Macro Chapter 12 Practice Questions

7/31/2019 Macro Chapter 12 Practice Questions

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ChapterChapterChapterChapter 12121212 PracticePracticePracticePractice QuestionsQuestionsQuestionsQuestions

1. Deflation will

A. cause the aggregate demand curve to shift right (i.e., increase aggregate demand).B. cause the aggregate demand curve to shift left (i.e., decrease aggregate demand).C. cause a movement up and to the left along a stationary aggregate demand curve (i.e., decr

the quantity of real GDP demanded).

D. cause a movement down and to the right along a stationary aggregate demand curve (i.e.,increase the quantity of real GDP demanded).

2. TRUE/FALSE. An increase in the price level causes a decrease in consumption, investment,government purchases, and net exports.

3. A(n) _____ in the price level or a(n) _____ in the money supply decreases the interest rate, whichencourages households and firms to borrow _____.

A. increase; increase; moreB. increase; increase; lessC. increase; decrease; moreD. increase; decrease; lessE. decrease; increase; moreF. decrease; increase; lessG. decrease; decrease; moreH. decrease; decrease; less

4. TRUE/FALSE. If the interest rate changes for any reason, then the aggregate demand curve will sh

5. The federal government can shift the aggregate demand curve right by _____ government purchaand/or _____ personal income taxes and business taxes.

A. increasing; increasingB. increasing; decreasingC. decreasing; increasingD. decreasing; decreasing

6. If U.S. real GDP begins to grow more slowly than foreign real GDPs, then U.S. _____ will grow mo

slowly than U.S. _____, which will _____ U.S. net exports and shift the aggregate demand curve __

A. imports; exports; increase; rightB. imports; exports; decrease; leftC. exports; imports; increase; rightD. exports; imports; decrease; left


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7. Last month, ten British pounds could purchase one U.S. dollar. This month, it takes twelve Britishpounds to purchase one U.S. dollar. This change in the value of the U.S. dollar will _____ U.S. expo

to Great Britain, _____ U.S. imports from Great Britain, and _____ U.S. aggregate demand.

A. increase; decrease; increaseB. increase; decrease; decreaseC. decrease; increase; increaseD. decrease; increase; decrease

8. When real GDP is equal to potential GDP, the unemployment rate is

A. equal to zero.B. equal to the natural rate of unemployment.C. less than the natural rate of unemployment.D. greater than the natural rate of unemployment.E. More than one of the above could be correct.

9. TRUE/FALSE. Potential GDP is determined by the number of workers, the capital stock, and theavailable technology in the economy.

10. Assume that wages and input prices are fixed by contract when the economy begins to experienceinflation. In the short run, firms profits will _____, so firms will _____ the quantity of goods andservices supplied.

A. increase; increaseB. increase; decreaseC. decrease; increase

D. decrease; decrease11. If, as the economy experience deflation, some firms do not adjust the prices of their final goods a

services because of menu costs, then these firms profits will _____ and they will _____ the quantitgoods and services they supply.

A. increase; increaseB. increase; decreaseC. decrease; increaseD. decrease; decrease

12. Wages and input prices often

A. move in the opposite direction as the prices of final goods and services.B. rise at the same rate as the prices of final goods and services.C. rise faster than the prices of final goods and services.D. rise more slowly than the prices of final goods and services.


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13. All of the following will shift both long-run aggregate supply and short-run aggregate supply righexcept

A. an increase in the number of workers in the economy.B. an increase in the capital stock in the economy.C. an improvement in production technology.D. an unexpected decrease in the price of an important natural resource.

14. An increase in the expected future price level will

A. cause the short-run aggregate supply curve to shift right (i.e., increase short-run aggregatesupply).

B. cause the short-run aggregate supply curve to shift left (i.e., decrease short-run aggregatesupply).

C. cause a movement up and to the right along a stationary short-run aggregate supply curve(i.e., increase the quantity of goods and services firms are willing and able to supply).

D. cause a movement down and to the left along a stationary short-run aggregate supply curv(i.e., decrease the quantity of goods and services firms are willing and able to supply).

15. Workers and firms producing inputs adjusting to the price level being lower than expected will

A. cause the short-run aggregate supply curve to shift right (i.e., increase short-run aggregatesupply).

B. cause the short-run aggregate supply curve to shift left (i.e., decrease short-run aggregatesupply).

C. cause a movement up and to the right along a stationary short-run aggregate supply curve(i.e., increase the quantity of goods and services firms are willing and able to supply).

D. cause a movement down and to the left along a stationary short-run aggregate supply curv(i.e., decrease the quantity of goods and services firms are willing and able to supply).

16. TRUE/FALSE. Business cycle fluctuations are most often caused by shifts in aggregate demand.

17. The automatic mechanism refers to a shift in ____ that returns the economy to long-runmacroeconomic equilibrium.

A. aggregate demandB. short-run aggregate supply

C. long-run aggregate supplyD. both short-run and long-run aggregate supply

18. TRUE/FALSE. After an increase in aggregate demand moves the economy to a short-runmacroeconomic equilibrium, workers' willingness to accept lower wages and firms' willingness toaccept lower input prices moves the economy back to long-run macroeconomic equilibrium.


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19. A decrease in aggregate demand causes a decrease in _____ only in the short run, but causes a decin _____ in both the short run and the long run.

A. the price level; real GDPB. real GDP; the price levelC. the price level; unemploymentD. unemployment; the price level

20. If the economy adjusts through the automatic mechanism, then household and firm optimism ca

A. an expansion in the short run and inflation in the long run.B. an expansion in the short run and deflation in the long run.C. a recession in the short run and inflation in the long run.D. a recession in the short run and deflation in the long run.

21. In the short run, households expecting future income to decrease causes _____, _____ cyclicalunemployment, and _____.

A. expansion; positive; deflationB. expansion; positive; inflationC. expansion; negative; deflationD. expansion; negative; inflationE. recession; positive; deflationF. recession; positive; inflationG. recession; negative; deflationH. recession; negative; inflation

22. In the short run, an adverse supply shock causes _____, _____ cyclical unemployment, and _____.A. expansion; positive; deflationB. expansion; positive; inflationC. expansion; negative; deflationD. expansion; negative; inflationE. recession; positive; deflationF. recession; positive; inflationG. recession; negative; deflationH. recession; negative; inflation

23. TRUE/FALSE. In the long run, if the government takes no action, then an increase in the price ofimportant input does not affect real GDP, the unemployment rate, or the price level.

24. TRUE/FALSE. The government can successfully fight both components of stagflation simultaneo

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Macro Chapter 12 Practice Questions