to
open a business,

 A. reducing either the minimum wage or the time and cost to open a business would have no
effect on the long-run aggregate supply curve.
 B. reducing the minimum wage and the time and cost to open a business would both shift the
long-run aggregate supply curve to the right.
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 C. reducing the minimum wage would shift long-run aggregate supply to the right. Reducing the
time and cost to open a business would have no affect on the long-run aggregate supply curve.
 D. reducing the minimum wage would have no affect on the long-run aggregate supply curve.
Reducing the time and cost to open a business would shift the long-run aggregate supply curve to
the right.

Answer Key: B
Question 46 of 501.0 Points
Economic expansions in Europe and China would cause the U.S. price level

 A. and real GDP to rise.

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 B. and real GDP to fall.

 C. to rise and real GDP to fall.

 D. to fall and real GDP to rise.

Answer Key: A
Question 47 of 501.0 Points
Technological progress shifts the long-run aggregate supply curve to the right.
A. True
B. False

Answer Key: True

Question 48 of 501.0 Points
Policymakers who control monetary and fiscal policy and want to offset the effects on output of an
economic contraction caused by a shift in aggregate supply could use policy to shift

 A. aggregate supply to the right.

 B. aggregate supply to the left.

 C. aggregate demand to the right.

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 D. aggregate demand to the left.

Answer Key: C
Question 49 of 501.0 Points
Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately
issued U.S. bonds were more likely to be defaulted on. U.S. net exports would

 A. rise which by itself would increase aggregate demand.

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 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.

Answer Key: A
Question 50 of 501.0 Points
The downward slope of the aggregate demand curve is based on logic that as the price level rises,
consumption, investment, and net exports all fall.
A. True
B. False

Answer Key: True