Download Macro Chapter 10 study guide questions

Macro Chapter 10 study guide questions
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1. Which of the following will reduce aggregate demand?
a. an increase in real wealth
b. lower real incomes of the country’s foreign trade partners
c. increased consumer and business optimism about the future
d. an increase in the expected rate of inflation
____
2. An increase in the long-run aggregate supply curve shifts
a. both LRAS and AD to the right.
b. both LRAS and SRAS to the right.
c. both LRAS and AD to the left.
d. only LRAS to the right.
____
3. During recessions, interest rates tend to fall because
a. consumers attempt to borrow money to make up for their falling income.
b. business borrowing for investment purposes tends to fall during recessions.
c. lower real resource prices create profit opportunities for banks.
d. recessions shift the economy's long-run aggregate supply curve to the left.
____
4. In the short run, equilibrium output in the goods and services market may be either above or below the fullemployment level, but in the long run, it
a. must be less than full-employment output.
b. must be greater than full-employment output.
c. will move to full-employment output.
d. depends on aggregate demand, not just long-run aggregate supply.
____
5. Which of the following is most likely to result from an unanticipated increase in short-run aggregate supply
due to favorable weather conditions in agricultural areas?
a. an increase in the inflation rate
b. an increase in the unemployment rate
c. a decrease in the price level
d. a decrease in the natural rate of unemployment
____
6. Which of the following is most likely to accompany an unanticipated reduction in aggregate demand?
a. an increase in the price level
b. a decrease in unemployment
c. an increase in real GDP
d. an increase in the unemployment rate
____
7. Which of the following is most likely to accompany an unanticipated increase in short-run aggregate supply?
a. an increase in real GDP
b. a decrease in real GDP
c. an increase in the price level
d. an increase in the unemployment rate
____
8. In the aggregate demand/aggregate supply model, an economy operating below its long-run potential capacity
will experience
a. falling real wages and resource prices that will increase SRAS, moving the economy back
toward full employment.
b. rising interest rates that will increase SRAS, moving the economy back toward full
employment.
c. inflation that will stimulate additional spending and thereby restore full employment.
d. a prolonged economic depression unless consumer optimism is increased.
For the following question(s), assume that the economy is in long-run equilibrium in the aggregate
demand/aggregate supply model and that some sort of event takes place. In each case, mark the most likely
impact of the event on the aggregate demand/aggregate supply diagram given below.
Figure 10-19
____
9. Refer to Figure 10-19. Good weather allows agricultural output to double.
a. The aggregate demand curve would shift to the right.
b. The aggregate demand curve would shift to the left.
c. The short-run aggregate supply curve would shift to the right.
d. The short-run aggregate supply curve would shift to the left.
____ 10. Refer to Figure 10-19. There is an increase in the expected rate of inflation.
a. The aggregate demand curve would shift to the right.
b. The short-run aggregate supply curve would shift to the left.
c. The price level would rise and real GDP would remain the same.
d. All of the above are correct.
____ 11. Refer to Figure 10-19. Consumers and businesses all suddenly decide that the future looks much better than it
previously had.
a. The aggregate demand curve would shift to the right.
b. The aggregate demand curve would shift to the left.
c. The short-run aggregate supply curve would shift to the right.
d. The short-run aggregate supply curve would shift to the left.
____ 12. Refer to Figure 10-19. A major technological advance occurs.
a. The aggregate demand curve would shift to the right.
b. The aggregate demand curve would shift to the left.
c. Both the short-run and the long-run aggregate supply curves would shift to the right.
d. Both the short-run and the long-run aggregate supply curves would shift to the left.
____ 13. Which of the following would not cause a shift in the short-run aggregate supply curve?
a. a supply shock
b. a decrease in the real interest rate
c. a decrease in the expected rate of inflation
d. an increase in resource prices
____ 14. If an economy is in equilibrium at a given price level and a given output level, the aggregate
demand/aggregate supply (AD/AS) model indicates that an unanticipated decrease in aggregate demand will
cause
a. real output to decline.
b. the price level to fall.
c. unemployment to increase.
d. all of the above.
