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| 1 | |
Why is the AD curve downward sloping? |
| | A) | Because production costs decline as real GDP increases |
| | B) | Because higher prices cause an increase in wealth, which increases spending |
| | C) | Because lower prices cause an increase in real balances, which increases spending |
| | D) | Because lower prices cause interest rates to increase, which increases spending |
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| 2 | |
Why is the AS curve upward sloping? |
| | A) | Because firms will produce more if prices are higher, despite a lack of increase in profits |
| | B) | Because firms will experience higher profits at higher prices and will therefore produce more |
| | C) | Because aggregate demand rises with higher prices |
| | D) | Because the potential GDP curve is also upward sloping |
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| 3 | |
Which of the following will cause the aggregate demand curve to shift to the right? |
| | A) | A decrease in the money supply |
| | B) | A decrease in the interest rate |
| | C) | An increase in the exchange rate |
| | D) | A decrease in government spending |
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| 4 | |
When does macroeconomic equilibrium occur? |
| | A) | When aggregate supply equals potential GDP |
| | B) | When the aggregate demand curve intersects the aggregate supply curve |
| | C) | When the aggregate demand curve intersects the potential GDP curve |
| | D) | When full employment occurs |
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| 5 | |
What could cause the level of real GDP to rise but the price level to fall? |
| | A) | A rightward shift in the aggregate demand curve |
| | B) | A leftward shift in the aggregate demand curve |
| | C) | A rightward shift in the aggregate supply curve |
| | D) | A leftward shift in the aggregate supply curve |
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| 6 | |
What can cause an increase in potential GDP? |
| | A) | An increase in nominal wage rates |
| | B) | A decrease in taxes |
| | C) | Technological improvement |
| | D) | A leftward shift in the AS curve |
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| 7 | |
What does the real-balances effect mean? |
| | A) | A higher price level will lead to an increase in the rate of interest thereby causing a decrease in consumption. |
| | B) | A lower price level will lead to an increase in the rate of interest thereby causing a decrease in consumption. |
| | C) | A higher price will increase the real value of financial assets thereby causing an increase in consumption. |
| | D) | A higher price will decrease the real value of financial assets thereby causing an increase in consumption. |
| | E) | A higher price will decrease the real value of financial assets thereby causing a decrease in consumption. |
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| 8 | |
Refer to Figure 5.23 to answer this question. What could cause a movement from point a to point b? |
| | A) | An increase in government spending |
| | B) | A decrease in labour productivity |
| | C) | The discovery of new oil fields |
| | D) | A decrease in taxes |
| | E) | A decrease in the prevailing nominal wage |
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| 9 | |
What effect will a decrease in aggregate demand have if the economy is in a recession? |
| | A) | The price level will drop a great deal, but real GDP will fall only a little. |
| | B) | The price level will drop a little, but real GDP will fall a great deal. |
| | C) | The price level will drop a little, but real GDP will increase a great deal. |
| | D) | The price level will drop a little, and real GDP will increase a little. |
| | E) | Both the price level and real GDP will increase by the same amount. |
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| 10 | |
What is the result of an increase in labour productivity? |
| | A) | A decrease in aggregate supply |
| | B) | An increase in potential GDP |
| | C) | An increase in aggregate demand |
| | D) | An increase in aggregate demand and aggregate supply |
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| 11 | |
What is the business cycle? |
| | A) | The periodic cycles of profits and losses that all firms experience |
| | B) | The natural evolution of new firms growing quickly at first, then slowing and fading into obsolescence |
| | C) | The fact that real GDP falls as often as it rises |
| | D) | The expansionary and contractionary phases in the growth rate of real GDP |
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| 12 | |
What is meant by the term human capital? |
| | A) | The sum of all financial assets owned by people |
| | B) | The accumulated skills and knowledge of human beings |
| | C) | The total amount of machines and physical overhead a country possesses |
| | D) | The amount of physical capital that each worker has to work with |
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| 13 | |
All of the following, except one, will contribute to economic growth. Which is the exception? |
| | A) | Increased levels of human capital |
| | B) | Higher prices |
| | C) | Increases in the capital stock |
| | D) | Technological improvement |
| | E) | Increased quantities of natural resources |
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| 14 | |
What are the four components of aggregate demand? |
| | A) | Consumption, investment, government spending, and net exports |
| | B) | Consumption, investment, productivity, and net exports |
| | C) | Consumption, investment, productivity, and human capital |
| | D) | Potential GDP, AD, AS, and the GDP deflator |
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