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Multiple Choice Quiz
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1.
Graphically short-run equilibrium occurs at the intersection of the aggregate demand curve and the:
A)45 degree line.
B)Expenditure line.
C)Short-run aggregate supply line.
D)Long-run aggregate supply line.
E)Short-run aggregate supply line and the long-run aggregate supply line.
2.
Starting from long-run equilibrium, an increase in government budget deficits results in ____ output in the short run and _____ output in the long run.
A)Higher; higher
B)Higher; potential
C)Lower; potential
D)Lower; higher
E)Lower; lower
3.
Inflation shocks and shocks to potential output are called _____ shocks.
A)Monetary policy
B)Fiscal policy
C)Structural policy
D)Aggregate demand
E)Aggregate supply
4.
If the central bank moves to reduce the inflation rate in an economy that initially is at a long-run equilibrium, then in the short run output _____ and inflation _____.
A)Decreases; increases
B)Decreases; shows little or no reduction
C)Increases; increases
D)Increases; decreases
E)Increases; shows little or no reduction
5.
Which of the following will shift the aggregate demand curve to the left?
A)Income taxes are lowered.
B)The government increases spending on education.
C)Consumers become optimistic about the future.
D)A new technology is developed that will increase profits.
E)Foreign economies fall into recession.
6.
An increase in interest rates by the central bank based on a given policy reaction function represents a ____ the aggregate demand curve, but higher than normal interest rates resulting from an upward shift in the bank's policy reaction function represents a _____ the aggregate demand curve.
A)Shift left of; movement up
B)Shift left of ; shift right of
C)Movement up; movement down
D)Movement down; shift left of
E)Movement up; shift left of
7.
The aggregate demand curve slopes _____ because an increase in inflation _____ short-run equilibrium output.
A)Downward; reduces
B)Downward; increases
C)Downward; does not change
D)Upward; reduces
E)Upward; increases
8.
Sustained low inflation leads people to expect ____inflation and to agree to accept ____ increases in wages and prices.
A)High; high
B)High; low
C)High; no
D)Low; low
E)Low; no
9.
Starting from long-run equilibrium, the central bank cuts the real rate of interest at the current rate of inflation. We would expect to see a(n) _____ in short-run equilibrium output, a(n) ______ in long-run equilibrium output and a(n) ______ in the long-run rate of inflation.
A)Decrease; no change; no change
B)Decrease; no change; decrease
C)Increase; no change; increase
D)Increase; increase; decrease
E)Decrease; decrease; decrease
10.
Starting from long-run equilibrium, a negative shock to potential output will lead to a _____ long-run equilibrium output and a ______ long-run inflation rate.
A)Lower; higher
B)Lower; lower
C)Higher; higher
D)Lower; no change
E)Higher; lower





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