ECN Ch 20

1 December 2022
4.4 (218 reviews)
52 test answers

Unlock all answers in this set

Unlock answers (48)
question
Which of the following explains why production rises in most years?
answer
a. increases in the labor force b. increases in the capital stock c. advances in technological knowledge d. All of the above are correct. D
question
A relatively mild period of falling incomes and rising unemployment is called a(n)
answer
a. depression. b. recession. c. expansion. d. business cycle. B
question
During recessions
answer
a. workers are laid off. b. factories are idle. c. firms may find they are unable to sell all they produce. d. All of the above are correct. D
question
When we say that economic fluctuations are "irregular and unpredictable," we mean that
answer
a. the relationship between output and unemployment is erratic and difficult to characterize. b. when one macroeconomic variable that measures income or spending is falling, other macroeconomic variables that measure income or spending are likely to be rising. c. recessions do not occur at regular intervals. d. All of the above are correct. C
question
Which of the following is most commonly used to monitor short-run changes in economic activity?
answer
a. the inflation rate. b. real GDP. c. interest rates. d. value of the U.S. dollar in the foreign exchange market. B
question
During recessions which type of spending falls?
answer
a. consumption and investment b. investment but not consumption c. consumption but not investment d. neither consumption nor investment A
question
Which part of real GDP fluctuates most over the course of the business cycle?
answer
a. consumption expenditures b. government expenditures c. investment expenditures d. net exports C
question
Recession come at
answer
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 D
question
According to classical macroeconomic theory, changes in the money supply affect
answer
a. real GDP and the price level. b. real GDP but not the price level. c. the price level, but not real GDP. d. neither the price level nor real GDP. C
question
Microeconomic substitution is impossible for the economy as a whole because
answer
a. money is a veil. b. real GDP measures the total quantity of goods and services produced by all firms in all markets. c. the prices of some goods and services adjust sluggishly in response to changing economic conditions. d. a lower price level increases real wealth, which stimulates spending by consumers and vice-versa. B
question
Most economists believe that classical theory describes the world
answer
a. in the short run. b. in the long run. c. in both the short run and the long run. d. in neither the short run nor the long run. B
question
The aggregate-demand curve shows the
answer
a. quantity of labor and other inputs that firms want to buy at each price level. b. quantity of labor and other inputs that firms want to buy at each inflation rate. c. quantity of domestically produced goods and services that households want to buy at each price level. d. quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level. D
question
The model of aggregate demand and aggregate supply explains the relationship between
answer
a. the price and quantity of a particular good. b. unemployment and output. c. wages and employment. d. real GDP and the price level. D
question
The model of aggregate demand and aggregate supply
answer
a. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships. b. is different from the model of supply and demand for a particular market, in that we have to separate real and nominal variables in the aggregate model. c. is a straightforward extension of the model of supply and demand for a particular market, in which substitution of resources between markets is highlighted. d. is a straightforward extension of the model of supply and demand for a particular market, in which the interaction between real and nominal variables is highlighted. A
question
The aggregate-demand curve
answer
a. has a slope that is explained in the same way as the slope of the demand curve for a particular product. b. is vertical in the long run. c. shows an inverse relation between the price level and the quantity of all goods and services demanded. d. All of the above are correct. C
question
Which of the following is included in the aggregate demand for goods and services?
answer
a. consumption demand b. investment demand c. net exports d. All of the above are correct. D
question
Other things the same, a fall in an economy's overall level of prices tends to
answer
a. raise the quantity demanded of goods and services, but lower the quantity supplied. b. lower the quantity demanded of goods and services, but raise the quantity supplied. c. lower both the quantity demanded and the quantity supplied of goods and services. B
question
The effect of an increase in the price level on the aggregate-demand curve is represented by a
answer
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. d. movement to the right along a given aggregate-demand curve. C
question
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for
answer
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. everything that makes the aggregate-demand curve shift. C
question
Which of the following effects helps to explain the slope of the aggregate-demand curve?
answer
a. the exchange-rate effect b. the wealth effect c. the interest-rate effect d. All of the above are correct. D
question
Changes in the price level affect which components of aggregate demand?
answer
a. only consumption and investment b. only consumption and net exports c. only investment d. consumption, investment, and net exports D
question
Which of the following rises when the U.S. price level falls?
answer
a. interest rates b. the value of the dollar in the market for foreign-currency exchange c. real wealth d. All of the above are correct. C
question
As the price level rises
answer
a. people will want to hold more money, so the interest rate rises. b. people will want to hold more money, so the interest rate falls. c. people will want to hold less money, so the interest rate falls. d. people will want to hold less money, so the interest rate rises. A
question
As the price level falls
answer
a. people will want to buy more bonds, so the interest rate rises. b. people will want to buy fewer bonds, so the interest rate falls. c. people will want to buy more bonds, so the interest rate falls. d. people will want to buy fewer bonds, so the interest rate rises. C
question
As the price level rises
answer
a. people are more willing to lend, so interest rates rise. b. people are more willing to lend, so interest rates fall. c. people are less willing to lend, so interest rates fall. d. people are less willing to lend, so interest rates rise. D
question
When interest rates fall
answer
a. firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding. b. firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding. c. firms want to borrow less for new plants and equipment and households want to borrow more for homebuilding. d. firms want to borrow less for new plants and equipment and households want to borrow less for homebuilding. A
question
As the price level rises, the exchange rate
answer
a. falls, so exports rise and imports fall. b. falls, so exports fall and imports rise. c. rises, so exports rise and imports fall. d. rises, so exports fall and imports rise. D
