Lecture 9 Flashcards
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 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 AS curve shifts to the left; the price level rises and real GDP falls
E) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises
B
If the economy’s AS curve is vertical, the multiplier in the AD/AS model is
A) smaller than the simple multiplier.
B) negative.
C) infinitely large.
D) zero.
E) equal to the simple multiplier.
D
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) equal to
C) definitionally the same as
D) larger than
E) smaller than
E
Which of the following will cause a negative aggregate demand shock?
A) an increase in the domestic price level
B) a decrease in the domestic price level
C) an increase in tax rates
D) an increase in government expenditures
E) an increase in the price of raw materials
C
If the economy’s AS curve is completely horizontal, the multiplier in the AD/AS model is
A) infinitely large.
B) is zero.
C) negative.
D) smaller than the simple multiplier.
E) equal to the simple multiplier.
E
If the AS curve is vertical and there is a decrease in aggregate demand, the result is
A) an equal decrease in national income.
B) an increase in national income.
C) a decrease in the price level with no change in real GDP.
D) an increase in the price level.
E) no change in either price level or real GDP.
C
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 AS curve.
B) position of the AE curve.
C) slope of the AD curve.
D) size of the simple multiplier.
E) amount of inflation in the economy.
A
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 fall in the price level.
B) rise in real GDP and a rise in the price level.
C) an indeterminate change in real GDP and a fall in the price level.
D) rise in real GDP but price level changes will be indeterminate.
E) an indeterminate change in real GDP and a rise in the price level.
C
Consider the basic AD/AS model. Suppose firms are currently producing beyond their normal capacity. A change in AD leads to a relatively
A) no change in both price and output.
B) large change in price level and a large change in real GDP.
C) small change in price level and a small change in real GDP.
D) small change in price level and a large change in real GDP.
E) large change in price level and a small change in real GDP.
E
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 supply curve will shift to the left, re-establishing an equilibrium.
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 price level will rise toward its equilibrium value.
E) the aggregate supply curve will shift to the right, re-establishing an equilibrium.
B
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) the steeper the AS curve.
C) the flatter the AS curve.
D) on the downward-sloping portion of the AS curve.
E) on the upward-sloping portion of the AS curve.
B
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) The AS curve would shift to the left until macro equilibrium is reached.
B) The AD curve would shift to the right until macro equilibrium is reached.
C) Real GDP would be below its equilibrium level which would put downward pressure on the price level until it reaches macro equilibrium at P0.
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 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.
E
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 both real GDP and prices.
B) an increase in real GDP and no change in prices.
C) a decrease in both real GDP and prices.
D) an increase in prices and no change in real GDP.
E) a decrease in real GDP but no change in prices.
B
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.
D
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 positive AS shock.
C) a negative AD shock.
D) a negative technology shock.
E) a negative AS shock.
B
