5) The aggregate demand curve slopes downward because a decrease in the price level means a(n) _____ in the real money supply and therefore a _____ level of real spending.

A) increase; higher B) increase; lower

C) decrease; lower D) decrease; higher

Answer: A

10) According to the Keynesians, an increase in government spending, other things equal, shifts the aggregate _____ curve to the _____.

A) demand; right B) demand; left C) supply; left D) supply; right

Answer: A

15) The aggregate supply curve shows the relationship between

A) the level of inputs and aggregate output.

B) the price level and the level of inputs.

C) the wage rate and the level of employment.

D) the price level and the level of aggregate output supplied.

Answer: D

20) A decrease in the availability of raw materials that increases the price level is called a(n)

A) adverse demand shock. B) beneficial demand shock.

C) adverse supply shock. D) beneficial supply shock.

Answer: C

25) "Crowding out" refers to a decrease in

A) the price level caused by a beneficial supply shock.

B) investment spending caused by an increase in the interest rate.

C) excess reserves caused by a currency drain.

D) excess reserves caused by an increase in reserve requirements.

Answer: B

30) Doubts regarding the monetarist contention that the economy is inherently stable would be raised by evidence suggesting that

A) wages are extremely slow to adjust and rigid in the downward direction.

B) wages and prices are extremely flexible.,

C) supply shocks have almost no effect on the U.S. economy.

D) none of the above occur.

Answer: A

35) Monetarists believe that

A) the aggregate demand curve is downward-sloping.

B) a change in the quantity of money causes the aggregate demand curve to shift.

C) changes in government spending and taxes cause the aggregate demand curve to shift.

D) all of the above.

E) only (a) and (b) of the above.

Answer: E

40) Keynesians believe all of the following except that

A) the Federal Reserve should follow a monetary growth rule.

B) a change in the quantity of money causes the aggregate demand curve to shift.

C) the aggregate demand curve is downward-sloping.

D) both (a) and (b) of the above.

Answer: A

45) According to monetarists, a decline in the money supply, holding other factors constant, shifts the aggregate _____ curve to the _____.

A) demand; right B) demand; left C) supply; right D) supply; left

Answer: B

50) Keynesians contend that

A) the self-correcting mechanism works quickly as competition assures that wages are relatively flexible .

B) the aggregate supply curve does not move quickly to restore the economy to the natural rate of unemployment.

C) the Federal Reserve should adopt and follow a money growth rule.

D) all of the above.

Answer: B

55) Monetarists

A) are skeptical of the need for active government policies to restore the economy to full employment.

B) advocate the use of a money growth rule.

C) contend that the self-correcting mechanism works slowly because wages are inflexible.

D) all of the above.

E) only (a) and (b) of the above.

Answer: E

60) Which of the following does not cause the aggregate demand curve to shift to the left?

A) a decrease in net exports

B) a decrease in government spending

C) a decrease in taxes

D) a decrease in consumer optimism

E) a decrease in the money supply

Answer: C

65) Keynesians

A) see wages as being sufficiently flexible so that the wage and price adjustment process is reasonably rapid.

B) see little need for active government policy to restore the economy to full employment when unemployment is high.

C) advocate the use of a "rule" in which the money supply grows at a constant rate.

D) hold all of the above views.

E) hold none of the above views.

Answer: E

70) While the initial effect of a _____ shift in the aggregate _____ curve is a rise in both the price level and output, the ultimate effect is only a rise in the price level.

A) leftward; supply B) leftward; demand

C) rightward; supply D) rightward; demand

Answer: D

75) The aggregate demand curve is downward sloping because

A) a lower price level, holding the nominal quantity of money constant, leads to a larger quantity of money in real terms, causes the interest rate to fall, and stimulates planned investment spending.

B) a lower price level leads to a larger quantity of money in real terms, causing the interest rate to fall, lowering the value of the dollar, and raising net exports.

C) a higher price level, holding the nominal quantity of money constant, leads to a smaller quantity of money in real terms, causes the interest rate to fall, and stimulates planned investment spending.

D) of both (a) and (b) of the above.

E) of both (b) and (c) of the above.

Answer: D

80) The aggregate supply curve is upward sloping because in the _____ short run, costs of many factors that go into producing goods and services are _____, fixed, meaning that the price for a unit of output will _____ rise relative to input prices and the profit per unit will rise.

A) short; fixed; rise

B) short; fixed; fall

C) long; flexible; rise

D) short; flexible; fall

E) long; fixed; fall

Answer: A

85) A _____ supply shock, such as unusually good weather or the development of a new technology, _____ production costs and shifts the aggregate supply curve _____.

A) negative; lowers; rightward

B) negative; raises; leftward

C) positive; lowers; rightward

D) positive; raises; leftward

E) positive; raises; rightward

Answer: C

90) A group of economists believe that the natural rate of output is affected by aggregate _____ shocks. They contend that the natural rate level of unemployment and output are subject to _____, a departure from full employment levels as a result of past high unemployment.

A) supply; hysterisis B) supply; systerisis

C) demand; hysterisis D) demand; systerisis

Answer: C