1. The Great Depression and 1990 U.S. recession were
a. similar because both involved declining output and a rising price
level
b. similar because both involved declining output and a falling price
level
c. different because the price level rose during the Great Depression
and fell during 1990
d. different because the price level fell during the Great Depression
and rose during 1990
e. similar because the unemployment rate rose to approximately the
same level in both cases
2. The aggregate demand curve is derived using
a. the sum of market demand curves from all industries
b. product market demand curves and money market equilibrium
c. product market demand curves and the short-run Keynesian aggregate
expenditures model
d. the short-run Keynesian aggregate expenditures model only
e. the short-run Keynesian aggregate expenditures model and money
market equilibrium
3. A decrease in the price level leads to which of the following
sequences?
a. the money demand curve shifts leftward, the interest rate drops,
the aggregate expenditure line shifts upward, and there is movement
downward along the aggregate demand curve
b. the money demand curve shifts rightward, the interest rate
increases, the aggregate expenditure line shifts downward, and
there is movement upward along the aggregate demand curve
c. the money demand curve shifts leftward, the interest rate drops,
the aggregate expenditure line shifts downward, and there is
movement upward along the aggregate demand curve
d. the money demand curve shifts rightward, the interest rate
increases, the aggregate expenditure line shifts upward, and there
is movement downward along the aggregate demand curve
e. the money demand curve shifts leftward, the interest rate drops,
the aggregate expenditure line shifts upward, and there is movement
upward along the aggregate demand curve
4. Due to the multiplier effect, a decrease in investment spending
a. is greater than the resulting decrease in GDP
b. has a minimal impact on the economy
c. causes the money supply to increase
d. leads to an even larger decrease in output
e. results in increased autonomous consumption
5. Which of the following is an accurate description of the aggregate
demand curve?
a. it is the sum of all individual demand curves for all products
b. it shows all price levels at which firms' unit costs equal their
percent markups
c. it is the curve decided upon by the voters
d. it shows the relationship between firms' unit costs and their
percentage markups
e. it shows the equilibrium level of GDP associated with each price
level
6. Which of the following would shift the aggregate demand curve to the
right?
a. increases in government purchases, investment spending, autonomous
consumption, taxes, or the money supply
b. increases in government purchases, investment spending, autonomous
consumption, or the money supply
c. decreases in government purchases, investment spending, autonomous
consumption, taxes, or the money supply
d. increases in government purchases, investment spending, autonomous
consumption or taxes
e. decreases in government purchases or investment spending, and
increases in autonomous consumption, taxes, or the money supply
7. If the Fed sells bonds in an open market operation, which of the
following is most likely to occur?
a. the equilibrium level of GDP decreases
b. the money supply increases
c. the interest rate falls
d. the aggregate expenditure line shifts upward
e. the open market operation is said to be expansionary
8. If the Fed conducts an open market purchase of bonds, which of the
following will happen?
a. the interest rate will decrease, the aggregate expenditure line
will shift upward, and the aggregate demand curve will shift
leftward
b. the interest rate will increase, the aggregate expenditure line
will shift upward, and the aggregate demand curve will shift
rightward
c. the interest rate will decrease, the aggregate expenditure line
will shift upward, and the aggregate demand curve will shift
rightward
d. the interest rate will decrease, the aggregate expenditure line
will shift downward, and the aggregate demand curve will shift
rightward
e. the interest rate will increase, the aggregate expenditure line
will shift downward, and the aggregate demand curve will shift
leftward
9. If the unit cost of output for a computer is $2,000 and if firms'
average markup is 10 percent, what is the cost to the consumer?
