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ECM > Chapter 23.3 > Flashcards

Chapter 23.3 Flashcards

1
Q

Macroeconomic equilibrium is described as the combination of
A) potential output and price level that is on both the AD curve and AS curve.
B) real GDP and price level that is on both the AD curve and 45-degree line.
C) real GDP and price level that is on both the AD curve and AS curve.
D) all individual demand curves and all individual supply curves.
E) all individual demand curves and potential GDP.

A

C

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2
Q

Consider the nature of macroeconomic equilibrium. If, at a particular price level, aggregate output demanded is less than that supplied by producers, then
A) the price level will rise toward its equilibrium value.
B) the price level will decline toward its equilibrium value.
C) the aggregate demand curve will shift to the right, re-establishing an equilibrium.
D) the aggregate supply curve will shift to the left, re-establishing an equilibrium.
E) the aggregate supply curve will shift to the right, re-establishing an equilibrium.

A

B

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3
Q

Consider the nature of macroeconomic equilibrium. If, at a particular price level, the total output demanded is greater than that supplied by producers, then
A) the price level will decline toward its equilibrium value.
B) the price level will rise toward its equilibrium value.
C) the aggregate demand curve will shift to the left, re-establishing an equilibrium.
D) the aggregate supply curve will shift to the right, re-establishing an equilibrium.
E) the aggregate supply curve will shift to the left, re-establishing equilibrium.

A

B

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4
Q

If the AS curve is vertical and there is a decrease in aggregate demand, the result is
A) a decrease in the price level with no change in real GDP.
B) an equal decrease in national income.
C) an increase in the price level.
D) an increase in national income.
E) no change in either price level or real GDP.

A

A

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5
Q

Consider the AD/AS model. An increase in government purchases will have no impact on equilibrium real GDP if
A) the AS curve slopes upward.
B) the AS curve is vertical.
C) the AS curve is horizontal.
D) the marginal propensity to spend is very small.
E) the simple multiplier is very small.

A

B

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6
Q

Consider the basic AD/AS model. Real GDP is demand determined along the
A) upward-sloping portion of the AS curve.
B) downward-sloping portion of the AS curve.
C) vertical portion of the AS curve.
D) horizontal portion of the AS curve.
E) None of the above - real GDP cannot be demand determined.

A

D

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7
Q

Over the horizontal range of the economy’s AS curve (assuming such a range exists), a rightward shift of the AD curve will result in
A) an increase in prices and no change in real GDP.
B) an increase in real GDP and no change in prices.
C) an increase in both real GDP and prices.
D) a decrease in both real GDP and prices.
E) a decrease in real GDP but no change in prices.

A

B

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8
Q

If the economy’s AS curve is upward sloping, a negative shock to aggregate demand will result in
A) an increase in prices and no change in real GDP.
B) a decrease in prices but no change in real GDP.
C) an increase in real GDP and no change in prices.
D) an increase in both real GDP and prices.
E) a decrease in both real GDP and prices.

A

E

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9
Q

Which of the following will cause a negative aggregate demand shock?
A) an increase in the price of raw materials
B) a decrease in the domestic price level
C) an increase in the domestic price level
D) an increase in government expenditures
E) an increase in tax rates

A

E

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10
Q

Refer to Figure 23-3. Which of the following statements best describes the supply side of Economy A in its current equilibrium position?
A) Unit costs are rising, but firms can produce more output by employing standby capacity and overtime labour, for example, with no increase in the price level.
B) Firms are producing well below their capacity and are willing to produce more only if prices rise.
C) Unit costs are rising rapidly as firms are producing beyond their capacity. Firms will produce more only if prices increase.
D) Firms are producing well below their capacity and are willing to produce more output with no increase in price.
E) Unit costs are rising, but firms are able to produce more output because there is excess capacity in the economy.

A

C

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11
Q

Refer to Figure 23-3. Which of the following statements best describes the supply side of Economy B?
A) Unit costs are rising rapidly, but firms can produce more output by employing standby capacity and overtime labour, for example, with no increase in the price level.
B) Firms are producing well below their capacity and are willing to produce more only if prices rise.
C) Unit costs are rising rapidly as firms are producing beyond their capacity. Firms will produce more only if prices increase.
D) Firms are producing well below their capacity and are willing to produce more output with no increase in price.
E) Firms are not able to produce more output because there is no excess capacity in the economy.

A

D

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12
Q

Refer to Figure 23-3. Suppose the price level in Economy A is above . Which of the following statements describes what would occur?
A) The AD curve would shift to the right until macro equilibrium is reached.
B) Real GDP would be below its equilibrium level which would put downward pressure on the price level until it reaches macro equilibrium at .
C) The amount of output supplied by firms is greater than total desired expenditure; excess supply will put downward pressure on the price level until it reaches macro equilibrium at .
D) Real GDP would be below its equilibrium level which would put upward pressure on the price level until it reaches macro equilibrium.
E) The AS curve would shift to the left until macro equilibrium is reached.

