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Chapter 29
AS-AD and the Business Cycle
29.1 Business-Cycle Definitions and Facts
1) The business cycle is defined as
A) changes in the stock market.
B) changes in financial markets.
C) persistent growth in potential GDP.
D) irregular ups and downs in production and jobs.
E) the period of time during which the unemployment rate is rising.
Answer: D
Topic: Business cycle
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: NAU
2) The task of identifying and dating business cycle phases and turning points is performed by
A) a private organization, the National Bureau of Economic Research.
B) a public organization, the Bureau of Labor Statistics.
C) a private organization, the Conference Board.
D) a public institution, the Commerce Department.
E) the Federal Reserve.
Answer: A
Topic: Business cycle
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: DMC
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3) A business cycle has two phases, called
A) expansion and recession.
B) boom and depression.
C) concave and convex.
D) elongation and contraction.
E) peak and depression.
Answer: A
Topic: Business cycle
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: DMC
4) A business cycle has two turning points, called a
A) low and a high.
B) peak and a trough.
C) top and a bottom.
D) ceiling and a floor.
E) max and a min.
Answer: B
Topic: Business cycle
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: DMC
Chapter 29 AS-AD and the Business Cycle
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5) Based on the figure above, in which quarter or quarters did a recession occur?
A) between 2000, 2nd quarter to 2001, 2nd quarter and also between 2002, 2nd quarter to
the end of the figure
B) in 2001, 2nd quarter
C) between 2001, 2nd quarter to 2002, 2nd quarter
D) in 2002, 2nd quarter
E) after 2002, 2nd quarter
Answer: C
Topic: Business cycle
Skill: Level 2: Using definitions
Objective: Checkpoint 29.1
Author: NAU
6) Based on the figure above, in which quarter or quarters did an expansion occur?
A) between 2000, 2nd quarter to 2001, 2nd quarter and also between 2002, 2nd quarter to
the end of the figure
B) in 2001, 2nd quarter
C) between 2001, 2nd quarter to 2002, 2nd quarter
D) in 2002, 2nd quarter
E) there are no expansions illustrated in the figure
Answer: A
Topic: Business cycle
Skill: Level 2: Using definitions
Objective: Checkpoint 29.1
Author: NAU
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7) Based on the figure above, in which quarter or quarters did a trough occur?
A) between 2000, 2nd quarter to 2001, 2nd quarter and also between 2002, 2nd quarter to
the end of the figure
B) in 2001, 2nd quarter
C) between 2001, 2nd quarter to 2002, 2nd quarter
D) in 2002, 2nd quarter
E) there are no troughs illustrated in the figure
Answer: D
Topic: Business cycle
Skill: Level 2: Using definitions
Objective: Checkpoint 29.1
Author: NAU
8) Based on the figure above, in which quarter or quarters did a peak occur?
A) between 2000, 2nd quarter to 2001, 2nd quarter and also between 2002, 2nd quarter to
the end of the figure
B) in 2001, 2nd quarter
C) between 2001, 2nd quarter to 2002, 2nd quarter
D) in 2002, 2nd quarter
E) there are no peaks illustrated in the figure
Answer: B
Topic: Business cycle
Skill: Level 2: Using definitions
Objective: Checkpoint 29.1
Author: NAU
9) During the business cycle, real GDP fluctuates around a
A) peak.
B) parabola.
C) trend.
D) trough.
E) recession.
Answer: C
Topic: Business cycle
Skill: Level 2: Using definitions
Objective: Checkpoint 29.1
Author: DMC
Chapter 29 AS-AD and the Business Cycle
10) In a recession
A) real GDP is equal to potential GDP.
B) potential GDP decreases.
C) there is no relationship between real GDP and potential GDP.
D) real GDP moves from above to below potential GDP.
E) potential GDP moves from above to below real GDP.
Answer: D
Topic: Business cycle
Skill: Level 2: Using definitions
Objective: Checkpoint 29.1
Author: TPS
11) During the business cycle,
A) real GDP fluctuates around nominal GDP.
B) nominal GDP fluctuates around real GDP.
C) real GDP fluctuates around its trend.
D) trend GDP fluctuates around real GDP.
E) real GDP falls after the trough.
Answer: C
Topic: Business cycle
Skill: Level 2: Using definitions
Objective: Checkpoint 29.1
Author: NAU
12) When real GDP is above its trend, resources are ____ and when real GDP is below trend,
resources are ____.
A) underused; overused
B) unemployed; fully employed
C) contracted; expanded
D) overused; underused
E) fully employed; underused
Answer: D
Topic: Business cycle
Skill: Level 2: Using definitions
Objective: Checkpoint 29.1
Author: DMC
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13) In order to be classified as a recession, a contraction of general economic activity must last
at least
A) one year.
B) six months.
C) one period.
D) one quarter.
E) None of the above because recessions do not have a minimum length.
Answer: B
Topic: Business cycle, recession
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: DMC
14) How long must a downturn in real GDP last before it is considered a recession?
A) one month
B) 3 months
C) six months
D) one year
E) two years
Answer: C
Topic: Business cycle, recession
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: TPS
15) A recession conventionally is defined as a decrease in
A) real GDP that lasts for at least six months.
B) the growth rate of real GDP that lasts for at least six months.
C) potential GDP that lasts for at least six months.
D) real GDP that lasts for at least three months.
E) the inflation rate that lasts for at least six months.
Answer: A
Topic: Business cycle, recession
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: NAU
Chapter 29 AS-AD and the Business Cycle
16) A recession is a decrease in real GDP that lasts for at least
A) three months.
B) six months.
C) two years.
D) one decade.
E) one year.
Answer: B
Topic: Business cycle, recession
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: NAU
17) A recession runs from the
A) peak of the business cycle to its trough.
B) peak of the business cycle to a recovery.
C) expansion of a business cycle to its peak.
D) trough of a business cycle to its peak.
E) trough of a business cycle to its expansion.
Answer: A
Topic: Business cycle, recession
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: NAU
18) The NBER has dated business cycles in the United States back to about
A) 1930.
B) 1850.
C) 1800.
D) 1700.
E) 1965.
