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1 | |
What is the main difference between the Aggregate Expenditures Model and the AD/ AS model? |
| | A) | The Aggregate Expenditures Model focuses on the supply side of the economy, while the AD/ AS model focuses on the demand side |
| | B) | The Aggregate Expenditures Model analyzes changes in the price level, while the AD/ AS model does not. |
| | C) | The Aggregate Expenditures Model emphasizes changes in Real GDP, whereas the AD/ AS model allows economists to analyze changes in both Real GDP and the price level. |
| | D) | None of the above |
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2 | |
The Aggregate Demand curve shows the relationship between Real GDP and _____, all else equal |
| | A) | Price level |
| | B) | Aggregate Expenditure |
| | C) | The real interest rate |
| | D) | Consumption spending |
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3 | |
Which of the following is not a reason for the downward-slope of the aggregate demand curve? |
| | A) | The real-balances effect |
| | B) | The substitution effect |
| | C) | The interest-rate effect |
| | D) | The foreign trade effect |
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4 | |
Which of the following statements is not true? |
| | A) | An increase in the price level will reduce the purchasing power of the public's financial assets. This will cause some households to reduce their consumption spending. |
| | B) | As the price level falls, consumers require less money for reduced purchases. This causes the demand for money to fall, and interest rates to fall. With lower borrowing costs for consumers and businesses, consumption and investment increase |
| | C) | When the Canadian price level rises relative to foreign price levels, net exports will increase, as foreigners demand more Canadian goods, and Canadians demand fewer foreign goods. |
| | D) | None of the above |
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5 | |
Which of the following factors will lead to an upward movement along the AD curve? |
| | A) | An increase in consumption spending |
| | B) | A reduction in taxes |
| | C) | A decrease in the value of the Canadian dollar |
| | D) | An increase the price level, due to an increase in inflation |
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6 | |
Which of the following would shift the Canadian Aggregate Demand curve to the right? |
| | A) | Households expect their future income to fall. |
| | B) | Real interest rates fall |
| | C) | The Canadian dollar rises in value |
| | D) | Business taxes rise |
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7 | |
Which of the following events will reduce the level of aggregate demand in Canada? |
| | A) | Japan, one of Canada's main trading partners, falls into a recession. |
| | B) | The Federal Government reduces health care spending |
| | C) | An increase in business taxes. |
| | D) | All of the above |
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8 | |
Which of the following is true? |
| | A) | If the economy is close to capacity, with resources almost fully employed, the AS curve will be flat |
| | B) | If the economy is in a recession, with idle resources, the AS curve will be steep |
| | C) | If the economy is at full capacity, then the AS curve will be vertical. |
| | D) | None of the above |
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9 | |
Which of the following will increase Canadian aggregate supply in the short-run? |
| | A) | An increase in gas prices, if gas is an input used by businesses to produce goods. |
| | B) | An increase in Canadian firms' productivity |
| | C) | An increase in business taxes |
| | D) | A decrease in the value of the Canadian dollar. |
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10 | |
The value for Real GDP where the Aggregate Demand and Aggregate Supply curves intersect is called... |
| | A) | Potential GDP |
| | B) | Below full-employment GDP |
| | C) | Equilibrium real domestic output |
| | D) | None of the above |
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11 | |
At a price level (P) above the equilibrium price, |
| | A) | The quantity of Real GDP demanded would be greater than the quantity of real GDP supplied. This would cause business inventories to decrease, resulting in more production, an increase in Real GDP and an increase in price level. |
| | B) | The quantity of real GDP demanded would be less than the quantity of real GDP supplied. This would cause business inventories to increase, resulting in less production, a decrease in Real GDP and a decrease in price level. |
| | C) | The quantity of real GDP demanded would be equal to the quantity of real GDP supplied. |
| | D) | None of the above |
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12 | |
An increase in interest rates, all else equal, will cause... |
| | A) | A decrease in both Real GDP and price level. |
| | B) | An increase in both Real GDP and price level |
| | C) | An increase in Real GDP, but a decrease in price level |
| | D) | A decrease in Real GDP, but an increase in price level |
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13 | |
Which of the following economic changes could cause a decrease in equilibrium Real GDP and an increase in equilibrium price level? |
| | A) | An increase in the value of the Canadian dollar, all else equal |
| | B) | An increase in productivity. |
| | C) | Businesses expect lower profits in the future. |
| | D) | Firms experience an increase in wages |
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14 | |
Price level increases tend to... |
| | A) | Strengthen the multiplier effect |
