Question 1

The aggregate demand curve shows a ________ relationship between ________ and aggregate output ________.

Accepted Answer

A)  positive; the interest rate; demanded
B)  negative; the price level; supplied
C)  positive; the price level; demanded
D)  negative; the price level; demandedE) A) and D)
F) B) and C)

Question 2

Refer to the information provided in Figure 12.6 below to answer the questions that follow.
  Figure 12.6
-Refer to Figure 12.6.Suppose the equilibrium output is initially $600 billion.An oil embargo would probably

Accepted Answer

A)  increase both the equilibrium output and the price level.
B)  decrease the equilibrium output and increase the price level.
C)  increase the equilibrium output and decrease the price level.
D)  decrease both the equilibrium output and the price level.E) B) and C)
F) B) and D)

Question 3

Refer to the information provided in Figure 12.6 below to answer the questions that follow.
  Figure 12.6
-Refer to Figure 12.6.Suppose the equilibrium output is initially $600 billion.A decrease in wages and an increase in government spending will,for sure,increase

Accepted Answer

A)  both the equilibrium output and the price level.
B)  the price level.
C)  equilibrium output.
D)  equilibrium output and decrease the price level.E) None of the above
F) A) and B)

Question 4

Refer to the information provided in Figure 12.8 below to answer the questions that follow.
 1 (or at point  B) because A) the price of raw material and wages will increase shifting the aggregate supply curve to AS1. B) the price of inputs will decrease,shifting the aggregate supply curve to AS2. C) the price of raw material will increase,shifting the aggregate demand curve to AD2. D) all of the above" class="answers-bank-image d-inline" rel="preload" > Figure 12.8
-Refer to Figure 12.8.This economy cannot continue to produce Y1 (or at point  B) because

Accepted Answer

A)  the price of raw material and wages will increase shifting the aggregate supply curve to AS1.
B)  the price of inputs will decrease,shifting the aggregate supply curve to AS2.
C)  the price of raw material will increase,shifting the aggregate demand curve to AD2.
D)  all of the aboveE) B) and C)
F) A) and D)

Question 5

The aggregate supply curve

Accepted Answer

A)  is the sum of the individual supply curves in the economy.
B)  is a market supply curve.
C)  embodies the same logic that lies behind an individual firm's supply curve.
D)  relates output with the price level.E) B) and C)
F) A) and D)

Question 6

The IS curve shows combinations of output and interest rates consistent with equilibrium in the goods market.

Accepted Answer

A) True 
 B)False

Question 7

A movement down the aggregate supply curve is caused by a(n)

Accepted Answer

A)  decrease in aggregate supply.
B)  increase in aggregate supply.
C)  decrease in the price level.
D)  increase in the price level.E) A) and C)
F) C) and D)

Question 8

Other things equal,an increase in government spending ________ the equilibrium interest rate and ________ equilibrium output.

Accepted Answer

A)  increases; increases
B)  increases; decreases
C)  decreases; increases
D)  decreases; decreasesE) A) and D)
F) All of the above

Question 9

The aggregate demand curve shows that at higher price levels the total quantity of output demanded is greater.

Accepted Answer

A) True 
 B)False

Question 10

The Federal Reserve's policy to "lean against the wind" means that

Accepted Answer

A)  interest rates are decreased as the economy expands.
B)  reserve requirements are decreased as the economy expands.
C)  reserve requirements are decreased significantly during an economic expansion.
D)  interest rates are increased gradually as the economy expands.E) A) and B)
F) A) and C)

Question 11

To decrease output the government could

Accepted Answer

A)  adopt policies that discourage immigration and increase government spending.
B)  adopt policies that encourage immigration and decrease government spending.
C)  adopt policies that encourage technological advancement and increase government spending.
D)  adopt policies that discourage technological advancement and decrease government spending.E) A) and D)
F) None of the above

Question 12

A decrease in the price level raises the real value of wealth.

Accepted Answer

A) True 
 B)False

Question 13

If ________ equilibrium output ________,the price level rises.

Accepted Answer

A)  actual; is below potential GDP
B)  potential; is equal to actual GDP
C)  potential; exceeds actual GDP
D)  actual; exceeds potential GDPE) A) and B)
F) None of the above

Question 14

Refer to the information provided in Figure 12.6 below to answer the questions that follow.
  Figure 12.6
-Refer to Figure 12.6.Which of the following will,unambiguously,decrease the price level?