Answer: B
Topic: Business cycle, history
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: NAU
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19) Since 1854, the average length of a recession in the United States is
A) 3 to 4 years.
B) 56 months.
C) 146 days.
D) 18 months.
E) 6 months.
Answer: D
Topic: Business cycle, history
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: DMC
20) In the United States since 1854, the average length of a recession is about
A) 2 months.
B) 18 months.
C) 48 months.
D) 90 months.
E) 6 months.
Answer: B
Topic: Business cycle, history
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: NAU
21) In the United States since 1854, the average length of an expansion is about
A) 6 months.
B) 3 years.
C) 6 years.
D) 12 years.
E) 1 year.
Answer: B
Topic: Business cycle, history
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: NAU
Chapter 29 AS-AD and the Business Cycle
22) Since 1854, the average length of an expansion in the United States is
A) 35 months.
B) 5 months.
C) 146 days.
D) 8 years.
E) 14 months.
Answer: A
Topic: Business cycle, history
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: DMC
23) In the United States, the ____ part of the business cycle has lasted the longest on the
average.
A) recession
B) trough
C) expansion
D) peak
E) high-trend
Answer: C
Topic: Business cycle, history
Skill: Level 2: Using definitions
Objective: Checkpoint 29.1
Author: TPS
24) The last recession in the United States was in
A) 2001.
B) 1991.
C) 1981.
D) 1975.
E) 2004
Answer: A
Topic: U.S. recent business cycle
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: NAU
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25) The longest expansion in U.S. history took place throughout most of the
A) 1880s.
B) 1930s.
C) 1970s.
D) 1990s.
E) 2000s.
Answer: D
Topic: U.S. recent business cycle
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: NAU
26) The business cycle is
A) a regular up and down movement in production and jobs.
B) an irregular up and down movement in production and jobs.
C) a regular movement in price changes.
D) an irregular movement in price changes.
E) an irregular up and down movement in the interest rate.
Answer: B
Topic: Business cycle
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: STUDY GUIDE
27) The turning point that reflects the end of an expansion is a
A) peak.
B) recession.
C) trough.
D) trend.
E) stoppage.
Answer: A
Topic: Business cycle
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: STUDY GUIDE
Chapter 29 AS-AD and the Business Cycle
28) A standard definition of recession is a decrease in real GDP that lasts for at least two
A) years.
B) quarters.
C) months.
D) weeks.
E) reference periods.
Answer: B
Topic: Business cycle, recession
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: STUDY GUIDE
29) Which organization or agency identifies and dates business cycle phases in the United
States?
A) Bureau of Economic Analysis
B) Department of Commerce
C) National Bureau of Economic Research
D) Federal Reserve System
E) Bureau of the Treasury
Answer: C
Topic: Business cycle, NBER
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: STUDY GUIDE
30) Since 1854, the NBER has identified approximately
A) 82 complete business cycles.
B) 33 expansions and 25 recessions.
C) 33 complete business cycles.
D) 25 expansions and 33 recessions.
E) 17 complete business cycles.
Answer: C
Topic: Business cycle, history
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: STUDY GUIDE
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31) During the twentieth century, recessions
A) have shortened and expansions have lengthened.
B) were as long as expansions.
C) have lengthened and expansions have shortened.
D) and expansions have shortened.
E) and expansions have not changed in length.
Answer: A
Topic: Business cycle, history
Skill: Level 1: Definition
Objective: Checkpoint 29.1
Author: STUDY GUIDE
29.2 Aggregate Supply
1) Over a business cycle, the quantities of capital, human capital, and entrepreneurial talent
A) change gradually and do not fluctuate much.
B) cycle alongside real GDP.
C) are completely unpredictable and cannot be forecast.
D) cycle more than real GDP.
E) are constant and do not change.
Answer: A
Topic: Aggregate supply basics
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: TPS
2) Potential GDP
A) increases as the price level increases because firms supply more goods and services.
B) decreases as the price level increases because people demand fewer goods and
services.
C) might either increase or decrease as the price level increases, depending on whether
aggregate demand increases or decreases.
D) is independent of the price level.
E) never changes.
Answer: D
Topic: Potential GDP
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: NAU
Chapter 29 AS-AD and the Business Cycle
3) The line showing potential GDP is a vertical straight line because
A) there is only one level of full employment at any point in time.
B) economists are unsure about how to determine potential GDP
C) it represents the minimum level of real GDP in a recession.
D) when nothing else changes, a higher price level has no effect on real GDP.
E) the aggregate supply curve is upward sloping.
Answer: A
Topic: Potential GDP
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: TPS
4) A rise in the price level produces a ____ the potential GDP line.
A) rightward shift of
B) movement downward along
C) leftward shift of
D) movement upward along
E) neither a shift of the potential GDP line nor a movement along
Answer: D
Topic: Potential GDP
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: DMC
5) Which of the following is true?
A) Aggregate supply is another name for potential GDP.
B) Potential GDP increases as the price level increases.
C) At full employment, aggregate supply is equal to potential GDP.
D) Potential GDP decreases as the price level increases.
E) The potential GDP line has a negative slope.
Answer: C
Topic: Potential GDP
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: NAU
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6) Moving along the potential GDP line, when the price level changes, the
i. real wage rate stays at the full-employment equilibrium level.
ii. money wage rate changes by the same percentage.
iii. money prices of non-labor resources change by the same percentage.
A) i only.
B) ii only.
C) iii only.
D) i and ii.
E) i, ii, and iii.
Answer: E
Topic: Potential GDP
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: TPS
7) The aggregate supply curve shows the relationship between
A) potential GDP and the price level.
B) potential GDP and real GDP.
C) the quantity of real GDP supplied and the price level.
D) the quantity of real GDP supplied and the interest rate.
E) potential GDP and the aggregate demand curve.
Answer: C
Topic: Aggregate supply
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: NAU
8) The slope of the aggregate supply curve shows that, all else the same, the
A) quantity of real GDP supplied increases as the price level increases.
B) quantity of real GDP supplied decreases as the price level increases.
C) quantity of real GDP supplied remains constant as the price level increases.
D) price level remains constant as real GDP increases.
