ECON EXAM ANSWERS
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
In an open mixed economy, the inflationary expenditure gap may be described as the
excess of GDP over Ca + Ig + Xn + G at the full-employment output.
excess of Sa + M + T over Ig + X + G at the full-employment GDP.
extra consumption that occurs when investment increases in a full-employment economy.
D. excess of Ca + Ig + Xn + G at the full-employment GDP.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
In the Great Recession of 2007–2009, the aggregate expenditures schedule in the U.S. economy dropped, mostly due to a fall in
consumption spending.
B. investment expenditures.
government spending.
net exports.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to
shift the aggregate expenditures schedule down.
close an inflationary expenditures gap.
bring inflation down.
D. push the aggregate expenditures schedule upward.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
In 2008 during the Great Recession, the Federal government provided tax rebate checks to taxpayers in the hope that
C would shift down.
B. C would shift up.
G would shift down.
G would shift up.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
If consumers respond to a tax-cut by saving a large portion of the extra disposable income (or using it to reduce their debts), then the tax-cut policy would
shift the AE curve up significantly.
shift the AE curve down.
cause a reduction in aggregate spending.
D. not have much effect on the aggregate expenditures curve.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
Say's law in classical economics suggests that, over a period of time,
aggregate spending would tend to exceed total output and income.
aggregate spending would tend to fall short of total output and income.
C. aggregate spending would tend to equal total output and income.
D. aggregate spending would tend to deviate from total output and income.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
One of the most important views expressed by classical macroeconomists was that
wages and prices are inflexible.
wages and prices are always rising.
demand creates its own supply.
D. supply creates its own demand.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
From the perspective of classical macroeconomic theory, if aggregate spending was temporarily less than output,
product price would increase, but resource prices would decrease.
product price would decrease, but resource prices would increase.
C. product and resource prices would decrease, so that aggregate spending would rise, expanding output.
D. product and resource prices would increase, so that aggregate spending would equal output.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
From the perspective of classical macroeconomic theory, an excess of aggregate spending would
increase aggregate output and the level of employment in the economy.
decrease the rate of interest and lower the level of investment.
increase consumption, and thus move the economy toward the full-employment level of output.
D. increase prices, wages, and interest rates, and thus reduce aggregate spending to equal the full-employment level of output.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
Classical economists held the view that in the economy,
demand creates its own supply.
B. unemployment is temporary and is soon eliminated.
there is an imbalance between saving and investment.
it is difficult for an economy to adjust because wages and prices are inflexible.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
John Maynard Keynes developed the ideas underlying the aggregate expenditures model
in the 1960s.
in the 1980s.
as a reinforcement of Say's Law.
D. as a critique of classical economics.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
One major point that Keynes raised pertains to income and spending. He argued that
all income is often spent in the same period of time.
oftentimes, people spend more than their incomes.
the marginal propensity to spend out of additional income is quite volatile.
D. pessimism could cause aggregate spending to fall short of total output.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
The major economic issue during the Great Depression of the 1930s that concerned John Maynard Keynes was
rising interest rates.
large trade deficits.
C. unemployment.
D. hyperinflation.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 11-08 Differentiate between equilibrium GDP and full-employment GDP and identify and describe the nature and causes of recessionary expenditure gaps and inflationary expenditure gaps.
Test Bank: II Topic: Equilibrium versus Full-Employment GDP
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
76.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by
A.
B.
C.
D. A and B.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
77.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by
A. A.
B. B.
C.
B and C.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
78.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Growth, full-employment, and price stability are depicted by
A.
B.
C. C.
D. B and C.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
79.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by
A.
B.
C. C.
D. B and C.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
80.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in productivity is depicted by
A. A.
B. B.
C.
B and C.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
81.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by
A. A.
B.
C.
B and C.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
82.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the
A. shift of the AD curve in A.
B. move from point a to point b in B.
shift of the AS curve in B.
move from point a to point c in C.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
83.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in investment spending caused by the interest-rate effect of a price-level increase is depicted by the
shift of the AD curve in A.
shift of the AS curve in B.
C. move from point a to point b in B.
D. move from point a to point c in C.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
84.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decrease in resource prices is depicted by
A.
B.
C. C.
D. B and C.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
85.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in
A.
B.
C.