Accepted Answer

A)  an increase in government spending and an increase in costs
B)  an increase in government spending and a decrease in costs
C)  a decrease in government spending and an increase in costs
D)  a decrease in government spending and a decrease in costsE) All of the above
F) A) and B)

Question 15

Which of the following equations represents equilibrium in the goods market?

Accepted Answer

A)  AE = I(r) 
B)  Y = AD + AS
C)  Y = S + I
D)  AE = C + I + GE) None of the above
F) All of the above

Question 16

An increase in aggregate demand when the economy is operating at high levels of output is likely to result in

Accepted Answer

A)  a large increase in both output and the overall price level.
B)  an increase in the overall price level but little or no increase in output.
C)  an increase in output but little or no increase in the overall price level.
D)  little or no increase in either output or the overall price level.E) B) and C)
F) C) and D)

Question 17

When the interest rate is high,planned investment is ________ so output is ________.

Accepted Answer

A)  high; high
B)  high; low
C)  low; high
D)  low; lowE) B) and C)
F) B) and D)

Question 18

Refer to the information provided in Figure 12.5 below to answer the questions that follow.
  Figure 12.5
-Refer to Figure 12.5.Which of the following combinations would definitely increase the equilibrium interest rate?

Accepted Answer

A)  government spending increases and the price level increases
B)  government spending increases and the price level decreases
C)  government spending decreases and the price level increases
D)  government spending decreases and the price level decreasesE) B) and C)
F) A) and D)

Question 19

To decrease the price level the government could

Accepted Answer

A)  adopt policies that discourage immigration and increase government spending.
B)  adopt policies that encourage immigration and decrease government spending.
C)  adopt policies that encourage technological advancement and increase government spending.
D)  adopt policies that discourage technological advancement and decrease government spending.E) None of the above
F) A) and B)

Question 20

Potential output is equal to

Accepted Answer

A)  long run aggregate demand.
B)  short-run aggregate demand.
C)  short-run aggregate supply.
D)  long-run aggregate supply.E) A) and B)
F) A) and C)

Exam 12: The Determination of Aggregate Output, the Price Level, and the Interest Rate

Potential output is equal to

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Refer to the information provided in Figure 12.6 below to answer the questions that follow. Figure 12.6 -Refer to Figure 12.6.Suppose the equilibrium output is initially $600 billion.A decrease in wages and an increase in government spending will,for sure,increase

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Refer to the information provided in Figure 12.5 below to answer the questions that follow. Figure 12.5 -Refer to Figure 12.5.Which of the following combinations would definitely increase the equilibrium interest rate?

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Other things equal,an increase in government spending ________ the equilibrium interest rate and ________ equilibrium output.

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The aggregate demand curve shows that at higher price levels the total quantity of output demanded is greater.

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An increase in aggregate demand when the economy is operating at high levels of output is likely to result in

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The aggregate supply curve

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To decrease output the government could

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Refer to the information provided in Figure 12.6 below to answer the questions that follow. Figure 12.6 -Refer to Figure 12.6.Suppose the equilibrium output is initially $600 billion.An oil embargo would probably

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If ________ equilibrium output ________,the price level rises.

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A movement down the aggregate supply curve is caused by a(n)

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Which of the following equations represents equilibrium in the goods market?

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When the interest rate is high,planned investment is ________ so output is ________.

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The Federal Reserve's policy to "lean against the wind" means that

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The IS curve shows combinations of output and interest rates consistent with equilibrium in the goods market.

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Refer to the information provided in Figure 12.6 below to answer the questions that follow. Figure 12.6 -Refer to Figure 12.6.Which of the following will,unambiguously,decrease the price level?

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To decrease the price level the government could

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The aggregate demand curve shows a ________ relationship between ________ and aggregate output ________.

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Refer to the information provided in Figure 12.8 below to answer the questions that follow. Figure 12.8 -Refer to Figure 12.8.This economy cannot continue to produce Y1 (or at point B) because

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A decrease in the price level raises the real value of wealth.

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Other things equal,an increase in government spending the equilibrium interest rate and equilibrium output.

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If equilibrium output ,the price level rises.

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When the interest rate is high,planned investment is so output is .

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The aggregate demand curve shows a relationship between and aggregate output .

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Refer to the information provided in Figure 12.8 below to answer the questions that follow. Figure 12.8 -Refer to Figure 12.8.This economy cannot continue to produce Y₁ (or at point B) because

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