Econ Chapter 14 Qiuz #14

Multiple Choice
Identify the choice that best completes the statement or answers the question.
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1. The adjustment of nominal incomes to changes in the price level (CPI) is fixed because of the:
a. volatility of investment spending.
b. existence of long-term contracts.
c. complete information possessed by workers.
d. all of the above.

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2. An aggregate supply curve with a positive slope is associated with an economy in which:
a. input prices and final goods prices always change by the same amount.
b. firms expect output prices to be unaffected by changes in input prices.
c. nominal wages and salaries do not change much in the short run.
d. firms expect consumer demand to be unaffected by changes in prices of final goods.

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3. In an economy where nominal incomes adjust equally to changes in the price level, we would expect the longrun aggregate supply curve to be:
a. vertical.
b. horizontal.
c. unit elastic.
d. negatively sloped.
e. positively sloped.

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4. The intersection between the long-run aggregate supply and aggregate demand curves determines the:
a. level of full-employment real GDP.
b. level of prices (CPI).
c. money supply.
d. marginal product.
e. both a and b.

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5. Which of the following would cause a decrease (leftward shift) in the short-run aggregate supply curve
(SRAS)?
a. An increase in oil prices.
b. An advance in technology.
c. An increase in the CPI.
d. An increase in the long-run aggregate supply curve (LRAS).

Exhibit 14A-6 Aggregate demand and supply model

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6. Based on Exhibit 14A-6, when the aggregate demand curve is in the position AD 1, the economy's position of
long-run equilibrium corresponds to point:
a. E1.
b. E2.
c. E3.
d. E1 or E2.

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7. Which of the following is not a reason for the downward slope of the aggregate demand curve?
a. Real balances effect
b. Interest-rate effect
c. Net exports effect
d. Government spending effect

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8. The total quantity of goods and services demanded by households, firms, foreigners, and government at
varying price levels is:
a. gross domestic product.
b. aggregate demand.
c. aggregate expenditure.
d. total demand.
e. total expenditure.

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9. Which of the following will most likely increase aggregate demand?

a. A decrease in stock market prices.
b. An increase in business investment spending.
c. A decrease in the expected inflation rate.
d. A decrease in real GDP.

____ 10. Which of the following could not be expected to shift the aggregate demand curve?
a. Net exports fall.
b. Consumption spending decreases.
c. An increase in government spending.
d. A change in real GDP.
____ 11. Suppose workers become pessimistic about their future employment, which causes them to save more and
spend less. If the economy is on the intermediate range of the aggregate supply curve, then:
a. both real GDP and the price level will fall.
b. real GDP will fall and the price level will rise.
c. real GDP will rise and the price level will fall.
d. both real GDP and the price level will rise.
____ 12. Which of the following are beliefs of classical theory?
a. Long-run full employment.
b. Inflexible wages.
c. Inflexible prices.
d. All of the above.
____ 13. The horizontal segment of the aggregate supply curve:
a. shows that real GDP can increase only by affecting the economy's price level.
b. shows that real GDP can increase without affecting the economy's price level.
c. depicts a positive relationship between real GDP and the price level.
d. depicts a negative relationship between real GDP and the price level.
e. marks the full-employment level of real GDP.
____ 14. When the economy is operating well below capacity, an increase in spending tends to be reflected primarily in
a(n):
a. lower level of employment.
b. increase in price.
c. lower level of output.
d. higher level of output and employment.
e. increase in business failures.
____ 15. An increase in oil prices will shift the aggregate:
a. demand curve leftward.
b. demand curve rightward.
c. supply curve leftward.
d. supply curve rightward.
____ 16. An increase in aggregate supply will cause the price level to:
a. rise and GDP to rise
b. rise and GDP to fall.
c. rise and the unemployment rate to fall.
d. fall and GDP to rise.
e. fall and the unemployment rate to rise.
____ 17. The concurrent problems of inflation and unemployment are termed:
a. depression.
b. downturn.
c. deflation.
d. demand-pull inflation.
e. stagflation.

____ 18. ____ inflation can be explained by a ____ shift in the aggregate ____ curve.
a. Demand-pull, leftward, demand
b. Cost-push, rightward, supply
c. Demand-pull, leftward, supply
d. Cost-push, rightward, supply
____ 19. An increase in the price level caused by a rightward shift of the aggregate demand curve is called:
a. cost-push inflation.
b. supply shock inflation.
c. demand shock inflation.
d. demand-pull inflation.
Exhibit 14-2 Aggregate supply and demand curves

____ 20. In Exhibit 14-2, the change in equilibrium from E1 to E2 represents:

a. cost-push inflation.
b. demand-pull inflation.
c. price-push inflation.
d. wage-push inflation.