20. A negative demand shock will shift the ______ curve to the ______.
A. AD; left
B. AD; right
C. AS; left
D. AS; right
21. A sudden increase in household wealth is an example of a ______ demand shock, which shifts
the AD curve to the ______.
A. negative; left
B. positive; left
C. negative; right
D. positive; right
22. Firms suddenly becoming pessimistic about future business prospects is an example of a ______
demand shock, which would shift the AD curve to the ______.
A. negative; left
B. positive; left
C. negative; right
D. positive; right
23. For a given inflation rate, if concerns about future weakness in the economy cause businesses to
reduce their spending on new capital, then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; left
D. aggregate supply curve; right
24. For a given inflation rate, if bright prospects for the future of the economy cause businesses to
increase spending on new capital, then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; left
D. aggregate supply curve; right
25. For a given inflation rate, if a rise in the stock market makes consumers more willing to spend,
then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; left
D. aggregate supply curve; right
26. For a given inflation rate, if a stock market crash makes consumers less willing to spend, then the
______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; left
D. aggregate supply curve; right
27. For a given inflation rate, if increasing threats to domestic security cause the government to
increase military spending, then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; left
D. aggregate supply curve; right
28. For a given inflation rate, if a resolution of international disputes leads to a cutback in government
military spending, then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; left
D. aggregate supply curve; right
29. The AD curve can be shifted by:
A. both fiscal and monetary policy.
B. neither fiscal nor monetary policy.
C. fiscal policy only.
D. monetary policy only.
30. The aggregate supply curve shows the relationship between the amount of output firms want to
produce and the ______.
A. nominal interest rate
B. real interest rate
C. unemployment rate
D. inflation rate
31. Due to menu costs, many firms in the economy will increase their output:
A. only after they raise the price at which they are willing to sell their output.
B. before raising the price at which they are willing to sell their output.
C. instead of raising the price at which they sell their output.
D. or raise the price at which they sell their output, but never both.
32. Firms that face menu costs react to a sustained increase in demand by:
A. increasing output and then raising the price of their output.
B. charging higher prices, without necessarily increasing the amount of output they are willing to sell.
C. charging lower prices, while simultaneously increasing the amount of output they are willing to sell.
D. increasing output and then reducing the price of their output.
33. An increase in the aggregate demand for goods and services will result in an increase in the
amount of output firms are willing to produce, and this increase in output is accompanied by:
A. a decrease in the inflation rate.
B. an increase in the inflation rate.
C. a decrease in nominal GDP
D. an increase in potential GDP.
34. The AS curve slopes upward because:
A. firms generally sell their products at preset prices.
B. relaxing the assumptions of the Keynesian model allows us to develop a more realistic model where firms no longer care about prices.
C. many firms raise their prices when aggregate demand has increased.
D. inflation is higher in goods-producing industries than service-producing industries.
35. The tendency for inflation to change relatively slowly from year to year in industrial countries is
called:
A. the inflation gap
B. inflation expectations.
C. inflation inertia.
D. potential inflation.
36. Inflation inertia is the tendency for inflation to:
A. equal zero.
B. change relatively slowly from year to year.
C. decrease when the Fed increases interest rates.
D. increase when the Fed decreases interest rates.
37. Inflation inertia is the result of the behavior of ____ and the existence of ______.
A. the central bank; automatic stabilizers
B. real and nominal interest rates; an output gap
C. autonomous aggregate demand; the Fed's policy reaction function
D. inflation expectations; long-term wage and price contracts
38. A low rate of expected inflation tends to lead to a ___ rate of actual inflation and a high rate of
expected inflation tends to lead to a ____ rate of actual inflation.
A. high; high
B. high; low
C. low; low
D. low; high