a. $2,000
b. $2,002
c. $2,020
d. $2,200
e. $20
10. In the short run, the price level
a. will decrease if unit costs and markups both increase throughout
the economy
b. will remain stable if the average percentage markup remains stable
c. is unimportant in macroeconomics
d. will increase if unit costs increase throughout the economy
e. is determined by the Fed
11. As output increases, a typical firm's unit costs
a. decrease because the firm buys its inputs in large quantities
b. increase because the supply of inputs increases
c. remain constant
d. increase due to the increasing scarcity of resources
e. decrease as firms take advantage of diseconomies of scale
12. In the short run, a rise in real GDP will
a. increase unit costs and increase the price level
b. increase unit costs and decrease the price level
c. decrease unit costs and decrease the price level
d. decrease unit costs and increase the price level
e. have no effect on unit costs or the price level
13. The aggregate supply curve is
a. vertical in the short run
b. horizontal in the short run
c. the sum of all of the supply curves of individual firms in the
economy
d. downward sloping in the short run
e. upward sloping in the short run
14. The AS curve
a. indicates the markup at which firms are willing to supply a given
level of output
b. is derived from equilibrium conditions in the money market
c. has a positive slope because an increase in real GDP causes an
increase in the cost of resources
d. is found by summing up the supply curves of all the firms in an
economy
e. illustrates how a change in the price level affects total output
15. If output increases, which of the following would occur?
a. prices of non-labor inputs, input requirements per unit of output,
and unit costs would all increase, and the economy would move
downward along the aggregate supply curve
b. prices of non-labor inputs, input requirements per unit of output,
and unit costs would all decrease, and the economy would move
downward along the aggregate supply curve
c. prices of non-labor inputs, input requirements per unit of output,
and unit costs would all decrease, and the economy would move
upward along the aggregate supply curve
d. prices of non-labor inputs, input requirements per unit of output,
and unit costs would all increase, and the economy would move
upward along the aggregate supply curve
e. prices of non-labor inputs and input requirements per unit of
output would increase, unit costs would decrease, and the economy
would move downward along the aggregate supply curve
16. Which of the following will shift the aggregate supply curve upward?
a. a decrease in world oil prices
b. bad weather, which increases farmers' costs per unit of output
c. increases in consumer spending
d. an increase in the price level
e. technological changes that improve worker productivity
17. The intersection of the AD and AS curves
a. gives the price at which the quantity of goods demanded equals the
quantity supplied
b. represents sustainable levels of nominal GDP and prices
c. represents the optimal output and employment levels for the economy
d. is the short-run macroeconomic equilibrium point
e. represents one of many possible equilibria, given the two curves
18. Since changes in output act on price and the resulting change in price
acts on output,
a. the net effect a demand shock has on equilibrium GDP is less than
if the price did not act on output
b. the magnitude of the multiplier increases
c. equilibrium GDP does not change in the short run
d. the net effect a demand shock has on equilibrium GDP is greater
than if the price did not act on output
e. expansionary fiscal policy causes GDP to fall in the short run
19. Which of the following mechanisms helps allow output to return to
potential after a demand shock?
a. change in business mentality
b. change in nominal wage rate
c. large changes in the capital stock
d. inability of the price level to change
e. change in inventories
20. Equilibrium GDP
a. is not affected by nominal wage adjustments
b. represents the level of output at which public welfare is maximized
c. in the long run is equal to the mean of the short-run GDP
equilibria
d. is influenced by long-run adjustments in the labor market
e. falls when the AD curve shifts right
21. If equilibrium GDP is below potential, then
a. unemployment is unusually low
b. the Fed will lower the money supply
c. the wage rate will fall as workers compete for scarce jobs
d. the AS curve will shift left
e. the wage rate will remain stable as labor productivity increases
22. If a demand shock causes an economy to operate at a point above
potential GDP, then
a. the AS curve will shift to return the economy to the original point
of equilibrium
b. the economy will correct itself through rising wages and prices
c. this short-run equilibrium point will become the new long-run
equilibrium GDP
d. the economy will correct itself through falling wage rates and
prices
e. the shock is said to be a negative demand shock
23. According to the self-correcting mechanism, if a negative demand shock
occurs,
a. a decrease in wage rates will lead to a decrease in the price level
so that the economy returns to full employment
b. the price level will increase, causing equilibrium GDP to return to
its original level
c. the wage rate will eventually increase, restoring GDP to its
full-employment level
d. the price level will remain constant
e. there will be no effect in the long run
24. The economy's long-run aggregate supply curve
a. never shifts
b. indicates that in the long run, the price level is constant
c. is shifted by demand shocks
d. is a vertical line at the full-employment level of output
e. is perfectly elastic
25. After a negative demand shock, what are the expected long-run
adjustments?
