Chapter 13
Student: ___________________________________________________________________________
1. The economy is in long-run equilibrium:
A. when the AD and AS curves intersect at potential output, Y*.
B.
when the AD and AS curves intersect, regardless of the level of output.
C. when the AD and AS curves become vertical.
D. only when the business cycle is eliminated.
2. The economy is in short-run equilibrium:
A. when the AD and AS curves intersect at potential output Y*.
B. when the AD and AS curves intersect at a level of real GDP that is above or below Y*.
C. when the AD and AS curves become vertical.
D. at the peak of the business cycle.
3. Shifts in ______ can push the economy out of long-run equilibrium.
A. the AD curve only
B. the AS curve only
C. either the AD curve or the AS curve
D. the PAE line only
4. Shifts in ______ can return the economy to long-run equilibrium.
A. the AD curve only
B. the AS curve only
C. either the AD curve or the AS curve
D. the PAE line only
5. The aggregate demand curve shows the relationship between planned spending and the:
A. nominal interest rate.
B. real interest rate.
C. unemployment rate.
D. inflation rate.
6. The AD curve ______ because, holding all else constant, an increase in ______ causes C, IP and NX to fall.
A. slopes downward; real GDP
B. slopes downward; the inflation rate
C. slopes upward; real GDP
D. is horizontal; the inflation rate
7. When the inflation rate increases, PAE ______, which in turn causes Y to ______ because of
______.
A. falls; fall; the income-expenditure multiplier
B. falls; rise; the income-expenditure multiplier
C. rises; rise; the wealth effect
D. rises; fall; the wealth effect
8. When the inflation rate decreases, PAE ______, which in turn causes Y to ______ because of
______.
A. rises; rise; the income-expenditure multiplier
B. rises; fall; the income-expenditure multiplier
C. falls; rise; the wealth effect
D. falls; fall; the wealth effect
9. An increase in the interest rate directly affects ______, but also has an indirect effect on ______
because of its effect on exchange rates.
A. planned consumption and investment; government spending
B. planned consumption and investment; net exports
C. net exports; planned consumption and investment
D. net exports; government spending
10. When the interest rate in the U.S. rises, U.S. financial assets:
A. become less attractive to foreign buyers.
B. become more attractive to both foreign and domestic buyers.
C. become less attractive to both foreign and domestic buyers.
D. become less attractive to domestic buyers and more attractive to foreign buyers.
11. When the interest rate in the U.S. falls, U.S. financial assets:
A. become more attractive to foreign buyers.
B. become less attractive to both foreign and domestic buyers.
C. become more attractive to both foreign and domestic buyers.
D. become less attractive to domestic buyers and more attractive to foreign buyers.
12. If the interest rate in the U.S. falls, U.S. financial assets become ______ attractive to buyers and
the ______ U.S. dollars will fall.
A. more; demand for
B. more; supply of
C. less; demand for
D. less; supply of
13. If the interest rate in the U.S. rises, U.S. financial assets become ______ attractive to buyers and
the ______ U.S. dollars will rise.
A. more; demand for
B. more; supply of
C. less; demand for
D. less; supply of
14. The AD curve slopes downward because an increase in ______ causes ______ to fall, which in
turn causes real GDP to fall.
A. the inflation rate; planned spending
B. planned spending; the inflation rate
C. real GDP; planned spending
D. real GDP; the unemployment rate
15. The aggregate demand curve shifts when there are changes in:
A. the inflation rate.
B. planned spending that are not caused by changes in output or the inflation rate.
C. planned spending that are caused only by changes in output or the inflation rate.
D. real GDP.
16. Changes in planned spending not caused by changes in output or the inflation rate will shift the:
A. aggregate supply curve.
B. Keynesian cross.
C. potential output line.
D. aggregate demand curve.
17. Changes in planned spending that shift the aggregate demand curve are those:
A. caused by changes in output.
B. caused by changes in the inflation rate.
C. caused by changes in output and changes in the real interest rate.
D. not caused by changes in output or changes in the inflation rate.
18. A demand shock is a change in planned spending that is:
A. caused by changes in output.
B. caused by changes in the inflation rate.
C. caused by changes in output and changes in the real interest rate.
D. not caused by changes in output or changes in the inflation rate.
19. A positive demand shock will shift the ______ curve to the ______.
A. AD; left
B. AD; right
C. AS; left
D. AS; right