E) price level remains constant as potential GDP increases.
Answer: A
Topic: Aggregate supply
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: NAU
Chapter 29 AS-AD and the Business Cycle
9) Other things remaining the same, an increase in the price level
A) increases aggregate supply.
B) decreases aggregate supply.
C) increases the quantity of real GDP supplied.
D) decreases the quantity of real GDP supplied.
E) neither change aggregate supply nor changes the quantity of real GDP supplied.
Answer: C
Topic: Aggregate supply
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: TPS
10) The ____ the ____ is the quantity of real GDP supplied.
A) lower the price level; greater
B) higher the price level; greater
C) greater the demand for labor; smaller
D) lower the supply of labor; greater
E) lower aggregate demand; greater
Answer: B
Topic: Aggregate supply
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: DMC
11) The slope of the aggregate supply curve shows that the ____ the price level, the
A) higher; greater is the quantity of real GDP supplied.
B) higher; smaller is the quantity of real GDP supplied.
C) lower; greater is the quantity of real GDP supplied.
D) higher; is the quantity of potential GDP supplied.
E) lower; is the quantity of potential GDP supplied.
Answer: A
Topic: Aggregate supply
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: DMC
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12) Because there is a ____ relationship between the price level and the quantity of real GDP
supplied, the aggregate supply curve is ____ curve.
A) negative; an upward-sloping
B) positive; a downward-sloping
C) positive; an upward-sloping
D) negative; a downward-sloping
E) positive; a vertical
Answer: C
Topic: Aggregate supply curve
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: DMC
13) If the money wage rate does not change, a decrease in the price level will ____ the real wage
rate and ____ firms' profit.
A) raise; decrease
B) raise; increase
C) lower; decrease
D) lower; increase
E) lower; not change
Answer: A
Topic: Aggregate supply, wage rate
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: NAU
14) The money wage rate is constant when moving along
A) only the aggregate supply curve.
B) only the aggregate supply curve and the potential GDP line.
C) only the potential GDP line.
D) neither the aggregate supply curve nor the potential GDP line.
E) the aggregate supply curve, the potential GDP line, and the aggregate demand curve.
Answer: A
Topic: Aggregate supply, wage rate
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: NAU
Chapter 29 AS-AD and the Business Cycle
15) Along the aggregate supply curve, the quantity of real GDP supplied increases when the
price level rises because
A) profits decrease.
B) the real wage rate falls.
C) the real wage rate rises.
D) the real wage rate and profits both fall.
E) the demand for the goods and services increases.
Answer: B
Topic: Aggregate supply, wage rate
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: NAU
16) An increase in the price level leads to
A) an upward movement along the aggregate supply curve.
B) a downward movement along the aggregate supply curve.
C) a leftward shift of the aggregate supply curve.
D) a rightward shift of the aggregate supply curve.
E) neither a movement along the aggregate supply curve nor a shift of the aggregate
supply curve.
Answer: A
Topic: Aggregate supply, price level
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: NAU
17) Moving along the aggregate supply curve,
A) the quantity of capital used increases.
B) only the price level changes.
C) technology advances.
D) the stock of human capital increases.
E) the real wage rate is constant.
Answer: B
Topic: Aggregate supply curve
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: TPS
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18) ____ increases the quantity of real GDP supplied and is shown as a movement along the AS
curve.
A) A decrease in the quantity of money
B) A decrease in consumption expenditure
C) A fall in the expected rate of profit
D) A rise in the price level
E) An increase in potential GDP
Answer: D
Topic: Aggregate supply curve
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: TPS
19) A change in the price level brings a ____ the aggregate supply curve, NOT a ____ the
aggregate supply curve.
A) shift in; movement along
B) vertical displacement of; change in the slope of
C) movement along; shift in
D) change in the slope of; horizontal displacement of
E) shift in; change in the slope of
Answer: C
Topic: Aggregate supply, price level
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: DMC
20) A rise in the price level produces a ____ the aggregate supply curve.
A) rightward shift of
B) movement downward along
C) leftward shift of
D) movement upward along
E) rightward shift of the aggregate supply curve and a movement downward along
Answer: D
Topic: Aggregate supply, price level
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: DMC
Chapter 29 AS-AD and the Business Cycle
21) A fall in the price level produces a ____ the aggregate supply curve.
A) rightward shift of
B) movement downward along
C) leftward shift of
D) movement upward along
E) rightward shift of the aggregate supply curve and a movement downward along
Answer: B
Topic: Aggregate supply, price level
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: DMC
22) Changes in which of the following do NOT shift the AS curve?
i. the price level
ii. potential GDP
iii. the money wage rate
A) i only.
B) ii only.
C) iii only.
D) i and ii.
E) i, ii, and iii.
Answer: A
Topic: Aggregate supply, price level
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: TPS
23) The aggregate supply curve slopes ____ because a ____ in the price level brings a ____ in
the real wage rate.
A) upward; rise; rise
B) downward; fall; rise
C) upward; rise; fall
D) upward; fall; fall
E) downward; rise; rise
Answer: C
Topic: Aggregate supply, price level
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: DMC
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24) It is profitable to hire more labor if the price level ____ and the money wage rate ____.
A) rises; falls
B) falls; rises
C) falls; does not change
D) does not change; rises
E) rises; rises by the same percentage
Answer: A
Topic: Aggregate supply, price level
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: TPS
25) A fall in the price level brings a ____ in the real wage rate that ____ profits and can lead to
____.
A) rise; reduces; firms going out of business
B) rise; reduces; new firms entering business
C) fall; increases; firms going out of business
D) rise; increases; new firms entering business
E) fall; decreases; new firms entering business
Answer: A
Topic: Aggregate supply, price level
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: DMC
26) A fall in the price level brings a ____ in the real wage rate that ____ profits and can lead to
____.
A) rise; reduces; firms restarting production
B) rise; reduces; firms temporarily shutting down
C) fall; increases; firms temporarily shutting down
D) rise; increases; firms restarting production
E) rise; increases; firms temporarily shutting down
Answer: B
Topic: Aggregate supply, price level
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: DMC
Chapter 29 AS-AD and the Business Cycle
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27) If the price level falls and the money wage rate does not change, some firms ____ and there
is ____.