A

C

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13
Q

Aggregate demand shocks have a large effect on real GDP and a small effect on the price level
A) the steeper the AS curve.
B) on the downward-sloping portion of the AS curve.
C) the flatter the AS curve.
D) when the AS curve is vertical.
E) if the AD curve is steep.

A

C

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14
Q

If the economy’s AS curve is upward sloping, a positive aggregate demand shock will result in
A) an increase in prices but not output.
B) an increase in output but not prices.
C) an increase in both output and prices.
D) a decrease in both output and prices.
E) a decrease in output and an increase in prices.

A

C

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15
Q

Consider the basic AD/AS model with an upward-sloping AS curve. A positive aggregate demand shock will initially cause
A) a decrease in the price level.
B) the equilibrium point to move rightward along the AS curve.
C) a movement along the AD curve to the right.
D) a shift to the right in the AS curve.
E) the unemployment rate to remain constant.

A

B

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16
Q

) If the economy’s AS curve is very steep and there is a negative aggregate demand shock, the result will be
A) an increase in the price level and a decrease in real national income.
B) an increase in both the price level and real national income.
C) a decrease in the price level with almost no change in real national income.
D) a decrease in the price level and an increase in real national income.
E) no change in either price level or output.

A

C

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17
Q

Consider the basic AD/AS model. Suppose firms are currently producing beyond their normal capacity. A change in AD leads to a relatively
A) large change in price level and a large change in real GDP.
B) large change in price level and a small change in real GDP.
C) small change in price level and a large change in real GDP.
D) small change in price level and a small change in real GDP.
E) no change in both price and output.

A

B

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18
Q

Suppose firms are currently producing output at a level beyond their normal capacity. In this situation, the AS curve will be relatively ________ and a positive AD shock will result in ________.
A) steep; an increase in the price level with a small increase in real GDP
B) flat; an equal increase in the price level and in real GDP
C) flat; a very small increase in prices but a large increase in real GDP
D) flat; a very small decrease in the price level and a decrease in real GDP
E) steep; a decrease in the price level and a very small decrease in real GDP

A

A

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19
Q 
In the basic AD/AS model, the effect of an aggregate demand shock is divided between a change in output and a change in the price level. How the effect is divided depends on the
A) amount of inflation in the economy.
B) position of the AE curve.
C) size of the simple multiplier.
D) slope of the AD curve.
E) slope of the AS curve.
A

E

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20
Q

Which of the following would cause a positive aggregate demand shock, but leave the aggregate supply curve unaffected?
A) A free trade agreement between Canada and Europe that leads Canadian businesses to increase investment expenditures.
B) A severe drought lasting for six months that destroys agricultural and forestry production.
C) A medical report confirming that improved health for Canadian workers caused fewer lost days of production.
D) An improvement in the computer literacy of workers.
E) A substantial increase in world oil prices.

A

A

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21
Q

If the economy is in macroeconomic equilibrium with a vertical AS curve, and then aggregate demand increases, we expect the AE function to shift to a
A) higher level and stay there.
B) higher level, but then shift part of the way down to its original position as the price level rises.
C) higher level but then return to its original position as the price level rises.
D) lower level and stay there.
E) lower level, but then return to its original position as the price level rises.

A

C

22
Q

If the economy is in macroeconomic equilibrium with a vertical AS curve, and then aggregate demand decreases, we expect the AE function to shift to a
A) higher level and stay there.
B) higher level, but then shift part of the way down to its original position as the price level falls.
C) higher level but then return to its original position as the price level falls.
D) lower level and stay there.
E) lower level, but then return to its original position as the price level falls.

A

E

23
Q

Aggregate demand (AD) shocks have a smaller effect on real GDP and a larger effect on the price level
A) the steeper the AS curve.
B) on the downward-sloping portion of the AS curve.
C) the flatter the AS curve.
D) on the upward-sloping portion of the AS curve.
E) if the AD curve is flatter.

A

A

24
Q

Which of the following represents a positive aggregate supply shock?
A) an outbreak of war among oil-exporting countries
B) a general labour strike across the country
C) bad weather which cripples telecommunications for one month
D) improved computer literacy for the typical worker
E) an increase in exports

A

D

25
Q

Which of the following will cause a positive aggregate supply shock?
A) an increase in the price of raw materials
B) a decrease in the price of foreign output
C) an increase in the price of foreign output
D) a decrease in the price of oil
E) a decrease in productivity

A

D

26
Q

Aggregate supply shocks cause the price level and real GDP to change in
A) the same direction with price changing by more than output.
B) the same direction and by the same amount.
C) opposite directions with price changing by less than output.
D) opposite directions but not necessarily by the same amount.
E) opposite directions but by the same amount.

