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Macroeconomics ch 15

If the price level falls, the real value of a dollar

Answer

 

a.

falls, so people will want to buy less.  This response helps explain the slope of the aggregate demand curve.

 

b.

rises, so people will want to buy more.  This response helps explain the slope of the aggregate demand curve.

 

c.

falls, so people will want to buy less.  This response shifts aggregate demand to the left.

 

d.

rises, so people will want to buy more.  This response shifts aggregate demand to the right.

 

The short-run effects of an increase in the expected price level include

Answer

 

a.

a lower level of output and a higher price level.

 

b.

a higher level of output and a higher price level.

 

c.

a higher level of output and a lower price level.

 

d.

a lower level of output and a lower price level.

 

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

Answer

 

a.

employment and production rise.

 

b.

employment and production fall.

 

c.

employment falls and production rises.

 

d.

employment rises and production falls.

 

Other things the same, an increase in the expected price level shifts

Answer

 

a.

aggregate-demand right.

 

b.

short-run aggregate supply right.

 

c.

aggregated-demand left.

 

d.

short-run aggregate supply left.

 

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

Answer

 

a.

in the price level and output.

 

b.

in output, but not the price level.

 

c.

in the price level, but not output.

 

d.

in neither the price level nor output.

 

As recessions begin, production

Answer

 

a.

and unemployment both fall.

 

b.

rises and unemployment falls.

 

c.

and unemployment both rise.

 

d.

falls and unemployment rises.

 

Other things the same, as the price level rises, the real value of a dollar

Answer

 

a.

rises, and interest rates fall.

 

b.

falls, and interest rates fall.

 

c.

falls, and interest rates rise.

 

d.

rises, and interest rates rise.

 

Which of the following shifts aggregate demand to the right?

Answer

 

a.

a decrease in the money supply

 

b.

the repeal of an investment tax credit

 

c.

increases in the profitability of capital due perhaps to technological progress.

 

d.

a decrease in the price level

 

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had

Answer

 

a.

decreased, so it would decrease production.

 

b.

increased, so it would increase production.

 

c.

decreased, so it would increase production.

 

d.

increased, so it would decrease production.

 

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if

Answer

 

a.

the price level is higher than expected making production more profitable.

 

b.

the price level is lower than expected making production more profitable.

 

c.

the price level is higher than expected making production less profitable.

 

d.

the price level is higher than expected making production less profitable.

 

If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level

Answer

 

a.

is the same and output is lower than in the original long-run equilibrium.

 

b.

is lower and output is the same as the original long-run equilibrium.

 

c.

and output are higher than in the original long-run equilibrium.

 

d.

and output are lower than in the original long-run equilibrium.

 

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 less profitable and employment rises.

 

b.

production is less profitable and employment falls.

 

c.

production is more profitable and employment rises.

 

d.

production is more profitable and employment falls.

 

When the actual change in the price level differs from its expected change, which of the following can explain why firms might change their production?

Answer

 

a.

both menu costs and mistaking a price level change for a change in relative prices

 

b.

menu costs but not mistaking a price level change for a change in relative prices

 

c.

mistaking a price level change for a change in relative price but not menu costs

 

d.

neither menu costs nor mistaking a price level change for a change in relative prices

 

Other things the same, continued increases in the money supply lead to

Answer

 

a.

a one-time permanent increase in both prices and real GDP.

 

b.

continued increases in the price level but not continued increases in real GDP.

 

c.

continued increases in the price level and real GDP.

 

d.

continued increases in real GDP but not continued increases in the price level.

 

 

During World War II, the economy’s production increased about

Answer

 

a.

50 percent and prices rose about 10 percent.

 

b.

25 percent and prices rose about 5 percent.

 

c.

75 percent and prices rose about 15 percent.

 

d.

100 percent and prices rose about 20 percent.

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