____ 15. Which of the following is most likely to accompany a fully anticipated reduction in short-run aggregate
supply?
a. an increase in the price level
b. a decrease in the price level
c. a decrease in real GDP
d. both a and c
____ 16. During the 1990s, a financial crisis spread throughout Asia causing those economies to drop into recessions.
Other things constant, how would such a decrease in the income of foreign trading partners have influenced
the price level and output of the United States?
a. Both real output and the price level would have fallen.
b. Both real output and the price level would have risen.
c. Real output would have fallen, and the price level would have risen.
d. Real output would have risen, and the price level would have fallen.
____ 17. Which of the following will most likely occur in the United States as the result of an unexpected rapid growth
in real income in Japan and Europe?
a. a short-run increase in U.S. employment and output
b. a short-run decrease in U.S. employment and output
c. a short-run decline in prices in the United States
d. a reduction in the natural rate of unemployment in the United States
____ 18. If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur?
a. an increase in the price level (inflation)
b. an increase in the rate of unemployment
c. a reduction in the growth rate of real GDP
d. a decrease in LRAS to restore full employment
____ 19. Which of the following will most likely increase the economy's long-run aggregate supply?
a. advances in technology
b. unfavorable weather conditions in agricultural areas
c. an increase in the expected inflation rate
d. a low rate of investment
____ 20. If improvements in education and training programs increased the productivity of persons in the labor force,
a. aggregate demand would decrease.
b. short-run aggregate supply would increase, but long-run aggregate supply would not
change.
c. long-run aggregate supply would increase, but short-run aggregate supply would not
change.
d. both short-run and long-run aggregate supply would increase.
____ 21. If an economy was initially in long-run equilibrium, an unanticipated increase in aggregate demand will tend
to cause
a. an increase in unemployment.
b. a decrease in the price of resources.
c. a reduction in real output that will spiral downward into a prolonged recession.
d. a temporarily high level of output and employment that cannot be maintained.
____ 22. When an economy is in a recession,
a. strong demand for investment funds will push interest rates upward.
b. strong demand for resources will push the prices of resources upward.
c. weak demand for investment funds will cause the real interest rate to decline.
d. the unemployment rate will be less than its natural rate.
____ 23. Which of the following statements is most consistent with the view that the economy has a self-corrective
mechanism?
a. When the economy is in a recession, it will remain there until the government steps in to
bring the economy out of the recession.
b. When the economy is in a recession, falling resource prices and declining interest rates
will direct the economy back to full employment.
c. During economic booms, interest rates will fall, causing the economy to fall into a
recession.
d. In a market economy, resource prices, such as wages, can only increase; they can never
decrease.
Critical Thinking and Application
24. Explain how each of the following factors would influence aggregate demand in the United States. Be sure to
explain which component of aggregate demand would be affected.
a. a stock market crash
b. an increase in the personal income tax rate
c. a decrease in the real interest rate
d. an increase in government purchases
e. a decline in income in Canada
25. Show the short-run impact of the following factors on GDP using a graph of the aggregate goods and services
market. Assume the economy was originally in long-run equilibrium.
a. a stock market crash
b. a decrease in the real interest rate
c. a flood that destroys most agricultural crops
d. a decrease in resource prices
e. an increase in the labor force
f. an increase in the expected inflation rate
26. Suppose there is an unexpected increase in real interest rates. Using the AD/AS model, describe the effects of
this policy in the long run and the short run, assuming everything else equal.
27. For the following changes in the economy, indicate whether short-run aggregate supply or long-run aggregate
supply will be affected. Indicate the direction of the change.
a. an improvement in manufacturing technology
b. an increase in the world price of antimony (a chemical that the U.S. imports)
c. a bumper potato crop in the southern “potato belt”
28. How does the self-correcting mechanism act to pull the economy out of a recession?
Macro Chapter 10 study guide questions
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