A

D

27
Q

Consider the basic AD/AS macro model. A rise in an input price like the price of oil would be expected to cause a new macroeconomic equilibrium in which the price level
A) and real GDP are higher than in the initial equilibrium.
B) and real GDP are lower than in the initial equilibrium.
C) is lower and real GDP higher than in the initial equilibrium.
D) is higher and real GDP remained the same as in the initial equilibrium.
E) is higher and real GDP lower than in the initial equilibrium.

A

E

28
Q

Consider the basic AD/AS model. A rise in an input price like the wage rate would be expected to create a new macroeconomic equilibrium, which in comparison to the original equilibrium, has a price level that is
A) higher and a real GDP that is higher.
B) higher and a real GDP that is lower.
C) higher and a real GDP that is the same.
D) lower and a real GDP that is higher.
E) lower and a real GDP that is lower.

A

B

29
Q

Consider the AD/AS macro model. Suppose there is an increase in aggregate demand and, simultaneously, a decrease in aggregate supply. The result will be a
A) rise in real GDP but price level changes will be indeterminate.
B) rise in real GDP and a rise in the price level.
C) rise in real GDP and a fall in the price level.
D) an indeterminate change in real GDP and a rise in the price level.
E) an indeterminate change in real GDP and a fall in the price level.

A

D

30
Q

Consider the AD/AS model. Suppose there is a decrease in aggregate demand and, simultaneously, an increase in aggregate supply. The result will be a
A) rise in real GDP but price level changes will be indeterminate.
B) rise in real GDP and a rise in the price level.
C) rise in real GDP and a fall in the price level.
D) an indeterminate change in real GDP and a rise in the price level.
E) an indeterminate change in real GDP and a fall in the price level.

A

E

31
Q

Consider the following news headline: “World commodity prices rise sharply.” Choose the statement below that best describes the likely macroeconomic effects in Canada. (Remember that Canada is both a producer and a consumer of commodities.)
A) there is no change in either the AD or the AS curves
B) the AD curve shifts to the left and the AS curve shifts to the right; the price level falls and the effect on real GDP is indeterminate
C) the AD and AS curves both shift to the left; the effect on the price level is indeterminate and real GDP decreases
D) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP increases
E) the AD curve shifts to the right and the AS curve shifts to the left; the price level rises and the effect on real GDP is indeterminate

A

E

32
Q

Consider the following news headline: “Governments plan massive hospital construction programs across the country.” Choose the statement below that best describes the likely macroeconomic effects.
A) the AD curve shifts to the left; the price level falls and real GDP falls
B) the AD curve shifts to the right; the price level rises and real GDP rises
C) the AD curve shifts to the right and the AS curve shifts to the left; the price level rises and the effect on real GDP is indeterminate
D) the AD curve shifts to the left and the AS curve shifts to the right; the price level falls and the effect on real GDP is indeterminate
E) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises

A

B

33
Q

Consider the following news headline: “Information technology costs for Canadian firms continue to drop.” Choose the statement below that best describes the likely macroeconomic effect.
A) the AD curve shifts to the right; the price level rises and real GDP rises
B) the AD curve shifts to the left; the price level falls and real GDP falls
C) the AS curve shifts to the left; the price level rises and real GDP falls
D) the AS curve shifts to the right; the price level falls and real GDP rises
E) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises

A

D

34
Q

Consider the following news headline: “Threat of widespread labour unrest leads to generous wage increases in several industries.” Choose the statement below that best describes the likely macroeconomic effects.
A) The AS curve shifts to the left; the price level rises and real GDP falls.
B) The AS curve shifts to the right; the price level falls and real GDP rises.
C) The AD curve shifts to the left; the price level falls and real GDP falls.
D) The AD curve shifts to the right; the price level rises and real GDP rises.
E) The AD and AS curves both shift to the left; the effect on the price level is indeterminate and real GDP falls.

A

A

35
Q

Consider the following two headlines appearing in the same day: “Federal government announces major new infrastructure investments” and “New technology drives down transport costs.” Choose the statement below that best describes the likely macroeconomic effects.
A) The AS curve shifts to the left; the price level rises and real GDP falls.
B) The AS curve shifts to the right; the price level falls and real GDP rises.
C) The AD curve shifts to the left; the price level falls and real GDP falls.
D) The AD curve shifts to the right; the price level rises and real GDP rises.
E) The AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises.