D. A and C.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
If aggregate demand decreases, and, as a result, real output and employment decline but the price level remains unchanged, it is most likely that
A. the money supply has declined.
B. the price level is inflexible downward and a recession has occurred.
cost-push inflation has occurred.
productivity has declined.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will
A. increase real output by more than the price level.
B. increase the price level by more than real output.
reduce real output by more than the price level.
reduce the price level by more than real output.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
A rightward shift of the AD curve in the very flat part of the short-run AS curve will
A. increase real output by more than the price level.
increase the price level by more than real output.
reduce real output by more than the price level.
reduce the price level by more than real output.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Given a fixed upsloping AS curve, a rightward shift of the AD curve will
cause cost-push inflation.
increase real output but not the price level.
increase the price level but not real output.
D. increase both the price level and real output.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
A decrease in aggregate demand will cause a greater decline in real output the
A. less flexible is the economy's price level.
more flexible is the economy's price level.
steeper is the economy's AS curve.
larger is the economy's marginal propensity to save.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
91.
In the figure, AD1 and AS1 represent the original aggregate supply and demand curves, and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by
A. a reduction in the price level.
B. the increase in productivity.
an increase in business taxes.
the real-balances, interest-rate, and foreign purchases effects.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
92.
In the figure, AD1 and AS1 represent the original aggregate supply and demand curves, and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the diagram produce
A. a higher price level.
B. an expansion of real output and a stable price level.
an expansion of real output and a higher price level.
a decline in real output and a stable price level.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
93.
Refer to the diagram. If the initial aggregate demand and supply curves are AD0 and AS0, the equilibrium price level and level of real domestic output will be
A. F and C, respectively.
G and B, respectively.
F and A, respectively.
E and B, respectively.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-05 Discuss how AD and AS determine an economys equilibrium price level and level of real GDP.
Test Bank: I Topic: Equilibrium in the AD-AS Model
Type: Graph
94.
Refer to the diagram. If the aggregate supply curve shifted from AS0 to AS1 and the aggregate demand curve remains at AD0, we could say that
A. aggregate supply has increased, equilibrium output has decreased, and the price level has increased.
B. aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.
an increase in the amount of output supplied has occurred.
aggregate supply has increased and the price level has risen to G.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
95.
Refer to the diagram. If aggregate supply is AS1 and aggregate demand is AD0, then
at any price level above G, a shortage of real output would occur.
F represents a price level that would result in a surplus of real output of AC.
a surplus of real output of GH would occur.
D. F represents a price level that would result in a shortage of real output of AC.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-05 Discuss how AD and AS determine an economys equilibrium price level and level of real GDP.
Test Bank: I Topic: Equilibrium in the AD-AS Model
Type: Graph
96.
Refer to the diagram. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n)
decrease in aggregate supply.
decrease in the amount of output supplied.
C. increase in investment spending.
D. decrease in net export spending.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
97.
Refer to the diagram. Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n)
A. increase in government regulation.
increase in aggregate demand.
increase in productivity.
decline in nominal wages.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
Type: Graph
If aggregate demand increases and aggregate supply decreases, the price level
A. will decrease, but real output may increase, decrease, or remain unchanged.
B. will increase, but real output may increase, decrease, or remain unchanged.
and real output will both increase.
and real output will both decrease.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect
A. aggregate demand to decrease and aggregate supply to increase.
both aggregate demand and aggregate supply to decrease.
both aggregate demand and aggregate supply to increase.
aggregate demand to increase and aggregate supply to decrease.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
An increase in input productivity will
A. shift the aggregate supply curve leftward.
B. reduce the equilibrium price level, assuming downward flexible prices.
reduce the equilibrium real output.
reduce aggregate demand.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium
A. output would necessarily rise.
output would necessarily fall.
price level would necessarily fall.
price level would necessarily rise.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
In which of the following sets of circumstances can we confidently expect inflation?
Aggregate supply and aggregate demand both increase.
Aggregate supply and aggregate demand both decrease.
C. Aggregate supply decreases and aggregate demand increases.
D. Aggregate supply increases and aggregate demand decreases.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Bank: I Topic: Changes in Equilibrium
103.
Which of the diagrams for the U.S. economy best portrays the effects of an increase in resource productivity?
A. A
B
C
D
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 12-06 Describe how the AD-AS model explains periods of demand-pull inflation, cost-push inflation, and recession.
Test Ba