()a

In the aggregate supply relation, a

reduction in current output causes:

()f

an increase in the expected price level and an

upward shift of the AS curve.
a reduction in the current price level.
an increase in the markup over labor costs.
a change in the expected price level this year.
a shift of the aggregate supply curve.

()b

The aggregate supply curve will shift

right when which of the following occurs?

An increase in the price level

a decrease in output
an increase in the interest rate
all of the above
none of the above

()g

a reduction in unemployment benefits

a reduction in the expected price level
a reduction in firms' markup over labor costs
all of the above
none of the above
()c

Suppose that the current price level is

equal to the expected price level. Given this
information, we know with certainty that:

Suppose the economy is operating at a

point where output is less than the natural
level of output. Which of the following
statements is correct given this information?

the price level is less than the expected price

level
the unemployment rate is less than the natural
unemployment rate
the price level will be higher next period than
this period
all of the above
none of the above
()e

Which of the following will cause the

aggregate demand curve will shift to the
left?

a rise in the price level

a decrease in the price level
an increase in taxes
an increase in consumer confidence
an increase in the money supply

A monetary expansion will, in the short

run, cause:

the AD curve to shift leftward.

the price setting curve to shift down.
the wage setting curve to shift upward.
an increase in the nominal wage.
the wage setting curve to shift downward.
()h

The output level is higher than natural rate of

output.
the unemployment rate is equal to the
natural rate of unemployment.
the unemployment rate is zero.
both the price level and the expected price
level are equal to one.
none of the above
()d

Suppose the central bank implements

contractionary monetary policy. Which of
the following will occur in the short run?

Assume the economy is initially

operating at the natural level of output.
Which of the following events will initially
cause a shift of the aggregate supply curve?

an increase in the money supply

an increase in consumer confidence
an increase in government spending
all of the above
none of the above
()i

The neutrality of money is consistent

with which of the following statements?
Changes in the money supply will not affect
employment in the short run.
Changes in the money supply will not affect
the price level in the medium run.
Changes in the money supply will not affect
the price level in the short run.
Changes in the money supply will not affect
employment in the medium run.

()j

Assume the economy is initially

operating at the natural level of output. Now
suppose a budget is passed that calls for a
tax cut. This fiscal expansion will, in the
short run, cause an increase in:
the nominal wage.
the price level.
the interest rate.
all of the above
none of the above

()k

Assume the economy is initially

operating at the natural level of output. Now
suppose a budget is passed that calls for a
tax cut. This fiscal expansion will, in the
medium run, have no effect on which of the
following?

the price level

the interest rate
employment
all of the above
none of the above
()l

Assume the economy is initially

operating at the natural level of output.
Which of the following events will NOT
change the composition of output (i.e., the
percentage of GDP composed of
consumption, investment, etc.) in the
medium run?

a reduction in the desire to save

an increase in the money supply
a cut in taxes
an increase in consumer confidence
a reduction in government spending

()m

Assume the economy is initially

operating at the natural level of output. Now
suppose that individuals decide to reduce
their desire to save. We know with certainty
that which of the following will occur in the
short run as a result of decreased desire to
save?

no change in the economy at all

less investment
an increase in the nominal wage
greater investment
higher output and lower investment
()n

Answer this question using the AS/AD

model presented in the textbook. Which of
the following would cause a reduction in the
natural level of output in the medium run?

a decrease in government spending

an increase in taxes
a decrease in the money supply
both A and C
none of the above

()o

The aggregate demand (AD) curve

presented in the textbook has its particular
shape because of which of the following
explanations?

An increase in P will cause a reduction in the

real wage, an increase in
employment, and an increase in
output.
As P decreases in a closed economy, goods and
services become relatively cheaper
and individuals respond by
increasing the quantity demanded of
goods and services.
An increase in the aggregate price level (P)
will cause an increase in the
interest rate and a reduction in
output.
An increase in the money supply (M) will
cause a reduction in the interest rate,
an increase in investment, and an
increase in output.
()p

The short-run aggregate supply curve

(AS) presented in the textbook has its
particular shape because of which of the
following explanations?

An increase in the aggregate price level causes

an increase in nominal money
demand and an increase in the
interest rate.
A reduction in output causes a reduction in
employment, an increase in
unemployment, a reduction in the
nominal wage and a reduction in
the price level.
A drop in the nominal wage causes an increase
in the amount of output that firms
are willing to produce.
A reduction in the aggregate price level will
cause a reduction in the interest rate
and an increase in output.
()q

Which of the following events will

cause an increase in the aggregate price
level?

an increase in the unemployment rate

a reduction in Pe
an increase in the unemployment benefits
a reduction in the markup
none of the above
()r

If u > un, we know with certainty that:

P > Pe.

Y > Yn.
P = Pe.
P < Pe.

()s

Which of the following events will

cause the largest rightward shift (as
measured horizontally) of the AD curve?

a 15% reduction in the nominal wage

a 15% reduction in the aggregate price level
a tax increase
a 10% increase in the nominal money
supply
none of the above
()t

For this question, assume that the

economy is initially operating at the natural
level of output. An increase in taxes will
cause which of the following?

an increase in the aggregate price level, no

change in output and no change in
the interest rate in the medium run
a reduction in employment and no change in
the nominal wage in the short run
an increase in investment in the medium
run
a reduction in output and no change in the
aggregate price level in the short
run
()u

For this question, assume that the

economy is initially operating at the natural
level of output. A reduction in consumer
confidence will cause:

ambiguous effects on the real wage in the

medium run.
an increase in the real wage in the medium run.
no change in the real wage in the medium
run.
a reduction in the real wage in the medium run.
()v

For this question, assume that the

economy is initially operating at the natural
level of output. A monetary expansion will
cause:

no change in the nominal wage in the medium

run.
a reduction in the interest rate in the medium
run.
an increase in investment in the medium run.
no change in the real wage in the medium
run.

()w

For this question, assume that the

economy is initially operating at the natural
level of output. A one-time 7% increase in
the nominal money supply will cause:

a 7% reduction in the interest rate (i) in the

medium run.
a 7% increase in the real money supply in the
medium run .
a 7% increase in the price level in the
medium run .
all of the above
()x

For this question, assume that the

economy is initially operating at the natural
level of output. A simultaneous reduction in
taxes and reduction in the money supply will
cause which of the following?

a reduction in the interest rate in the medium

run
a reduction in output and a reduction in the
nominal wage in the short run
an increase in output and an increase in the
aggregate price level in the short
run
an increase in the aggregate price level, no
change in output, and no change in
the interest rate in the medium run
a reduction in investment in the medium
run