Econ 1311 AS - AD & Business Cycle

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Over the business cycle, A) neither real GDP nor potential GDP fluctuate because they just grow smoothly along their trends. B) potential GDP fluctuates around its trend. C) only real GDP fluctuates around its trend and potential GDP remains equal to its trend. D) only potential GDP fluctuates around its trend and real GDP remains equal to its trend. E) real GDP fluctuates around its trend. E 2) A business cycle has two turning points, which are the A) recession and trough. B) peak and recession. C) peak and expansion. D) trough and peak. E) expansion and recession. D 3) The business cycle has two phases, A) recession and expansion. B) recession and trough. C) expansion and peak. D) peak and trough. E) expansion and trough. A 4) Identifying and dating business cycles is A) done by the government, at the Federal Reserve. B) done by the government, at the Commerce Department. C) impossible because the economy changes so much. D) done by a private organization, the NBER. E) done by people on Wall Street. D 5) Since 1854, the average length of an expansion phase in the United States is A) 120 months, about ten years. B) 35 months, about three years. C) 72 months, about six years. D) 48 months, about four years. E) 14 months, slightly more than a year. B 6) Moving along the potential GDP line, if the price level rises then A) there is no change in potential GDP. B) the quantity of GDP supplied increases. C) the potential GDP line shifts out to the right. D) the quantity of potential GDP supplied increases. E) the quantity of GDP supplied decreases. A 1)

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7) The real wage rate definitely falls if the money wage rate ________ and the price level ________. A) remains constant; rises B) remains constant; falls C) falls; falls D) rises; falls E) rises; rises A 8) A fall in the real wage rate ________ firms' profits and leads to ________ in the quantity supplied. A) lowers; an increase B) raises; a decrease C) raises; an increase D) lowers; a decrease E) does not change; no change C 9) Moving along the AS curve, when the price level increases the A) nominal wage rate falls and there is an increase in the quantity of real GDP supplied. B) real wage rate rises and there is a decrease in the quantity of real GDP supplied. C) real wage rate rises and there is an increase in the quantity of real GDP supplied. D) nominal wage rate rises and there is a decrease in the quantity of real GDP supplied. E) real wage rate falls and there is an increase in the quantity of real GDP supplied. E 10) A change in the price level A) shifts the potential GDP line. B) changes the quantity of real GDP supplied. C) shifts the aggregate supply curve leftward. D) shifts the aggregate supply curve rightward. E) shifts the aggregate demand curve leftward. B 11) If the nominal wage rate does not change, then if the price level increases, the real wage rate ________ and profits ________. A) rises; decrease B) rises; increase C) does not change; increase D) falls; increase E) falls; decrease D 12) The aggregate supply curve shifts rightward when A) the money wage rate rises. B) potential GDP decreases. C) government purchases increase. D) the money wage rate falls. E) income taxes increase. D 13) An increase in technology ________ potential GDP and ________ aggregate supply. A) increases; increases B) decreases; decreases C) decreases; increases D) does not change; does not change E) increases; decreases A

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14) Which of the following statements is correct? A) The lower the price level, the greater the quantity of real GDP demanded B) The lower the price level, the more the aggregate demand curve shifts leftward. C) The higher the price level, the more the aggregate demand curve shifts rightward. D) The price level does not effect the level of real GDP demanded. E) The lower the price level, the more the aggregate demand curve shifts rightward. A 15) At a price level of 100, John has savings equal to $20,000. If the price level increases to 130, the buying power of John's savings is approximately A) $26,000. B) $30,000. C) $12,780. D) $15,400. E) $20,000. D 16) A reason why an increase in the price level decreases the quantity of real GDP demanded is that A) the buying power of money increases. B) the inflation rate decreases. C) potential GDP decreases. D) the price of domestic goods and services increases relative to foreign goods and services. E) the real interest rate falls. D 17) Aggregate demand A) increases if the expected inflation rate increases. B) decreases if expected future income rises. C) increases if government expenditures decrease. D) increases if aggregate supply increases. E) increases if the exchange rate rises. A 18) Which of the following decreases aggregate demand and shifts the AD curve leftward? A) a decrease in potential GDP B) a decrease in government expenditures C) a decrease in the price of exported goods and services D) a tax cut E) a decrease in price level B 19) A tax increase A) decreases aggregate demand and the AD curve shifts leftward. B) does not shift or lead to a movement along the aggregate demand curve. C) increases aggregate demand and the AD curve shifts rightward. D) increases the quantity of real GDP demanded and there is a movement down along the AD curve. E) decreases the quantity of real GDP demanded and there is a movement up along the AD curve. A

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20) In the figure above, the shift in the aggregate demand curve from AD1 to AD2 could be result of A) a decrease in the quantity of money. B) a rise in the price level. C) an increase in government expenditures on goods and services. D) an increase in taxes. E) a fall in the price level. C 21) In the figure above, the shift in the aggregate demand curve from AD1 to AD3 could be the result of A) an increased expectation of a recession that lowers the expected rate of profit from investment. B) a decrease in the buying power of money. C) a decrease in the real interest rate. D) a decrease in the foreign exchange rate. E) an increase in the price level. A Price level (GDP deflator) 80 90 100 110 120 130 Real GDP demanded (trillions of 2000 dollars) 10 9 8 7 6 4 Real GDP supplied (trillions of 2000 dollars) 2 4 6 7 8 9

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22) The above table gives aggregate demand and aggregate supply schedules. The equilibrium price level is A) 120. B) 110. C) 100. D) 90. E) 130. B

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23) The above table gives aggregate demand and aggregate supply schedules. If the price level is 120 then the aggregate quantity demanded is ________ than the aggregate quantity supplied and the price level ________. A) less; falls B) greater; rises C) less; rises D) greater; falls E) less; might fall, rise or not change depending on whether real GDP is more than, less than, or equal to potential GDP. A

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24) In the figure above, the economy is at an equilibrium with real GDP of $10 trillion and a price level of 110. As the economy moves toward its ultimate equilibrium, the ________ curve will shift ________. A) potential GDP; rightward B) aggregate supply; leftward C) aggregate supply; rightward D) aggregate demand; leftward E) aggregate demand; rightward B

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25) In the figure above, the economy is at an equilibrium with real GDP of $10 trillion and a price level of 110. At this point there is A) an inflationary gap. B) a recessionary gap. C) a full-employment equilibrium. D) price stability. E) an above full-employment equilibrium. B

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