A) shut down; a leftward shift of the aggregate supply curve
B) start up; a rightward shift of the aggregate supply curve
C) shut down; a decrease in the quantity of real GDP supplied
D) shut down; a decrease in potential GDP
E) start up; an increase in potential GDP
Answer: C
Topic: Aggregate supply, price level
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: MR
28) A rise in the price level brings a ____ in the real wage rate that ____ profits and can lead to
____ production.
A) rise; reduces; decreasing
B) rise; reduces; increasing
C) fall; increases; increasing
D) rise; increases; decreasing
E) fall; decreases; decreasing
Answer: C
Topic: Aggregate supply, price level
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: DMC
29) When the price level rises and the money wage rate does not change,
A) the quantity of real GDP supplied increases as more businesses start up and potential
GDP does not change.
B) the quantity of real GDP supplied decreases as more businesses fail and potential GDP
does not change.
C) profits fall and more businesses fail.
D) existing businesses do not change their level of output.
E) the quantity of potential GDP increases because the quantity of real GDP supplied
increases.
Answer: A
Topic: Aggregate supply, price level
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: NAU
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30) Changes in which of the following shifts the aggregate supply curve?
i. the price level.
ii. the money wage rate.
iii. potential GDP.
A) i only.
B) ii only.
C) iii only.
D) ii and iii.
E) i, ii, and iii.
Answer: D
Topic: Changes in aggregate supply
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: DMC
31) An increase in the money wage rate leads to
A) an upward movement along the aggregate supply curve.
B) a downward movement along the aggregate supply curve.
C) a leftward shift of the aggregate supply curve.
D) a rightward shift of the aggregate supply curve.
E) a leftward shift of the aggregate demand curve.
Answer: C
Topic: Changes in aggregate supply, money wage rate
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: NAU
32) An increase in the money wage rate shifts the
A) AD curve rightward.
B) AD curve leftward.
C) AS curve rightward.
D) AS curve leftward.
E) potential GDP curve rightward.
Answer: D
Topic: Changes in aggregate supply, money wage rate
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: MR
Chapter 29 AS-AD and the Business Cycle
33) ____ decreases aggregate supply.
A) An increase in potential GDP
B) An increase the quantity of capital
C) A rise in the price level
D) A rise in the money wage rate
E) A fall in the money wage rate
Answer: D
Topic: Changes in aggregate supply, money wage rate
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: TPS
34) A fall in the money wage rate ____ aggregate supply and ____.
A) decreases; shifts the AS curve rightward
B) increases; shifts the AS curve leftward
C) increases; shifts the AS curve rightward
D) decreases; shifts the AS curve leftward
E) does not change; does not shift the AS curve.
Answer: C
Topic: Changes in aggregate supply, money wage rate
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: DMC
35) If the costs of production decrease, there is
A) an increase in aggregate supply and the AS curve shifts rightward.
B) a decrease in aggregate supply and the AS curve shifts leftward .
C) an increase in the quantity of real GDP supplied and a movement up along the AS
curve.
D) a decrease in the quantity of real GDP supplied and a movement down along the AS
curve.
E) an increase in aggregate supply and the AS curve shifts leftward.
Answer: A
Topic: Shifts in the aggregate supply curve
Skill: Level 3: Using models
Objective: Checkpoint 29.2
Author: TPS
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36) If the costs of production increase, there is
A) an increase in aggregate supply and the AS curve shifts rightward.
B) a decrease in aggregate supply and the AS curve shifts leftward .
C) an increase in the quantity of real GDP supplied and a movement up along the AS
curve.
D) a decrease in the quantity of real GDP supplied and a movement down along the AS
curve.
E) a decrease in aggregate supply and the AS curve shifts rightward .
Answer: B
Topic: Shifts in the aggregate supply curve
Skill: Level 3: Using models
Objective: Checkpoint 29.2
Author: TPS
37) Which of the following shifts the aggregate supply curve leftward?
A) a decrease in potential GDP
B) a fall in the money wage rate
C) a decrease in the price level
D) a fall in the real wage rate
E) an increase in potential GDP
Answer: A
Topic: Changes in aggregate supply, potential GDP
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: NAU
38) A technological advance ____ potential GDP, ____ aggregate supply, and shifts the
aggregate supply curve ____.
A) increases; increases; leftward
B) decreases; decreases; leftward
C) increases; increases; rightward
D) decreases; increases; rightward
E) increases; decreases; leftward
Answer: C
Topic: Changes in aggregate supply, potential GDP
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: DMC
Chapter 29 AS-AD and the Business Cycle
39) An increase in potential GDP ____ aggregate supply and ____.
A) decreases; shifts the AS curve rightward
B) increases; shifts the AS curve leftward
C) increases; shifts the AS curve rightward
D) decreases; shifts the AS curve leftward
E) has no effect on; does not shift the AS curve.
Answer: C
Topic: Changes in aggregate supply, potential GDP
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: DMC
40) If potential GDP increases, then the
A) aggregate supply curve shifts leftward.
B) aggregate supply curve shifts rightward.
C) real wage rate increases.
D) real wage rate falls.
E) aggregate demand curve shifts rightward.
Answer: B
Topic: Changes in aggregate supply, potential GDP
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: NAU
41) If potential GDP increases,
A) aggregate supply does not change.
B) the quantity of aggregate supply decreases.
C) aggregate supply increases.
D) the price level rises.
E) the money wage rate must have fallen.
Answer: C
Topic: Changes in aggregate supply, potential GDP
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: TPS
1165
1166
Bade/Parkin œ Foundations of Economics, Third Edition
42) When potential GDP increases the potential GDP line ____ and the aggregate supply curve
____.
A) shifts rightward; shifts rightward
B) shifts rightward; shifts leftward
C) shifts leftward; shifts rightward
D) shifts leftward; shifts leftward
E) shifts rightward; does not shift
Answer: A
Topic: Changes in aggregate supply, technology
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: NAU
43) Moving along the potential GDP line, the money wage rate changes by the same percentage
as the price level so that the real wage rate
A) increases.