| | B) | Weaken the multiplier effect |
| | C) | Have no effect on the multiplier effect. |
| | D) | None of the above |
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15 | |
The textbook notes that late in the 1990's and early 2000 the Canadian economy experienced Real GDP growth of four percent, and very little inflation. How is this explained using the AD/AS model? |
| | A) | Canada's Aggregate demand curve shifted rightward during this time period due to large increases in consumption spending and business investment. |
| | B) | Canada's Aggregate supply curve shifted rightward due to increases in computer technology and productivity gains. |
| | C) | Canada's Aggregate demand curve shifted leftward during this period, causing the price level to fall. |
| | D) | Both choice 1 and choice 2 occurred, causing Real GDP to increase, but keeping the price level relatively constant. |
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16 | |
In the short run... |
| | A) | Nominal wages will increase |
| | B) | Real wages will fall, as the price level rises and nominal wages remain constant |
| | C) | Workers will have perfect information about price level changes |
| | D) | None of the above |
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17 | |
Which of the following statements describes the long run in macroeconomics? |
| | A) | Unions realize that the price level has risen since the last contract, so they attempt to negotiate a new wage contract for a 3% increase in nominal wage |
| | B) | Inflation over the last year was greater than expected, so real wages have fallen. |
| | C) | There is a fall in price level, reducing business profits. However, nominal wages remain constant. |
| | D) | None of the above |
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18 | |
Suppose that an economy is at potential GDP, at a point x on the long-run aggregate supply curve. If the price level increases in the short-run, all else equal, then... |
| | A) | Firms will realize greater profits, since revenues increase, but nominal wages are still fixed. As a result, real GDP will rise above its full employment level, and the unemployment rate will be below the natural rate of unemployment. |
| | B) | Firms will realize reduced profits since revenues fall, but nominal wages are still fixed. As a result, Real GDP falls below its full employment level, and the unemployment rate will be below the natural rate of unemployment. |
| | C) | Firms will realize greater profits, since revenues increase, but nominal wage costs are falling. As a result, Real GDP rises beyond its full employment level, and the unemployment rate will be above the natural rate of unemployment. |
| | D) | None of the above |
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19 | |
Thinking of the last question. The long run effects of the increase in price level are... |
| | A) | Nominal wages will decrease, and AS will shift leftward until the economy is operating at full employment |
| | B) | Nominal wages will increase, and AS will shift rightward until the economy will be operating above full employment. |
| | C) | Nominal wages will increase, and AS will shift leftward until the economy will be operating at full employment. |
| | D) | None of the above |
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20 | |
In the long run... |
| | A) | The economy will remain in a recessionary gap, without government intervention. |
| | B) | The economy will remain in an inflationary gap, without government intervention |
| | C) | The economy will return to its natural rate of unemployment, without government intervention |
| | D) | None of the above |
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21 | |
If equilibrium GDP< Potential GDP, then... |
| | A) | The economy will be in a recessionary gap |
| | B) | The economy will be in an inflationary gap. |
| | C) | The economy will return to full employment immediately. |
| | D) | The unemployment rate will be lower than the natural unemployment rate. |
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22 | |
Which of the following could help close a Canadian recessionary gap? |
| | A) | An increase in the value of the Canadian dollar |
| | B) | A decrease in nominal wage rates |
| | C) | Higher real interest rates |
| | D) | A decrease in expected profits by businesses |
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23 | |
Which of the following could help close a Canadian inflationary gap? |
| | A) | An increase in real interest rates |
| | B) | An increase in the value of the Canadian dollar |
| | C) | An increase in business taxes |
| | D) | All of the above |
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24 | |
Suppose the Canadian economy was initially at full employment, with AD and AS intersecting at potential GDP. A sudden increase in business investment would, in the short run... |
| | A) | Increase AD and push the economy into a recessionary gap |
| | B) | Increase AD and push the economy into an inflationary gap |
| | C) | Reduce AS and push the economy into a recessionary gap |
| | D) | Maintain the economy at full employment. |
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25 | |
Referring to the previous question, in the long run... |
| | A) | Nominal wages will increase, and the AS curve shifts rightward, closing the inflationary gap |
| | B) | Nominal wages decrease, and the AS curve shifts rightward, closing the recessionary gap |
| | C) | Nominal wages increase, and the AS curve shifts leftward, closing the inflationary gap |
| | D) | None of the above |
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2002 McGraw-Hill Higher Education