Download Practice Set 1

Module 19 Practice Set 1
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1. A negative short-run supply shock:
A. decreases aggregate output with no impact on the aggregate price level.
B. increases aggregate output and decreases the aggregate price level.
C. decreases both aggregate output and the aggregate price level.
D. increases both aggregate output and the aggregate price level.
E. decreases aggregate output and increases the aggregate price level.
____
2. Suppose the equilibrium aggregate price level is rising and the equilibrium level of real GDP is falling. Which
of the following most likely caused these changes?
A. An increase in short-run aggregate supply.
B. An increase in aggregate demand.
C. A decrease in short-run aggregate supply.
D. A decrease in aggregate demand.
E. An increase in short-run aggregate supply and an increase in aggregate demand.
Figure 19-3: Inflationary and Recessionary Gaps
____
3. Use the “Inflationary and Recessionary Gaps” Figure 19-3. In Panel (b), the level of real GDP represented
by Yp:
A. is potential output for this economy.
B. indicates that the economy is currently experiencing an inflationary gap.
C. indicates that the economy is currently experiencing a recessionary gap.
D. would be associated with considerable unemployment.
E. indicates that the economy is currently in long-run equilibrium.
Figure 19-4: An Increase in Aggregate Demand
____
4. Use the “An Increase in Aggregate Demand” Figure 19-4. Because of the pressures existing at the
short-run equilibrium at Y2 and P2:
A. the SRAS curve will shift to the right.
B. the SRAS curve will shift to the left.
C. unemployment will decrease.
D. LRAS will shift to the right.
E. the price level will decrease.
Figure 19-5: Policy Alternatives
____
5. Use the “Policy Alternatives” Figure 19-5. Assume that the economy depicted in Panel (a) is in short-run
equilibrium with AD1 and SRAS1. If the economy is left to correct itself:
A. real interest rates will fall which will shift SRAS rightward.
B. lower wages will result in a gradual shift from SRAS1 to SRAS2.
C. long-run equilibrium will be established at YP and P3.
D. aggregate demand will shift leftward.
E. aggregate demand will shift rightward to Yp and P1.
____
6. Use the “Policy Alternatives” Figure 19-5. Assume that the economy depicted in Panel (a) is in short-run
equilibrium at a real GDP level of Y1. Doing nothing and letting the economy correct itself:
A. is called fiscal policy.
B. occurs in the long run as wages rise.
C. occurs in the short run as wages rise.
D. occurs as the aggregate demand curve begins to increase.
E. occurs in the long run as wages fall.
____
7. Use the “Policy Alternatives” Figure 19-5. In Panel (b), the economy is initially in short-run equilibrium at
real GDP level Y1 and price level P2. At real GDP level Y1 there is:
A. an inflationary gap.
B. a recessionary gap.
C. no gap.
D. long-run equilibrium.
E. an unemployment rate that is less than the natural rate of unemployment.
____
8. As a recessionary gap is eliminated through self-correcting adjustment, the equilibrium price level _______
and the equilibrium real output _______.
A. increases; decreases
B. increases; increases
C. decreases; decreases
D. decreases; increases
E. remains constant; increases
____
9. As an inflationary gap is eliminated through self-correcting adjustment, the equilibrium price level ________
and the equilibrium real output ________.
A. increases; decreases
B. increases; increases
C. decreases; decreases
D. decreases; increases
E. remains constant; decreases
Figure 19-6: AD–AS Model I
____ 10. Use the “AD–AS Model I” Figure 19-6. If the economy is at point X, which of the following describes the
likely adjustment to long-run equilibrium?
A. Nominal wages decrease, and the aggregate demand curve shifts left until the economy
reaches long-run equilibrium.
B. Nominal wages increase, and the aggregate demand curve shifts right until the economy
reaches long-run equilibrium.
C. Nominal wages decrease, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
D. Nominal wages decrease, and the short-run aggregate supply curve shifts left until the
economy reaches long-run equilibrium.
E. Nominal wages increase, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
Module 19 Practice Set 1
Answer Section
MULTIPLE CHOICE
1. ANS:
SKL:
2. ANS:
SKL:
3. ANS:
SKL:
4. ANS:
SKL:
5. ANS:
SKL:
6. ANS:
SKL:
7. ANS:
SKL:
8. ANS:
SKL:
9. ANS:
SKL:
10. ANS:
SKL:
E
PTS:
Concept-Based
C
PTS:
Critical Thinking
A
PTS:
Critical Thinking
B
PTS:
Analytical Thinking
B
PTS:
Analytical Thinking
E
PTS:
Analytical Thinking
B
PTS:
Critical Thinking
D
PTS:
Critical Thinking
A
PTS:
Critical Thinking
C
PTS:
Analytical Thinking
1
DIF: M
REF: Module 19
1
DIF: M
REF: Module 19
1
DIF: M
REF: Module 19
1
DIF: D
REF: Module 19
1
DIF: D
REF: Module 19
1
DIF: D
REF: Module 19
1
DIF: M
REF: Module 19
1
DIF: D
REF: Module 19
1
DIF: D
REF: Module 19
1
DIF: D
REF: Module 19