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EC140 > Lecture 9 > Flashcards

Lecture 9 Flashcards

1
Q

Consider the AD/AS model in which the price level varies. In this case, the multiplier is ________ the simple multiplier.

A) not comparable to
B) smaller than
C) equal to
D) larger than
E) definitionally the same as
A

B) smaller than

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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 aggregate demand curve will shift to the right, re-establishing an equilibrium.
B) the aggregate supply curve will shift to the left, re-establishing an equilibrium.
C) the aggregate supply curve will shift to the right, re-establishing an equilibrium.
D) the price level will rise toward its equilibrium value.
E) the price level will decline toward its equilibrium value.

A

E) the price level will decline toward its equilibrium value.

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3
Q

Aggregate demand (AD) shocks have a smaller effect on real GDP and a larger effect on the price level

A) if the AD curve is flatter.
B) on the upward-sloping portion of the AS curve.
C) the flatter the AS curve.
D) on the downward-sloping portion of the AS curve.
E) the steeper the AS curve.

A

E) the steeper the AS curve.

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4
Q

Macroeconomic equilibrium is described as the combination of

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

A

E) real GDP and price level that is on both the AD curve and AS curve.

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5
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) slope of the AD curve.
B) position of the AE curve.
C) amount of inflation in the economy.
D) size of the simple multiplier.
E) slope of the AS curve.
A

E) slope of the AS curve.

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6
Q

If the economy’s AS curve is vertical, the multiplier in the AD/AS model is

A) equal to the simple multiplier.
B) negative.
C) smaller than the simple multiplier.
D) infinitely large.
E) zero.
A

E) zero.

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7
Q

Refer to Figure 23-3. Suppose the price level in Economy A is above P0. Which of the following statements describes what would occur?

A) Real GDP would be below its equilibrium level which would put upward pressure on the price level until it reaches macro equilibrium.
B) Real GDP would be below its equilibrium level which would put downward pressure on the price level until it reaches macro equilibrium at P0.
C) The AD curve would shift to the right until macro equilibrium is reached.
D) The AS curve would shift to the left until macro equilibrium is reached.
E) 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 P0.

A

E) 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 P0.

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8
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) a decrease in both real GDP and prices.
B) an increase in both real GDP and prices.
C) a decrease in real GDP but no change in prices.
D) an increase in real GDP and no change in prices.
E) an increase in prices and no change in real GDP.

A

D) an increase in real GDP and no change in prices.

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9
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 negative technology shock.
B) a negative AS shock.
C) a positive AD shock.
D) a negative AD shock.
E) a positive AS shock.
A

E) a positive AS shock.

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10
Q

If the economy’s AS curve is completely horizontal, the multiplier in the AD/AS model is

A) negative.
B) infinitely large.
C) is zero.
D) smaller than the simple multiplier.
E) equal to the simple multiplier.
A

E) equal to the simple multiplier.

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11
Q

If the AS curve is vertical and there is a decrease in aggregate demand, the result is

A) an increase in the price level.
B) an equal decrease in national income.
C) an increase in national income.
D) a decrease in the price level with no change in real GDP.
E) no change in either price level or real GDP.

A

D) a decrease in the price level with no change in real GDP.

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12
Q

Which of the following will cause a negative aggregate demand shock?

A) an increase in the domestic price level
B) an increase in government expenditures
C) a decrease in the domestic price level
D) an increase in tax rates
E) an increase in the price of raw materials

A

D) an increase in tax rates

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13
Q

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) Economy A because the multiplier is much larger than in Economy B.
B) Economy A because the large fluctuations in the price level lead to large fluctuations in national income.
C) Economies A and B will experience similar volatility because the slopes of the AD curves are the same.
D) Economy B because output is purely demand determined, and there is no offsetting effect from a price level increase.
E) Economy B because the multiplier is much smaller than in Economy A.

A

D) Economy B because output is purely demand determined, and there is no offsetting effect from a price level increase.

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14
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 supply curve will shift to the left, re-establishing equilibrium.
D) the aggregate demand 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) the price level will rise toward its equilibrium value.

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15
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 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 and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises
D) the AD curve shifts to the left; the price level falls and real GDP falls
E) the AD curve shifts to the right; the price level rises and real GDP rises

A

B) the AS curve shifts to the right; the price level falls and real GDP rises

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16
Q

Consider the basic AD/AS model. Real GDP is demand determined along the

A) vertical portion of the AS curve.
B) downward-sloping portion of the AS curve.
C) upward-sloping 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) horizontal portion of the AS curve.

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 small change in real GDP.
B) no change in both price and output.
C) large 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) small change in price level and a large change in real GDP.

A

A) large change in price level and a small change in real GDP.

18
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 and a rise in the price level.
B) an indeterminate change in real GDP and a fall in the price level.
C) rise in real GDP but price level changes will be indeterminate.
D) an indeterminate change in real GDP and a rise in the price level.
E) rise in real GDP and a fall in the price level.

A

B) an indeterminate change in real GDP and a fall in the price level.

EC140 (15 decks)

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