Question 1

Improvements in inventory control help to reduce fluctuations in real GDP.

Accepted Answer

A) True 
 B)False

Question 2

A period of economic expansion ends with a business cycle trough.

Accepted Answer

A) True 
 B)False

Question 3

The aggregate demand curve shows the relationship between the ________ and ________.

Accepted Answer

A)   inflation rate; quantity of real GDP demanded
B)   real interest rate; quantity of real GDP supplied
C)   nominal interest rate; quantity of real GDP demanded
D)   price level; quantity of real GDP demanded

Question 4

Long-run macroeconomic equilibrium occurs when

Accepted Answer

A)   aggregate demand equals short-run aggregate supply.
B)   aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve.
C)   unemployment equals zero.
D)   output is above potential GDP.

Question 5

Figure 14.1 
-Which of the points in Figure 14.1 are possible short-run equilibriums but not long-run equilibriums?

Accepted Answer

A)   A and B
B)   A and C
C)   C and D
D)   B and D

Question 6

Why are the long-run effects of an increase in aggregate demand on price and output different from the short-run effects?

Accepted Answer

The long-run effects differ from the sho...

Question 7

When the short-run aggregate supply curve and the aggregate demand curve intersect,the economy is at full-employment equilibrium.

Accepted Answer

A) True 
 B)False

Question 8

Explain what happens to inflation and unemployment during the business cycle.

Accepted Answer

The changes in the inflation rate depend...

Question 9

If planned aggregate expenditure is greater than total production

Accepted Answer

A)   actual inventories will equal planned inventories.
B)   firms will experience an unplanned increase in inventories.
C)   GDP will increase.
D)   the economy is in equilibrium.

Question 10

When potential GDP increases,short-run aggregate supply also increases but long-run aggregate supply does not change.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment.Which of the following will happen in the short run?

Accepted Answer

A)   Output will decline.
B)   Prices will decline.
C)   Unemployment will decline.
D)   Aggregate demand will shift to the left.

Question 12

Technological change can reduce the inflationary effects of total spending rising over time.

Accepted Answer

A) True 
 B)False

Question 13

Spending on the national defence force is categorised as government purchases.How do increases in spending on defence affect the aggregate demand curve?

Accepted Answer

A)   This will move the economy up along a stationary aggregate demand curve.
B)   This will move the economy down along a stationary aggregate demand curve.
C)   This will shift the aggregate demand curve to the left.
D)   This will shift the aggregate demand curve to the right.

Question 14

How do changes in income tax policies affect aggregate demand?

Accepted Answer

A)   Higher taxes increase disposable income, consumption and aggregate demand.
B)   Higher taxes reduce disposable income, consumption and aggregate demand.
C)   Higher taxes increase corporate investment and aggregate demand.
D)   Higher taxes increase aggregate supply and thus increase aggregate demand as well.

Question 15

Workers expect the rate of inflation to fall from 4 per cent to 1 per cent next year.As a result,this should

Accepted Answer

A)   shift the short-run aggregate supply curve to the left.
B)   shift the short-run aggregate supply curve to the right.
C)   move the economy up along a stationary short-run aggregate supply curve.
D)   move the economy down along a stationary short-run aggregate supply curve.

Question 16

If workers expect the rate of inflation to rise from 3 per cent to 5 per cent next year,this should

Accepted Answer

A)   shift the short-run aggregate supply curve to the left.
B)   shift the short-run aggregate supply curve to the right.
C)   move the economy up along a stationary short-run aggregate supply curve.
D)   move the economy down along a stationary short-run aggregate supply curve.

Question 17

Figure 14.2 
-In Figure 14.2,given the economy is at point A in year 1 and point B in year 2,what will happen to the unemployment rate in year 2?

Accepted Answer

A)   It will rise.
B)   It will fall.
C)   It will remain constant.
D)   There is not enough information to answer the question.

Question 18

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Accepted Answer

A)   The leftward shift in short-run aggregate supply that occurs after a recession.
B)   The rightward shift in short-run aggregate supply that occurs after a recession.
C)   The leftward shift in aggregate demand that occurs after a recession.
D)   The rightward shift in aggregate demand that occurs after a recession.

Question 19

Which of the following would not be considered a positive addition to household wealth?

Accepted Answer

A)   The equity that homeowners have in their own homes.
B)   1000 shares in Qantas Airlines.
C)   A credit card balance.
D)   The balance in your savings account.

Question 20

When the price level rises,the interest rate effect states that wealth levels fall for all consumers,as they have to withdraw more funds from banks to pay for their goods and services.

Accepted Answer

A) True 
 B)False

Exam 14: Economic Growth, the Financial System and Business Cycles

When the short-run aggregate supply curve and the aggregate demand curve intersect,the economy is at full-employment equilibrium.

Correct AnswerverifiedShow Answer

Improvements in inventory control help to reduce fluctuations in real GDP.

Correct AnswerverifiedShow Answer

Which of the following would not be considered a positive addition to household wealth?

Correct AnswerverifiedShow Answer

Figure 14.1 -Which of the points in Figure 14.1 are possible short-run equilibriums but not long-run equilibriums?

Correct AnswerverifiedShow Answer

The aggregate demand curve shows the relationship between the ________ and ________.

Correct AnswerverifiedShow Answer

Workers expect the rate of inflation to fall from 4 per cent to 1 per cent next year.As a result,this should

Correct AnswerverifiedShow Answer

If planned aggregate expenditure is greater than total production

Correct AnswerverifiedShow Answer

Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment.Which of the following will happen in the short run?

Correct AnswerverifiedShow Answer

Spending on the national defence force is categorised as government purchases.How do increases in spending on defence affect the aggregate demand curve?

Correct AnswerverifiedShow Answer

Figure 14.2 -In Figure 14.2,given the economy is at point A in year 1 and point B in year 2,what will happen to the unemployment rate in year 2?

Correct AnswerverifiedShow Answer

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Correct AnswerverifiedShow Answer

How do changes in income tax policies affect aggregate demand?

Correct AnswerverifiedShow Answer

A period of economic expansion ends with a business cycle trough.

Correct AnswerverifiedShow Answer

Technological change can reduce the inflationary effects of total spending rising over time.

Correct AnswerverifiedShow Answer

Long-run macroeconomic equilibrium occurs when

Correct AnswerverifiedShow Answer

Why are the long-run effects of an increase in aggregate demand on price and output different from the short-run effects?

Correct AnswerverifiedThe long-run effects differ from the sho...View AnswerShow Answer

When potential GDP increases,short-run aggregate supply also increases but long-run aggregate supply does not change.

Correct AnswerverifiedShow Answer

When the price level rises,the interest rate effect states that wealth levels fall for all consumers,as they have to withdraw more funds from banks to pay for their goods and services.

Correct AnswerverifiedShow Answer

If workers expect the rate of inflation to rise from 3 per cent to 5 per cent next year,this should

Correct AnswerverifiedShow Answer

Explain what happens to inflation and unemployment during the business cycle.

Correct AnswerverifiedThe changes in the inflation rate depend...View AnswerShow Answer

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The aggregate demand curve shows the relationship between the and .

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The long-run effects differ from the sho...
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The changes in the inflation rate depend...
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