B) decreases.
C) stays at the full-employment equilibrium level.
D) might either increase or decrease.
E) stays the same, though not necessarily at the full-employment equilibrium level.
Answer: C
Topic: Potential GDP
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: STUDY GUIDE
44) The aggregate supply curve is
A) upward sloping.
B) downward sloping.
C) a vertical line.
D) a horizontal line.
E) U-shaped.
Answer: A
Topic: Aggregate supply curve
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: STUDY GUIDE
Chapter 29 AS-AD and the Business Cycle
45) When the price level falls,
A) the AS curve shifts rightward but the potential GDP line does not shift.
B) there is a movement upward along the AS curve.
C) the AS curve shifts leftward but the potential GDP line does not shift.
D) there is a movement downward along the AS curve.
E) both the potential GDP line and the AS curve shift leftward.
Answer: D
Topic: Aggregate supply, price level
Skill: Level 1: Definition
Objective: Checkpoint 29.2
Author: STUDY GUIDE
46) As the price level rises relative to costs and the real wage rate falls, profits ____ and the
number of firms in business ____.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
E) do not change; do not change
Answer: A
Topic: Aggregate supply, price level
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: STUDY GUIDE
47) When potential GDP increases,
A) the AS curve shifts rightward.
B) there is a movement up along the AS curve.
C) the AS curve shifts leftward.
D) there is a movement down along the AS curve.
E) there is neither a movement along nor a shift in the AS curve.
Answer: A
Topic: Changes in aggregate supply, potential GDP
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: STUDY GUIDE
1167
1168
Bade/Parkin œ Foundations of Economics, Third Edition
48) If the money wage rate rises,
A) the AS curve shifts rightward.
B) there is a movement up along the AS curve.
C) the AS curve shifts leftward.
D) there is a movement down along the AS curve.
E) there is neither a movement along or a shift in the AS curve.
Answer: C
Topic: Changes in aggregate supply, money wage rate
Skill: Level 2: Using definitions
Objective: Checkpoint 29.2
Author: STUDY GUIDE
29.3 Aggregate Demand
1) The aggregate demand curve illustrates the relationship between
A) the price level and the quantity of goods demanded by households, firms, government,
and foreigners.
B) the real wage rate and the hours of labor demanded by firms.
C) the price level and the potential quantity demanded of real GDP.
D) the price level and the quantity of goods supplied by firms.
E) the price level and the potential demand for real GDP.
Answer: A
Topic: Aggregate demand curve
Skill: Level 1: Definition
Objective: Checkpoint 29.3
Author: NAU
2) Which of the following produces a movement along the aggregate demand curve and does
not shift the aggregate demand curve?
A) a change in foreign incomes
B) a change in the price level
C) a change in monetary policy
D) a change in expectations about the future
E) a change in government expenditures on goods and services
Answer: B
Topic: Aggregate demand curve
Skill: Level 1: Definition
Objective: Checkpoint 29.3
Author: NAU
Chapter 29 AS-AD and the Business Cycle
1169
3) A change in the price level brings a ____ the aggregate demand curve.
i. shift in
ii. change in the slope of
iii. movement along
A) i only.
B) ii only.
C) iii only.
D) i and iii.
E) i and ii.
Answer: C
Topic: Changes in the price level
Skill: Level 1: Definition
Objective: Checkpoint 29.3
Author: MR
4) A fall in the price level produces a ____ the aggregate demand curve.
A) rightward shift of
B) movement downward along
C) leftward shift of
D) movement upward along
E) change in the slope of
Answer: B
Topic: Changes in the price level
Skill: Level 1: Definition
Objective: Checkpoint 29.3
Author: DMC
5) A rise in the U.S. price level brings a ____ in the price of U.S. exports relative to imports that
____ exports of U.S. goods, bringing a ____ in the quantity of U.S. real GDP demanded.
A) rise; decreases; decrease
B) fall; decreases ; decrease
C) fall; increases ; increase
D) rise; increases ; increase
E) rise; increases; decrease
Answer: A
Topic: Relative price of domestic and foreign goods
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: DMC
1170
Bade/Parkin œ Foundations of Economics, Third Edition
6) A rise in the price level brings a ____ in the buying power of money that ____ consumption
expenditures and causes the quantity of real GDP demanded to ____.
A) rise; decreases; decrease
B) fall; decreases; decrease
C) fall; increases; increase
D) rise; increases; increase
E) fall; decreases; increases
Answer: B
Topic: Buying power of money
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: DMC
7) When the price level increases there is ____ movement along the aggregate demand curve
because the buying power of money ____.
A) an upward; decreases
B) a downward; decreases
C) an upward; increases
D) a downward; increases
E) no; does not change
Answer: A
Topic: Buying power of money
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: NAU
8) In the short run, a rise in the price level brings a ____ in the real interest rate that ____
investment, bringing ____ in the quantity of real GDP demanded.
A) rise; decreases; a decrease
B) fall; decreases ; a decrease
C) fall; increases ; an increase
D) rise; increases ; an increase
E) rise; decreases; an increase
Answer: A
Topic: Real interest rate
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: DMC
Chapter 29 AS-AD and the Business Cycle
9) The aggregate demand curve shifts when any of the following factors change EXCEPT
A) foreign income.
B) the price level.
C) monetary policy.
D) expectations about the future.
E) fiscal policy
Answer: B
Topic: Changes in aggregate demand
Skill: Level 1: Definition
Objective: Checkpoint 29.3
Author: DMC
10) Which of the following does NOT shift the aggregate demand curve?
A) a change in the money wage
B) a change in expectations about the future
C) a change in monetary policy
D) a change in fiscal policy
E) a change in foreign income
Answer: A
Topic: Changes in aggregate demand
Skill: Level 1: Definition
Objective: Checkpoint 29.3
Author: NAU
11) If there is an increase in expected future income, then
A) the aggregate demand curve shifts rightward.
B) the aggregate demand curve shifts leftward.
C) there is an upward movement along the aggregate demand curve.
D) there is a downward movement along the aggregate demand curve.
E) the aggregate demand curve becomes steeper.
