ADAS Model - Multiple Choice Questions for Practice PDF

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Chapter 13 The Aggregate Demand - Aggregate Supply Model

Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The model used to study business cycles is the: a. labor model. b. savings model. c. growth model. d. aggregate demand–aggregate supply model. e. interest rate model. 2. The price index used when we graph the aggregate demand curve is the: a. gross domestic product (GDP) deflator. b. consumer price index. c. producer price index. d. nominal price index. e. real price index. 3. When median home prices rise, the value of real wealth and aggregate demand a. increases; is unaffected b. increases; increases c. increases; decreases d. decreases; decreases e. is unaffected; is unaffected 4. If people expect higher aggregate income in the future, then aggregate demand _________ _. a. doesn’t change b. increases c. decreases d. may increase or decrease - more information is needed to answer this question. 5. An increase in the value of the dollar will: a. have no effect on aggregate demand or supply. b. decrease aggregate supply. c. increase aggregate supply. d. increase aggregate demand. e. decrease aggregate demand. 6. Aggregate demand is about and aggregate supply is about . a. income; spending b. spending; production c. production; spending d. production; income e. saving; profit

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7. Which of the following is true about the price level and aggregate supply? a. The price level influences aggregate supply in both the long run and short run. b. The price level influences aggregate supply in the long run but not in the short run. c. The price level influences aggregate supply in the short run but not in the long run. d. The price level never impacts aggregate supply. e. There is no clear relationship between the price level and aggregate supply. 8. Which of the following is true? a. Long-run aggregate supply is independent of the price level. b. Short-run aggregate supply is independent of the price level. c. Long-run aggregate supply is positively related to the price level. d. Short-run aggregate supply is inversely related to the price level. e. Long-run aggregate supply is inversely related to the price level. 9. The long-run aggregate supply curve is: a. vertical at the level of full employment output. b. horizontal at the going-price level. c. illustrating a positive relationship between price and output. d. illustrating a negative relationship between price and output. e. the same as the short-run aggregate supply curve. 10. The long-run output of an economy depends on: a. the level of spending. b. the level of unemployment. c. the level of inflation. d. the level of aggregate demand. e. resources, technology, and institutions. 11. Which of the following would cause an increase in long-run aggregate supply? a. The price level increases. b. The price level decreases. c. Firms and workers expect the price level to fall. d. Firms and workers expect the price level to rise. e. The amount of capital in the economy increases. 12. A supply shock causes a shift in: a. short-run aggregate supply. b. aggregate demand. c. aggregate demand and short-run aggregate supply. d. long-run aggregate supply. e. short-run and long-run aggregate supply. 13. would decrease short-run aggregate supply. a. A negative supply shock b. Menu costs c. Money illusion d. A technological advance e. A lower than expected price level 14. Which of the following would affect both short-run and long-run aggregate supply? a. a supply shock b. menu costs c. money illusion d. technological change e. a change in the general price level

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15. If there is a widespread increase in wages in the economy, this will: a. shift long-run aggregate supply to the right. b. shift long-run aggregate supply to the left. c. shift short-run aggregate supply to the left. d. shift short-run aggregate supply to the right. e. have no effect on aggregate supply. 16. Suppose 20% of the capital stock in a country is destroyed. In the long run, output will and the price level will ________ _. a. decrease; decrease b. decrease; increase c. decrease; remain unchanged d. remain unchanged; remain unchanged e. remain unchanged; increase 17. Suppose people are worried the economy may become weaker, causing them to lose their jobs. In the short run, this will: a. decrease short-run aggregate supply and output. b. decrease aggregate demand and output. c. decrease aggregate demand and short-run aggregate supply. d. decrease output and increase the price level. e. increase saving and increase aggregate demand. 18. Suppose new drilling techniques increase the world oil supply. In the long run, output will and the price level will ________ _. a. remain unchanged; decrease b. remain unchanged; remain unchanged c. increase; decrease d. increase; remain unchanged e. increase; increase 19. Suppose there is a surge in stock market values. In the short run, we would expect the price level to __________ and the unemployment rate to _________ _. a. increase; decrease b. increase; increase c. decrease; increase d. decrease; decrease e. remain unchanged; decrease 20. If the current short-run equilibrium level of output is greater than full employment output, we can then expect that in the long run: a. short-run aggregate supply will fall and the price level will rise . b. aggregate demand will fall and the price level will rise. c. short-run aggregate supply will rise and the price level will fall. d. aggregate demand will rise and the price level will fall. e. the long-run aggregate supply will increase. 21. A decrease in aggregate demand is harmful in the short run because , but beneficial in the long run because _________ _. a. real wealth rises; real wealth falls b. wages increase; wages decrease c. the price level rises; output falls d. unemployment rises; the price level falls e. the price level falls; the unemployment rate rises

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22. Suppose that you have the following information about the economy, where all figures are in millions of dollars: Full employment output = $2,000 Consumption = $1,200 Investment = $400 Government spending = $500 Net exports = −$200 Because short-run output is full employment output, in the long run we would expect the price level to _________ _. a. less than; rise b. less than; fall c. greater than; rise d. greater than; fall e. equal to; remain unchanged

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ID: A Chapter 13 The Aggregate Demand - Aggregate Supply Model Answer Section MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

D A B B E B C A A E E A A D C B B C A A D B

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