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Which of the following will cause a positive aggregate supply shock?


A) a decrease in the price of oil
B) a decrease in productivity
C) a decrease in the price of foreign output
D) an increase in the price of foreign output
E) an increase in the price of raw materials

F) B) and D)
G) A) and D)

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The aggregate supply curve is usually assumed to get progressively steeper at relatively higher levels of output because


A) of increasing factor prices.
B) of rising competition among price setters.
C) of diminishing marginal productivity of the factors of production.
D) of increasing productivity of the factors of production.
E) of excess capacity at higher levels of output.

F) None of the above
G) A) and B)

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


A) vertical portion of the AS curve.
B) horizontal portion of the AS curve.
C) upward- sloping portion of the AS curve.
D) downward- sloping portion of the AS curve.
E) none of the above -- real GDP cannot be demand determined.

F) B) and C)
G) C) and D)

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Consider two economies, each with a marginal propensity to consume of 0.8 and a net tax rate of 0.2. One economy is closed to international trade; the second is open to international trade with a marginal propensity to import of 0.3. Suppose there is an increase in autonomous spending of $5 billion in each of these economies. Which of the following statements is true?


A) The AD curve shifts to the right by more in the closed economy than in the open economy.
B) The simple multiplier is larger in the open economy than in the closed economy.
C) The AD curve shifts to the right by more in the open economy than in the closed economy.
D) The AD curve shifts to the right by the same amount in both economies.
E) The AD curve shifts to the left by the same amount in both economies.

F) A) and B)
G) None of the above

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Aggregate supply shocks cause the price level and real GDP to change in


A) opposite directions with price changing by less than output.
B) the same direction with price changing by more than output.
C) opposite directions but by the same amount.
D) opposite directions but not necessarily by the same amount.
E) the same direction and by the same amount.

F) None of the above
G) B) and C)

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Other things being equal, the AS curve will shift downward if there is:


A) a decrease in labour productivity.
B) a decrease in the price level.
C) a decrease in the cost of capital inputs.
D) an increase in the wage rate.
E) an increase in the price level.

F) A) and D)
G) C) and D)

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Other things being equal, as the price level falls exogenously, the aggregate expenditure (AE) function shifts


A) down and the economy will move downward along the AD curve.
B) upward and the economy moves downward along the AD curve.
C) to the left, as does the AD curve.
D) down and the economy will move upward along the AD curve.
E) upward and the economy moves upward along the AD curve.

F) B) and C)
G) C) and E)

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Suppose there is a drop in the price of an important factor input. What will be the effect on the aggregate supply curve?


A) The AS curve will shift to the right.
B) There will be movement to the left, along the AS curve.
C) There will be movement to the right, along the AS curve.
D) The AS curve will shift to the left.
E) There will be no change in the AS curve.

F) None of the above
G) A) and B)

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Consider a simple macro- model with demand- determined output. An exogenous increase in the domestic price level will the real value of the private sector's wealth, which leads to in autonomous consumption and thus shift in the AE function.


A) increase; an increase; an upward
B) increase; a decrease; a downward
C) increase; an increase; a downward
D) reduce; an increase; an upward
E) reduce; a decrease; a downward

F) C) and D)
G) B) and E)

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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 lower than in the initial equilibrium.
B) is lower and real GDP higher than in the initial equilibrium.
C) is higher and real GDP lower than in the initial equilibrium.
D) is higher and real GDP remained the same as in the initial equilibrium.
E) and real GDP are higher than in the initial equilibrium.

F) D) and E)
G) A) and B)

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Consider the basic AD/AS model. Suppose that high- school graduates have better computing skills than did graduates in the past, resulting in an increase in average labour productivity. This change will


A) cause a movement along the AS curve to the right.
B) shift the AD curve to the right.
C) shift the AS curve to the left.
D) shift the AS curve to the right.
E) shift the AD curve to the left.

F) C) and E)
G) A) and B)

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Other things being equal, a rise in the price level will imply _ in wealth for the bondholder but in the wealth of the issuer of the bond.


A) an increase; an increase
B) a decline; no change
C) a decline; an increase
D) an increase; a decline
E) a decline; a decline

F) A) and B)
G) C) and D)

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A decrease in aggregate supply in the short run is


A) interpreted to mean that less total output will be supplied at any given price level.
B) caused by a decrease in the price level.
C) reflected in a shift to the right in the AS curve.
D) caused by an increase in the price level.
E) reflected in a movement to the left along the AS curve.

F) B) and D)
G) C) and D)

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One reason why the aggregate demand (AD) curve slopes downward is that


A) increases in the price level cause consumers to substitute foreign goods for domestic goods.
B) when the price level falls firms must compete more when output increases.
C) increased production results in lower production costs.
D) when the price level falls consumers increase their saving rate.
E) aggregate expenditure increases as the price level rises.

F) All of the above
G) B) and D)

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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) infinity
D) less than 1
E) insufficient information to solve

F) B) and D)
G) A) and D)

Correct Answer

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In the short run, the aggregate supply curve has a positive slope because, as the price level rises, producers can


A) produce the same output, but at higher prices.
B) accumulate inventories.
C) produce less in response to falling profits.
D) be compensated for the extra costs incurred to produce more output.
E) experience rising factor prices.

F) C) and E)
G) A) and B)

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Other things being equal, as the price level rises exogenously, the aggregate expenditure (AE) function shifts


A) down and the economy will move upward to the left along the AD curve.
B) to the right and the AD curve will also shift to the right.
C) upward and the economy moves upward to the left along the AD curve.
D) down and the economy will move downward to the right along the AD curve.
E) upward and the economy moves downward to the right along the AD curve.

F) None of the above
G) B) and C)

Correct Answer

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In a macro model with a constant price level, an increase in government purchases will cause the AE curve to shift


A) upward and the AD curve to shift to the left.
B) downward and a movement to the right along the AD curve.
C) downward and the AD curve to shift to the left.
D) upward and the AD curve to shift to the right.
E) downward and the AD curve to shift to the right.

F) A) and D)
G) None of the above

Correct Answer

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technology.


A) 2 and 3
B) 3 only
C) 1 only
D) 2 only
E) 1 and 3

F) B) and E)
G) All of the above

Correct Answer

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The aggregate supply (AS) curve is drawn with which variables on the axes of the graph?


A) the price level on the vertical axis and MPC on the horizontal axis
B) national income on the vertical axis and marginal cost on the horizontal axis
C) the price level on the vertical axis and real national income on the horizontal axis
D) the price level on the vertical axis and real disposable income on the horizontal axis
E) national income on the vertical axis and total desired consumption on the horizontal axis

F) B) and D)
G) A) and D)

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