Answer: A
Topic: Changes in aggregate demand, expectations
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: NAU
1171
1172
Bade/Parkin œ Foundations of Economics, Third Edition
12) Which of the following shifts the aggregate demand curve rightward?
A) a decrease in expected future income
B) a decrease in the price level
C) a tax cut
D) a decrease in the quantity of money
E) a decrease in government expenditures on goods and services
Answer: C
Topic: Changes in aggregate demand, fiscal policy
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: NAU
13) A tax cut ____ aggregate demand and ____.
A) decreases; shifts the AD curve rightward
B) increases; shifts the AD curve leftward
C) increases; shifts the AD curve rightward
D) decreases; shifts the AD curve leftward
E) does not change; does not shift the AD curve
Answer: C
Topic: Changes in aggregate demand, fiscal policy
Skill: Level 3: Using models
Objective: Checkpoint 29.3
Author: DMC
14) A tax cut ____ aggregate demand and shifts the aggregate demand curve ____.
A) increases; rightward
B) increases; leftward
C) decreases; rightward
D) decreases; leftward
E) does not change; rightward
Answer: A
Topic: Changes in aggregate demand, fiscal policy
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: DMC
Chapter 29 AS-AD and the Business Cycle
1173
15) If taxes are cut, there is
A) an increase in aggregate demand and the AD curve shifts rightward.
B) a decrease in aggregate demand and the AD curve shifts leftward .
C) an increase in the quantity of real GDP demanded and a movement up along the AD
curve.
D) a decrease in the quantity of real GDP demanded and a movement down along the AD
curve.
E) no change in aggregate demand, only a change in potential GDP.
Answer: A
Topic: Changes in aggregate demand, fiscal policy
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: TPS
16) An increase in the quantity of money ____ aggregate demand and ____.
A) increases; shifts the aggregate demand curve rightward
B) increases; shifts the aggregate demand curve leftward
C) decreases; shifts the aggregate demand curve rightward
D) decreases; shifts the aggregate demand curve leftward
E) increases; rotates the aggregate demand curve so it is steeper
Answer: A
Topic: Changes in aggregate demand, quantity of money
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: DMC
17) A decrease in foreign income ____ exports of U.S.-made goods, so aggregate demand ____
and the aggregate demand curve shifts ____.
A) increases; increases; rightward
B) decreases; decreases; leftward
C) decreases; increases; rightward
D) increases; increases; leftward
E) decreases; decreases; rightward
Answer: B
Topic: Changes in aggregate demand, foreign income
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: DMC
1174
Bade/Parkin œ Foundations of Economics, Third Edition
18) Suppose the exchange rate in the year 2005 was 4 yuan per dollar and in 2006 the exchange
rate fell to 3 yuan per dollar. If the price of a Chinese sweater was 120 yuan in both years,
the new dollar price in 2006 would be ____ and imports of Chinese sweaters would ____.
A) $40; increase
B) $30; decrease
C) $40; decrease
D) $30; increase
E) $40; stay the same because the price stayed the same at 120 yuan
Answer: C
Topic: Changes in aggregate demand, foreign exchange rate
Skill: Level 3: Using models
Objective: Checkpoint 29.3
Author: NAU
19) Because of the existence of the aggregate demand multiplier, a $10 billion change in
expenditure
A) shifts the aggregate demand curve by more than exceeds $10 billion.
B) shifts the aggregate demand curve by $10 billion.
C) shifts the aggregate demand curve by less than $10 billion.
D) changes the slope of the aggregate demand curve so it is less steep.
E) changes the slope of the aggregate demand curve so it is steeper.
Answer: A
Topic: Aggregate demand multiplier
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: DMC
20) If investment spending increases by $1 million, then the aggregate demand curve shifts
A) rightward by $1 million.
B) rightward by more than $1 million.
C) rightward by less than $1 million.
D) leftward by more than $1 million.
E) leftward by less than $1 million.
Answer: B
Topic: Aggregate demand multiplier
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: NAU
Chapter 29 AS-AD and the Business Cycle
21) When the price level rises there is a ____ the aggregate demand curve.
A) rightward shift of
B) movement down along
C) leftward shift of
D) movement up along
E) rotation of
Answer: D
Topic: Changes in the price level
Skill: Level 1: Definition
Objective: Checkpoint 29.3
Author: STUDY GUIDE
22) A rise in the price level
A) raises the buying power of money.
B) decreases the prices of exports.
C) lowers the buying power of money.
D) increases aggregate demand.
E) makes the aggregate demand curve steeper.
Answer: C
Topic: Buying power of money
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: STUDY GUIDE
23) When the price level rises, the real interest rate ____ and the quantity of real GDP
demanded ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
E) does not change; does not change
Answer: B
Topic: Real interest rate
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: STUDY GUIDE
1175
1176
Bade/Parkin œ Foundations of Economics, Third Edition
24) A change in any of the following factors EXCEPT ____ shifts the aggregate demand curve.
A) expectations about the future
B) the money wage rate
C) monetary and fiscal policy
D) foreign income
E) the foreign exchange rate
Answer: B
Topic: Changes in aggregate demand
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: STUDY GUIDE
25) Which of the following shifts the aggregate demand curve leftward?
A) a decrease in government expenditures on goods and services
B) an increase in the price level
C) a tax cut
D) an increase in foreign income
E) a decrease in the price level
Answer: A
Topic: Changes in aggregate demand, expectations
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: STUDY GUIDE
26) When investment increases, the ____ in aggregate demand is ____ the change in investment.
A) increase; greater than
B) increase; smaller than
C) increase; the same as
D) decrease; the same as
E) decrease; greater than
Answer: A
Topic: Aggregate demand multiplier
Skill: Level 2: Using definitions
Objective: Checkpoint 29.3
Author: STUDY GUIDE
Chapter 29 AS-AD and the Business Cycle
1177
29.4 Understanding the Business Cycle
1) Macroeconomic equilibrium occurs when
A) there is no inflation.
B) real GDP is equal to potential GDP.
C) the aggregate quantity demanded is equal to the aggregate quantity supplied.
D) the economy is fully employed.
E) the price level equals the potential price level.