question
As the price level rises, the interest rate
answer
a. falls, so the supply of dollars in the market for foreign currency exchange shifts left. b. falls, so the supply of dollars in the market for foreign currency exchange shifts right. c. rises, so the supply of dollars in the market for foreign currency exchange shifts left. d. rises, so the supply of dollars in the market for foreign currency exchange shifts right. C
question
A decrease in U.S. interest rates leads to
answer
a. a depreciation of the dollar that leads to greater net exports. b. a depreciation of the dollar that leads to smaller net exports. c. an appreciation of the dollar that leads to greater net exports. d. an appreciation of the dollar that leads to smaller net exports. A
question
Other things the same, as the price level rises, exchange rates
answer
a. and interest rates rise. b. and interest rates fall. c. fall and interest rates rise. d. rise and interest rates fall. A
question
When taxes decrease, consumption
answer
a. decreases as shown by a movement to the left along a given aggregate-demand curve. b. decreases as shown by a shift of the aggregate demand curve to the left. c. increases as shown by a movement to the right along a given aggregate-demand curve. d. increases as shown by a shift of the aggregate demand curve to the right. D
question
The initial impact of an increase in an investment tax credit is to shift
answer
a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left. A
question
When the money supply increases
answer
a. interest rates fall and so aggregate demand shifts right. b. interest rates fall and so aggregate demand shifts left. c. interest rates rise and so aggregate demand shifts right. d. interest rates rise and so aggregate demand shifts left. A
question
When the Fed buys bonds
answer
a. the supply of money increases and so aggregate demand shifts right. b. the supply of money decreases and so aggregate demand shifts left. c. the supply of money decreases and so aggregate demand shifts right. d. the supply of money increases and so aggregate demand shifts left. B
question
Which of the following would both shift aggregate demand right?
answer
a. the price level decreases and government expenditures increase. b. the price level decreases and the government repeals an investment tax credit. c. taxes decrease and government expenditures increase. d. None of the above are correct. C
question
Aggregate demand shifts right if
answer
a. government purchases increase and shifts left if stock prices fall. b. government purchases decrease and shifts left if stock prices rise. c. government purchases decrease and shifts left is stock prices fall. B
question
Which of the following is not a determinant of the long-run level of real GDP?
answer
a. the price level. b. the amount of capital used by firms. c. available stock of human capital. d. available technology A
question
The long-run aggregate supply curve
answer
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. D
question
The classical dichotomy and monetary neutrality are represented graphically by
answer
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. B
question
The long-run aggregate supply curve shifts right if
answer
a. immigration from abroad increases. b. the capital stock increases. c. technology advances. d. All of the above are correct. D
question
The long-run aggregate supply curve shifts right if
answer
a. either immigration from abroad increases or technology improves. b. immigration from abroad increases, but not if technology improves. c. technology improves, but not if immigration from abroad increases. d. None of the above are correct. A
question
The aggregate supply curve is upward sloping in
answer
a. the short and long run. b. neither the short nor long run. c. the long run, but not the short run. d. the short run, but not the long run. D
question
Wages tend to be sticky
answer
a. because of contracts, social norms, and notions of fairness. b. because of contracts, but not social norms or notions of fairness. c. because of social norms and notions of fairness, but not contracts. d. None of the above are correct. A
question
The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,
answer
a. production is more profitable and employment rises. b. production is more profitable and employment falls. c. production is less profitable and employment rises. d. production is less profitable and employment falls. D
question
Menu costs help explain
answer
a. sticky-price theory. b. misperceptions theory. c. sticky-wage theory. d. All of the above are correct. A
question
According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had
answer
a. increased, so it would increase production. b. increased, so it would decrease production. c. decreased, so it would increase production. d. decreased, so it would decrease production. A
question
The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will increase if the price level
answer
a. increases by less than expected so that firms believe the relative price of their output has increased. b. increases by less than expected so that firms believe the relative price of their output has decreased. c. increases by more than expected so that firms believe the relative price of their output has increased. d. increases by more than expected so that firms believe the relative price of their output has decreased. C
question
The equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level), where
answer
a. an upward-sloping short-run aggregate supply curve b. a vertical short-run aggregate supply curve c. a downward-sloping aggregate demand curve d. None of the above is correct. A
question
The mathematical equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level), expresses
answer
a. how the long run equilibrium adjusts to changes in money supply. b. how output deviates in the short run from its long run natural rate. c. how the short run aggregate supply curve shifts. d. how adverse shifts in aggregate supply can cause stagflation. B
question
An economic expansion caused by a shift in aggregate demand causes prices to
answer
a. rise in the short run, and rise even more in the long run. b. rise in the short run, and fall back to their original level in the long run. c. fall in the short run, and fall even more in the long run. d. fall in the short run, and rise back to their original level in the long run. A
question
If aggregate demand shifts right then in the short run
answer
a. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. b. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. c. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. d. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. B
question
The model of aggregate demand and aggregate supply
answer
a. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships. b. is different from the model of supply and demand for a particular market, in that we have to separate real and nominal variables in the aggregate model. c. is a straightforward extension of the model of supply and demand for a particular market, in which substitution of resources between markets is highlighted. d. is a straightforward extension of the model of supply and demand for a particular market, in which the interaction between real and nominal variables is highlighted. A