a. wages rise, price level rises, and output falls back to potential
b. wages fall, price level rises, and output falls back to potential
c. wages fall, price level falls, and output increases back to
potential
d. wages fall, price level rises, and output increases back to
potential
e. wages rise, price level falls, and output increases back to
potential
26. The AD-AS model implies that, in the long run,
a. the economy adjusts very quickly to demand shocks
b. changes in government spending have no effect on GDP
c. the price level never changes
d. a mixture of fiscal and monetary policy is necessary to achieve
full employment
e. the Fed controls output
27. According to the aggregate supply-aggregate demand model, an
expansionary fiscal policy will, in the long run,
a. have the opposite effect of an expansionary monetary policy
b. increase both real GDP and the price level
c. increase real GDP and decrease the price level
d. increase real GDP and leave the price level unchanged
e. increase the price level and leave real GDP unchanged
28. Which of the following would lead to a rightward shift in the long-run
aggregate supply curve?
a. a decrease in the money supply
b. a decrease in the price of oil
c. an increase in the money supply
d. an increase in the price of oil
e. an increase in labor productivity
29. If the government increased its spending and the Federal Reserve
increased the money supply, which of the following would we expect to
happen in the short run?
a. increases in both output and the price level
b. a decrease in output and an increase in the price level
c. decreases in both output and the price level
d. ambiguous changes in both output and the price level
e. a decrease in price level and an increase in output
30. If there was a large increase in unit costs, which of the following
could the Federal Reserve do to stabilize output in the short run?
a. increase the discount rate
b. do nothing
c. undertake an open market purchase of bonds
d. increase the required reserve ratio
e. undertake an open market sale of bonds
Review Questions: Chapter 13, Answers
Answer Key
1. > d
HallMA13 Ch 13 #3 (MC #3)
2. > e
HallMA13 Ch 13 #4 (MC #4)
3. > a
HallMA13 Ch 13 #7 (MC #7)
4. > d
HallMA13 Ch 13 #11 (MC #11)
5. > e
HallMA13 Ch 13 #13 (MC #13)
6. > b
HallMA13 Ch 13 #22 (MC #22)
7. > a
HallMA13 Ch 13 #26 (MC #26)
8. > c
HallMA13 Ch 13 #27 (MC #27)
9. > d
HallMA13 Ch 13 #37 (MC #37)
10. > d
HallMA13 Ch 13 #39 (MC #39)
11. > d
HallMA13 Ch 13 #40 (MC #40)
12. > a
HallMA13 Ch 13 #47 (MC #47)
13. > e
HallMA13 Ch 13 #49 (MC #49)
14. > c
HallMA13 Ch 13 #51 (MC #51)
15. > d
HallMA13 Ch 13 #53 (MC #53)
16. > b
HallMA13 Ch 13 #57 (MC #57)
17. > d
HallMA13 Ch 13 #61 (MC #61)
18. > a
HallMA13 Ch 13 #71 (MC #71)
19. > b
HallMA13 Ch 13 #91 (MC #91)
20. > d
HallMA13 Ch 13 #78 (MC #78)
21. > c
HallMA13 Ch 13 #81 (MC #81)
22. > b
HallMA13 Ch 13 #84 (MC #84)
23. > a
HallMA13 Ch 13 #93 (MC #93)
24. > d
HallMA13 Ch 13 #96 (MC #96)
25. > c
HallMA13 Ch 13 #95 (MC #95)
26. > b
HallMA13 Ch 13 #99 (MC #99)
27. > e
HallMA13 Ch 13 #102 (MC #102)
28. > e
HallMA13 Ch 13 #104 (MC #104)
29. > a
HallMA13 Ch 13 #120 (MC #120)
30. > c
HallMA13 Ch 13 #122 (MC #122)
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