Answer: C
Topic: Macroeconomic equilibrium
Skill: Level 1: Definition
Objective: Checkpoint 29.4
Author: NAU
2) A macroeconomic equilibrium occurs when the
A) quantity of real GDP demanded is greater than the quantity of real GDP supplied.
B) quantity of real GDP demanded is less than the quantity of real GDP supplied.
C) quantity of real GDP demanded equals the quantity of real GDP supplied even if they
are not equal to potential GDP.
D) quantity of real GDP demanded equals the quantity of real GDP supplied and both
equal potential GDP.
E) None of the above answers is correct.
Answer: C
Topic: Macroeconomic equilibrium
Skill: Level 1: Definition
Objective: Checkpoint 29.4
Author: TPS
3) If the economy is at macroeconomic equilibrium, then real GDP
A) must equal potential GDP.
B) must be less than potential GDP.
C) must be great than potential GDP.
D) might be equal to, greater than, or less than potential GDP
E) cannot be compared to potential GDP.
Answer: D
Topic: Macroeconomic equilibrium
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: MR
1178
Bade/Parkin œ Foundations of Economics, Third Edition
4) In its macroeconomic equilibrium, the economy can be producing at
i. below full employment.
ii. full employment.
iii. above full employment.
A) i only.
B) ii only.
C) iii only
D) i or ii.
E) i, ii, or iii.
Answer: E
Topic: Macroeconomic equilibrium
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: TPS
5) If the quantity of real GDP demanded is less than the quantity of real GDP supplied, then
A) the economy must be producing at potential GDP.
B) the price level falls and firms decrease production.
C) the price level falls and firms increase production.
D) the price level rises to restore the macroeconomic equilibrium
E) aggregate demand changes to restore the equilibrium.
Answer: B
Topic: Macroeconomic equilibrium
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: TPS
6) If the quantity of real GDP demanded is greater than the quantity of real GDP supplied,
then
A) the economy must be producing at potential GDP.
B) the price level falls and firms decrease production.
C) the price level rises and firms increase production.
D) the price level falls to restore the macroeconomic equilibrium
E) aggregate demand changes to restore equilibrium.
Answer: C
Topic: Macroeconomic equilibrium
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: TPS
Chapter 29 AS-AD and the Business Cycle
1179
7) If the equilibrium price level is 135 but the actual price level is 150, then
A) firms increase their production because they are able to sell their output at a higher
than expected price.
B) the quantity of real GDP demanded is less than the quantity of real GDP supplied.
C) the quantity of real GDP demanded is greater than the quantity of real GDP supplied.
D) aggregate demand will increase to restore equilibrium.
E) aggregate demand will decrease to restore equilibrium.
Answer: B
Topic: Macroeconomic equilibrium
Skill: Level 4: Applying models
Objective: Checkpoint 29.4
Author: TPS
8) If the equilibrium price level is 135 but the actual price level is 120, then
A) firms decrease their production because they cannot sell the output they produce.
B) the quantity of real GDP demanded is less than the quantity of real GDP supplied.
C) the quantity of real GDP demanded is greater than the quantity of real GDP supplied.
D) aggregate demand will increase to restore equilibrium.
E) aggregate demand will decrease to restore equilibrium.
Answer: C
Topic: Macroeconomic equilibrium
Skill: Level 4: Applying models
Objective: Checkpoint 29.4
Author: TPS
9) An increase in government expenditures on goods and services ____ aggregate demand,
shifting the aggregate demand curve ____ and potentially bringing the ____ phase of the
business cycle.
A) decreases; rightward; expansion
B) increases; rightward; recession
C) decreases; leftward; recession
D) increases; rightward; expansion
E) increases; leftward; recession
Answer: D
Topic: Aggregate demand fluctuations
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: DMC
1180
Bade/Parkin œ Foundations of Economics, Third Edition
10) A technological advance ____ aggregate supply, shifting the aggregate supply curve ____
and potentially bringing the ____ phase of the business cycle.
A) decreases; rightward; expansion
B) decreases; leftward recession
C) increases; rightward; expansion
D) increases; rightward; recession
E) increases; leftward; expansion
Answer: C
Topic: Aggregate supply fluctuations
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: DMC
11) An increase in the price of oil ____ aggregate supply, shifting the aggregate supply curve
____ and potentially bringing the ____ phase of the business cycle.
A) decreases; rightward; expansion
B) increases; rightward; recession
C) increases; rightward; expansion
D) decreases; leftward; recession
E) decreases; rightward; recession
Answer: D
Topic: Aggregate supply fluctuations
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: DMC
12) Which of the following could result in a recession?
A) a rise in the price of oil
B) an increase in investment
C) a tax cut
D) an increase in the quantity of money
E) an increase in government expenditures on goods and services
Answer: A
Topic: Aggregate supply fluctuations
Skill: Level 3: Using models
Objective: Checkpoint 29.4
Author: NAU
Chapter 29 AS-AD and the Business Cycle
1181
13) A combination of recession and inflation is called
A) an expansion.
B) stagflation.
C) a business cycle.
D) depression.
E) a recession.
Answer: B
Topic: Stagflation
Skill: Level 1: Definition
Objective: Checkpoint 29.4
Author: NAU
14) During an inflationary gap,
A) real GDP is less than potential GDP.
B) the aggregate demand curve and the aggregate supply curve intersect at potential
GDP.
C) the aggregate demand curve and the aggregate supply curve intersect at a level of real
GDP that exceeds potential GDP.
D) the aggregate demand curve and the aggregate supply curve do not intersect.
E) the price level will fall to restore the long-run equilibrium.
Answer: C
Topic: Inflationary gap
Skill: Level 1: Definition
Objective: Checkpoint 29.4
Author: NAU
15) Starting from a situation of full employment, an increase in aggregate demand will ____ the
price level, leading to ____
A) raise; an inflationary gap
B) lower; a recessionary gap
C) raise; a recessionary gap
D) lower; an inflationary gap
E) not change; potential GDP increasing.
Answer: A
Topic: Inflationary gap
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: DMC
1182
Bade/Parkin œ Foundations of Economics, Third Edition
16) Which of the following leads to a recessionary gap?