A

E

36
Q 
Suppose the economy is hit by a shock and we observe that the price level has decreased whereas real GDP has increased. We can conclude that this shock was 
A) a positive AD shock. 
B) a negative AD shock. 
C) a positive AS shock. 
D) a negative AS shock. 
E) a negative technology shock.
A

C

37
Q

Refer to Figure 23-4. Suppose the Canadian economy is initially in equilibrium at point A. An unexpected shock then shifts both the AD and the AS curves as shown and results in a new equilibrium represented by point B. Which of the following events could cause such a shock?
A) an increase in the net tax rate
B) a decrease in firms’ desired investment expenditures
C) an increase in factor prices
D) a decrease in labour productivity
E) a decrease in the world price of oil

A

E

38
Q 
If the economy's AS curve is completely horizontal, the multiplier in the AD/AS model is 
A) infinitely large.
B) equal to the simple multiplier.
C) smaller than the simple multiplier.
D) is zero.
E) negative.
A

B

39
Q 
When the economy's AS curve is positively sloped, the multiplier in the AD/AS model is 
A) constant.
B) equal to one.
C) equal to the simple multiplier.
D) smaller than the simple multiplier.
E) larger than the simple multiplier
A

D

40
Q 
If the economy's AS curve is vertical, the multiplier in the AD/AS model is 
A) infinitely large.
B) equal to the simple multiplier.
C) smaller than the simple multiplier.
D) zero.
E) negative.
A

D

41
Q 
Suppose the government embarks on an infrastructure program, spending $8 billion on the construction of new roads and bridges. What is the size of the multiplier if the AS curve is vertical?
A) 0
B) greater than 1
C) less than 1
D) infinity
E) insufficient information to solve
A

A

42
Q 
Consider the AD/AS model in which the price level varies. In this case, the multiplier is \_\_\_\_\_\_\_\_ the simple multiplier.
A) larger than
B) smaller than
C) definitionally the same as
D) not comparable to
E) equal to
A

B

43
Q 
Refer to Figure 23-5. Suppose that an increase in government purchases by 50 causes the AD curve to shift to the right, as shown. The simple multiplier is \_\_\_\_\_\_\_\_ and the multiplier is \_\_\_\_\_\_\_\_. 
A) 6; 1.2 
B) 2.8; 1.2 
C) 4; 1.2 
D) 4; 2.8 
E) 4; 3.2
A

C

44
Q 
Refer to Figure 23-5. Suppose that an increase in government purchases caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 5, then how much was the increase in government purchases?
A) 30
B) 40
C) 50
D) 12
E) not enough information to know
A

B

45
Q 
Refer to Figure 23-5. Suppose that an increase in government purchases caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 4, then what is the value of the multiplier?
A) 1.2 
B) 1.4 
C) 4
D) 2.8 
E) 3.2
A

A

46
Q 
Refer to Figure 23-5. Suppose that an increase in autonomous investment by 40 causes the AD curve to shift to the right, as shown. The simple multiplier is \_\_\_\_\_\_\_\_ and the multiplier is \_\_\_\_\_\_\_\_. 
A) 6; 1.2 
B) 2.8; 1.2 
C) 4; 1.2 
D) 5; 1.5 
E) 4; 3.2
A

D

47
Q 
Refer to Figure 23-5. Suppose that an increase in autonomous investment caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 4, then how much was the increase in investment?
A) 30
B) 40
C) 50
D) 12
E) not enough information to know
A

C

48
Q 
Refer to Figure 23-5. Suppose that an increase in autonomous investment caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 5, then what is the value of the multiplier?
A) 1.2
B) 1.5
C) 4.0
D) 5.0
E) not enough information to know
A

B

49
Q

49) Refer to Figure 23-3. Which of the two economies, A or B, will experience more volatile fluctuations in national income in response to aggregate demand shocks?
A) Economies A and B will experience similar volatility because the slopes of the AD curves are the same.
B) Economy A because the large fluctuations in the price level lead to large fluctuations in national income.
C) Economy A because the multiplier is much larger than in Economy B.
D) Economy B because the multiplier is much smaller than in Economy A.
E) Economy B because output is purely demand determined, and there is no offsetting effect from a price level increase.

A

E

50
Q

Refer to Figure 23-3. Which of the following statements correctly describes the difference between the multipliers (in response to an increase in autonomous expenditure) in Economy A and Economy B? The multiplier in Economy A is ________ while the multiplier in Economy B is ________.
A) very small; equal to one
B) very small; equal to the simple multiplier
C) equal to the simple multiplier; almost zero
D) equal to one; almost zero
E) equal to one; equal to the simple multiplier

A

B

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