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1. According to the classical model, an increase in the money supply causes
a. output to increase in the long run.
b. the unemployment rate to fall in the long run.
c. prices to rise in the long run.
d. interest rates to fall in the long run.
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C
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2. The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for
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.
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C
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3. As the price level rises
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.
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A
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4. Other things the same, a decrease in the price level motivates people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.
c. more money, so they lend more, and the interest rate rises.
d. more money, so they lend less, and the interest rate falls.
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B
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5. Other things the same, when the price level rises, interest rates
a. rise, which means consumers will want to spend more on homebuilding.
b. rise, which means consumers will want to spend less on homebuilding.
c. fall, which means consumers will want to spend more on homebuilding.
d. fall, which means consumers will want to spend less on homebuilding.
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B
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6. Other things the same, when the price level falls, interest rates
a. rise, which means consumers will want to spend more on homebuilding.
b. rise, which means consumers will want to spend less on homebuilding.
c. fall, which means consumers will want to spend more on homebuilding.
d. fall, which means consumers will want to spend less on homebuilding.
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C
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7. When interest rates fall
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
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A
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8. When the dollar depreciates, each dollar buys
a. more foreign currency, and so buys more foreign goods.
b. more foreign currency, and so buys fewer foreign goods.
c. less foreign currency, and so buys more foreign goods.
d. less foreign currency, and so buys fewer foreign goods.
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D
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9. A decrease in U.S. interest rates leads to
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.
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A
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10. Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
a. real wealth falls.
b. the interest rate rises.
c. the dollar depreciates.
d. None of the above is correct.
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C
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11. Other things the same, the aggregate quantity of goods demanded decreases if
a. real wealth falls.
b. the interest rate rises.
c. the dollar appreciates.
d. All of the above are correct.
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D
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12. From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel
wealthier, then it would have shifted
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.
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A
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13. When taxes increase, consumption
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.
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B
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14. When taxes decrease, consumption
a. increases, so aggregate demand shifts right.
b. increases, so aggregate supply shifts right.
c. decreases, so aggregate demand shifts left.
d. decreases, so aggregate supply shifts left
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A
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15. Other things the same, an increase in the amount of capital firms wish to purchase would initially shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.
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A
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16. Suppose businesses in general believe that the economy is likely to head into recession and so they
reduce capital purchases. Their reaction would initially shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.
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B
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17. An increase in the money supply
a. and an investment tax credit both cause aggregate demand to shift right.
b. and an investment tax credit both cause aggregate demand to shift left.
c. causes aggregate demand to shift right, while an investment tax credit causes aggregate demand
to shift left.
d. causes aggregate demand to shift left, while an investment tax credit causes aggregate demand to
shift right.
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A
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18. Aggregate demand shifts right when the government
a. decreases taxes.
b. cuts military expenditures.
c. repeals an investment tax credit.
d. None of the above is correct.
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A
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19. Aggregate demand shifts right when the Federal Reserve
a. raises personal income taxes.
b. increases the money supply.
c. institutes an investment tax credit.
d. All of the above are correct.
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B
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20. Aggregate demand shifts left if
a. government purchases increase and shifts left if stock prices rise.
b. government purchases increase and shifts left if stock prices fall.
c. government purchases decrease and shifts left if stock prices rise.
d. government purchases decrease and shifts left is stock prices fall
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D
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21. If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports
a. increase which shifts aggregate demand right.
b. increase which shifts aggregate demand left.
c. decrease which shifts aggregate demand right.
d. decrease which shifts aggregate demand left.
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D
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22. Which of the following is correct?
a. The short-run, but not the long-run, aggregate supply curve is consistent with the idea that nominal
variables do not affect real variables.
b. The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal
variables do not affect real variables.
c. The long-run and short-run supply curves are both consistent with the idea that nominal variables
affect real variables.
d. Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal
variables affect real variables.
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B
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23. Which of the following shifts long-run aggregate supply right?
a. an increase in either technology or the human capital stock.
b. an increase in human capital but not technology.
c. an increase in technology, but not the human capital stock.
d. neither an increase in technology nor the human capital stock.
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A
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24. The long-run aggregate supply curve shifts right if
a. technology improves.
b. the price level decreases.
c. the money supply increases.
d. All of the above are correct.
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A
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25. Other things the same, if technology increases, then in the long run
a. both output and prices are higher.
b. output is higher and prices are lower.
c. output is lower and prices are higher.
d. both output and prices are lower
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B
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26. Other things the same, if prices fell when firms and workers were expecting them to rise, then
a. employment and production would rise.
b. employment would rise and production would fall.
c. employment would fall and production would rise.
d. employment and production would fall
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D
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27. When the price level rises more than expected, a firm with a sticky price will sell its output at a price
that is
a. less than it desires and increase its production.
b. less than it desires and decrease its production.
c. more than it desires and increase its production.
d. less than it desires and decrease its production
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A
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28. Economic expansions in Europe and China would cause
a. the U.S. price level and real GDP to rise.
b. the U.S. price level and real GDP to fall.
c. the U.S. price level to rise and real GDP to fall.
d. the U.S. price level to fall and real GDP to rise.
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A
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32. Refer to Optimism. In the short run what happens to the price level and real GDP?
a. both the price level and real GDP rise.
b. both the price level and real GDP fall.
c. the price level rises and real GDP falls.
d. the price level falls and real GDP rises
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A
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33. Refer to Optimism. How is the new long-run equilibrium different from the original one?
a. both price and real GDP are higher
b. both price and real GDP are lower.
c. the price level is the same and GDP is higher.
d. the price level is higher and real GDP is the same.
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D
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34. Refer to Pessimism. Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right.
d. aggregate supply shifts left.
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B
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35. Refer to Pessimism. In the short run what happens to the price level and real GDP?
a. Both the price level and real GDP rise.
b. Both the price level and real GDP fall.
c. The price level rises and real GDP falls.
d. The price level falls and real GDP rises.
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B
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36. Which of the following would cause stagflation?
a. rising government expenditures
b. rising oil prices
c. a falling money supply
d. technical progress
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B
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