A) a fall in the price level
B) a tax increase
C) a fall in money wages
D) an increase in expected income
E) an increase in foreign incomes
Answer: B
Topic: Recessionary gap
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: NAU
17) Starting from a situation of full employment, a decrease in aggregate demand ____ the price
level, leading to ____.
A) raises; an inflationary gap
B) lowers; a recessionary gap
C) raises; a recessionary gap
D) lowers; an inflationary gap
E) does not change; a decrease in potential GDP
Answer: B
Topic: Recessionary gap
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: DMC
Chapter 29 AS-AD and the Business Cycle
Price level
(GDP deflator)
150
140
130
120
110
1183
Potential GDP
Real GDP supplied
Real GDP demanded
(billions of 2000 dollars) (billions of 2000 dollars) (billions of 2000 dollars)
25
34
16
25
31
19
25
28
22
25
25
25
25
23
28
18) The table above gives data for the nation of Pearl, a small island in the South Pacific. The
economy is at full employment when real GDP is
A) $25 billion.
B) $28 billion.
C) $22 billion.
D) $31 billion.
E) $34 billion.
Answer: A
Topic: Equilibrium AD and AS
Skill: Level 3: Using models
Objective: Checkpoint 29.4
Author: DMC
19) The table above gives data for the nation of Pearl, a small island in the South Pacific. When
the economy is at full employment the price level is
A) 130.
B) 120.
C) 110.
D) 140.
E) 150.
Answer: B
Topic: Equilibrium AD and AS
Skill: Level 3: Using models
Objective: Checkpoint 29.4
Author: DMC
1184
Bade/Parkin œ Foundations of Economics, Third Edition
20) The table above gives data for the nation of Pearl, a small island in the South Pacific. If a
supply shock decreases the quantity of real GDP supplied by $6 billion at each price level,
the new equilibrium real GDP is
A) $16 billion.
B) $19 billion.
C) $22 billion.
D) $23 billion.
E) $17 billion.
Answer: C
Topic: Equilibrium AD and AS
Skill: Level 3: Using models
Objective: Checkpoint 29.4
Author: DMC
21) The table above gives data for the nation of Pearl, a small island in the South Pacific. If
aggregate demand increases so that the quantity of real GDP demanded is $6 billion more
at each price level, the new equilibrium real GDP is
A) $34 billion.
B) $31 billion.
C) $28 billion.
D) $25 billion.
E) $23 billion.
Answer: C
Topic: Equilibrium AD and AS
Skill: Level 3: Using models
Objective: Checkpoint 29.4
Author: DMC
Chapter 29 AS-AD and the Business Cycle
22) According to the figure above, which point or points correspond to full employment?
A) only point a
B) only point b
C) only point c
D) points a and b
E) points a, b, and c
Answer: D
Topic: Adjustment to full employment
Skill: Level 3: Using models
Objective: Checkpoint 29.4
Author: NAU
23) Oil price hikes
A) increase aggregate supply.
B) decrease aggregate supply.
C) increase aggregate demand.
D) decrease aggregate demand.
E) increase potential GDP.
Answer: B
Topic: Eye on the past, oil price cycles in the U.S. and global economies
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: TPS
1185
1186
Bade/Parkin œ Foundations of Economics, Third Edition
24) If the quantity of real GDP supplied equals the quantity of real GDP demanded, then
A) nominal GDP must equal real GDP.
B) real GDP must equal potential GDP.
C) real GDP must be greater than potential GDP.
D) real GDP might be greater than, equal to, or less than potential GDP.
E) real GDP must be less than potential GDP.
Answer: D
Topic: Macroeconomic equilibrium
Skill: Level 1: Definition
Objective: Checkpoint 29.4
Author: STUDY GUIDE
25) An increase in investment ____ aggregate demand, the aggregate demand curve shifts ____
and the economy is in the ____ phase of the business cycle.
A) decreases; rightward; expansion
B) increases; rightward; expansion
C) decreases; leftward; recession
D) increases; rightward; recession
E) increases; leftward; recession
Answer: B
Topic: Aggregate demand fluctuations
Skill: Level 2: Using definitions
Objective: Checkpoint 29.4
Author: STUDY GUIDE
26) If the price of oil rises, the
A) AD curve shifts rightward, real GDP increases, and the price level rises.
B) AS curve shifts leftward, the price level rises, and real GDP decreases.
C) AD curve and the AS curve shift leftward, real GDP decreases, and the price level rises.
D) AD curve and the AS curve shift rightward, the price level rises, and real GDP
decreases.
E) AS curve shifts leftward, the price level rises, and real GDP increases.
Answer: B
Topic: Aggregate supply fluctuations
Skill: Level 3: Using models
Objective: Checkpoint 29.4
Author: STUDY GUIDE
Chapter 29 AS-AD and the Business Cycle
1187
27) Stagflation is a combination of ____ real GDP and a ____ price level.
A) increasing; rising
B) increasing; falling
C) decreasing; rising
D) decreasing; falling
E) no change in; rising
Answer: C
Topic: Stagflation
Skill: Level 1: Definition
Objective: Checkpoint 29.4
Author: STUDY GUIDE
28) An inflationary gap is created when
A) real GDP is greater than potential GDP.
B) real GDP equal to potential GDP.
C) the inflation rate is less than potential inflation.
D) the price level exceeds the equilibrium price level.
E) potential GDP is greater than real GDP.
Answer: A
Topic: Inflationary gap
Skill: Level 1: Definition
Objective: Checkpoint 29.4
Author: STUDY GUIDE
29) An economy is at full employment. If aggregate demand increases,
A) an inflationary gap is created and the AS curve shifts leftward as the money wage rate
rises.
B) an inflationary gap is created and the AD curve shifts leftward.
C) an inflationary gap is created and potential GDP increases to close the gap.
D) a recessionary gap is created and the AS curve shifts leftward as the money wage rate
falls.
E) a recessionary gap is created and the AS curve shifts leftward as the money wage rate
rises.
Answer: A
Topic: Adjustment to full employment
Skill: Level 3: Using models
Objective: Checkpoint 29.4
Author: STUDY GUIDE