Download Additional Help Practice Questions for Chapter 9 Michael G. Lanyi 1

Additional Help
Practice Questions for Chapter 9
Michael G. Lanyi
1. If there is a rise in a country's exchange rate, the AD curve will likely
A) shift in to the left.
B) shift out to the right.
C) become steeper.
D) become flatter.
2. Suppose the economy is initially in an inflationary gap and the distribution of income
becomes more equitable. In the long run, which of the following is most likely to be
true?
A) Both output and the price level will be lower.
B) Output will be lower and the price level will be higher.
C) Only the price level will be higher.
D) Only output will be lower.
3. The multiplier effect exists because
A) production and expenditures are interdependent.
B) when one person increases expenditures, everyone increases expenditures.
C) production and expenditures are independent.
D) production causes expenditures.
4. In the AS/AD model, the
A) price of a good is on the horizontal axis.
B) price level is on the horizontal axis.
C) price of a good is on the vertical axis.
D) price level is on the vertical axis.
5. An increase in the price level might cause
A) a decrease in the quantity of aggregate demand because of the substitution effect.
B) an increase in the quantity of aggregate demand because of the wealth effect.
C) a decrease in the quantity of aggregate demand because of the interest rate effect.
D) an increase in the quantity of aggregate demand because of the multiplier effect.
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6. If productivity increases by 4%, but wages increase by 8%, then it is most likely that the
price level will
A) rise by 4 percent.
B) fall by 4 percent.
C) rise by 12 percent.
D) fall by 12 percent.
7. An increase in aggregate demand
A) raises potential output.
B) reduces potential output.
C) does not change potential output.
D) has an unpredictable effect on potential output.
8. If total income in the United States remains the same, but the wage share of income
rises, the Canadian AD curve will
A) shift to the left.
B) shift to the right.
C) become flatter.
D) become steeper.
Use the following to answer question 9:
B
C
Price level
A
Real output
9. Refer to the graph above. The Classical range is shown by range
A) A.
B) B.
C) C.
D) The Classical range is not shown.
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Use the following to answer question 10:
10. Refer to the graph above. Suppose the economy is at potential output and the
government adopts an expansionary fiscal policy. In the long run, the effect of this
policy is best depicted by a movement from
A) B to C.
B) A to B.
C) C to B.
D) C to D.
Use the following to answer question 11:
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11. Refer to the graph above. In 1930, the United States passed the Smoot-Hawley Tariff
Act, which raised tariffs on imported goods an average of 60 percent. Other countries
retaliated with similar tariffs and world output declined. The effect of the decline in
foreign output on the U.S. AD curve can be shown by a movement from
A) A to B.
B) A to C.
C) C to A.
D) B to A.
12. If the depreciation of a country's currency increases its aggregate expenditures by 20,
the AD curve will
A) shift right by more than 20.
B) shift right by less than 20.
C) shift right by exactly 20.
D) not shift at all.
Use the following to answer question 13:
13. Refer to the graph above. Suppose the economy is at potential output and the
government adopts an expansionary fiscal policy. In the short run, the effect of this
policy is best depicted by a movement from
A) B to C.
B) A to B.
C) C to B.
D) C to D.
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14. In the Keynesian range the price level is
A) flexible.
B) somewhat flexible.
C) indeterminate.
D) fixed.
15. In 1999, the Brazilian currency, the Real, depreciated by 40%. This most likely
A) created a trade deficit for Brazil and shifted its AD curve left
B) created a trade surplus for Brazil and shifted its AD curve left.
C) created a trade deficit for Brazil and shifted its AD curve right.
D) created a trade surplus for Brazil and shifted its AD curve right.
Use the following to answer question 16:
16. Refer to the graph above. If the price level is P1
A) the short-run aggregate supply curve will shift up in the long run to restore
equilibrium.
B) the short-run aggregate supply curve will shift down in the long run to restore
equilibrium.
C) the aggregate demand curve will shift up in the long run to restore equilibrium.
D) the aggregate demand curve will shift down in the long run to restore equilibrium.
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Use the following to answer question 17:
17. Refer to the graph above. An increase in aggregate demand in the short run is likely to
cause a movement
A) from A to B.
B) from A to C.
C) from D to C.
D) from D to B.
18. When the economy is in the intermediate range, increases in aggregate demand are most
likely to produce
A) higher output and higher prices.
B) higher output without higher prices.
C) higher prices without higher output.
D) no change in output or prices.
19. If aggregate demand exceeds potential output, eventually
A) input prices will rise and output will fall.
B) both input prices and output will rise.
C) input prices will fall and output will rise.
D) both input prices and output will fall.
20. A recessionary gap exists when
A) aggregate demand exceeds short-run aggregate supply.
B) aggregate demand exceeds potential output.
C) short-run aggregate supply exceeds aggregate demand.
D) potential output exceeds aggregate demand.
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21. If the Central Bank of Bulgaria decreases the money supply, the AD curve would likely
A) shift to the left.
B) shift to the right.
C) become flatter.
D) become steeper.
22. The shapes of the curves in the AS/AD model are based
A) upon the principle of substitution.
B) upon the principle of opportunity cost.
C) upon the relationship between a single good and its price.
D) on the relationship between the price level and total output.
23. In 2000 the U.S. unemployment rate fell to 4 percent without generating significant
inflation. Based solely on this information, the U.S. economy was most likely
A) in the Classical range.
B) in the intermediate range.
C) in the Keynesian range.
D) at potential output.
24. An economy's resources
A) can never be over-utilized.
B) can always be over-utilized.
C) are always fully employed.
D) can be over-utilized, but only temporarily.
25. Suppose prices in Canada are expected to decline. This is likely to
A) shift the AD curve to the left.
B) shift the AD curve to the right.
C) make the AD curve flatter.
D) make the AD curve steeper.
26. If the multiplier effect is 4, a $15 billion increase in government expenditures will shift
the AD curve
A) to the right by $15 billion.
B) to the left by $15 billion.
C) to the right by $60 billion.
D) to the left by $60 billion.
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27. If government spending increases by 40, the AD curve will shift to the
A) right by 40.
B) left by 40.
C) right by more than 40.
D) right by less than 40.
28. If you knew from the aggregate expenditure model that a change in autonomous
expenditures of 10 increased equilibrium income by 40, you would know
A) the slope of the AD curve.
B) the position of the AD curve.
C) the shift in the AD curve.
D) the rotation of the AD curve.
29. The short-run aggregate supply curve assumes that firms adjust
A) prices, not quantities, in the short-run.
B) quantities, not prices, in the short-run.
C) prices and quantities in the short-run.
D) neither prices nor quantities in the short-run.
30. An inflationary gap exists when
A) aggregate demand exceeds short-run aggregate supply.
B) aggregate demand exceeds potential output.
C) short-run aggregate supply exceeds aggregate demand.
D) potential output exceeds aggregate demand.
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Answer Key for Chapter 9 Practice Questions
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