ECON 400 EXAM 2 QUESTIONS AND ANSWERS
In the context of aggregate supply, the short run is defined as the period during which -
Answers - some prices are set by contracts and cannot be adjusted
The inflationary premium is that portion of the interest rate that reflects - Answers -
expected annual rate of decline in the purchasing power of money while a loan is
outstanding
An unanticipated increase in the level of prices in the goods and services market -
Answers - result in an actual rate of unemployment that is less than the natural rate of
unemployment
Other things equal, which of the following is true? - Answers - A reduction in prices will
increase the real wealth of those holding a fixed quantity of money
Suppose business decision-makers become more optimistic about future economic
conditions and desire additional funds to expand their plant capacity. What is the likely
effect on the loanable funds market? - Answers - The demand for loanable funds will
increase, and interest rate will rise.
During 2003-2007, the price of crude oil increased substantially on the world market.
Other things constant, how will an unanticipated increase in oil prices influence the
general level of prices and real output of oil-importing nations such as the United States
and Japan? - Answers - Real output will decrease, and the general level of prices will
increase
A large grain crop resulting from favorable weather conditions would shift which of the
following curves? - Answers - only short-run aggregate supply
Once decision-makers fully adjust to an increase in the general price level, - Answers -
output will return to the full-employment level.
If there is an unanticipated increase in aggregate demand, which of the following is
most likely to occur? - Answers - an increase in employment
The market for labor services is included in the - Answers - resource market
If resource prices are fixed and the products selling price rises, then - Answers - profits
will increase
Which of the following would be most likely to cause a reduction in current aggregate
demand in the United States - Answers - increased fear of a recession
, The supply of resources, level of technology, and the quality of an economy's
institutional arrangements provide the constraint that determines the shape of the -
Answers - long-run aggregate supply curve
Refer to the figure. Which of the following would most likely cause the movement from
point E1 to point E2 for the United States? - Answers - a severe drought in agricultural
areas
If the economy is operating at an output level beyond its full-employment capacity,
which of the following would most likely direct the economy back to long-run
equilibrium? - Answers - an increase in resource prices
The international substitution effect exists because a - Answers - lower price level will
make domestically produced goods less expensive relative to foreign goods
An improvement in technology would shift which of the following curves? - Answers -
short-run and long-run aggregate supply
Which of the following contributed to the crisis of 2008? - Answers - falling housing and
stock prices
Since the end of World War II, the U.S. has almost always had rising prices and an
upward trend in real GDP. To explain this, - Answers - both aggregate demand and
long-run aggregate supply must be shifting right and aggregate demand must shift
farther.
The actions of borrowers and lenders are coordinated by - Answers - the interest rate in
the loanable funds market
If an economy is experiencing both full employment and price stability, with the
Keynesian model, a major tax reduction probably would cause - Answers - an increase
in the general level of prices unless government expenditures are also reduced
The incentive to consume tax-deductible goods, instead of nondeductible goods,
increases when - Answers - marginal tax are high
Within the Keynesian model, the multiplier effects tends to - Answers - magnify small
changes in spending into much larger changes in output and employment
The new classical model implies that a - Answers - substitution of debt for tax financing
will leave aggregate demand and real output unchanged
According to Keynesian view, the rapid increase in government spending and large
budget deficits in response to the recession of 2008-2009 - Answers - stimulated the
recovery process and provided the foundation for strong long-term of real GDP
In the context of aggregate supply, the short run is defined as the period during which -
Answers - some prices are set by contracts and cannot be adjusted
The inflationary premium is that portion of the interest rate that reflects - Answers -
expected annual rate of decline in the purchasing power of money while a loan is
outstanding
An unanticipated increase in the level of prices in the goods and services market -
Answers - result in an actual rate of unemployment that is less than the natural rate of
unemployment
Other things equal, which of the following is true? - Answers - A reduction in prices will
increase the real wealth of those holding a fixed quantity of money
Suppose business decision-makers become more optimistic about future economic
conditions and desire additional funds to expand their plant capacity. What is the likely
effect on the loanable funds market? - Answers - The demand for loanable funds will
increase, and interest rate will rise.
During 2003-2007, the price of crude oil increased substantially on the world market.
Other things constant, how will an unanticipated increase in oil prices influence the
general level of prices and real output of oil-importing nations such as the United States
and Japan? - Answers - Real output will decrease, and the general level of prices will
increase
A large grain crop resulting from favorable weather conditions would shift which of the
following curves? - Answers - only short-run aggregate supply
Once decision-makers fully adjust to an increase in the general price level, - Answers -
output will return to the full-employment level.
If there is an unanticipated increase in aggregate demand, which of the following is
most likely to occur? - Answers - an increase in employment
The market for labor services is included in the - Answers - resource market
If resource prices are fixed and the products selling price rises, then - Answers - profits
will increase
Which of the following would be most likely to cause a reduction in current aggregate
demand in the United States - Answers - increased fear of a recession
, The supply of resources, level of technology, and the quality of an economy's
institutional arrangements provide the constraint that determines the shape of the -
Answers - long-run aggregate supply curve
Refer to the figure. Which of the following would most likely cause the movement from
point E1 to point E2 for the United States? - Answers - a severe drought in agricultural
areas
If the economy is operating at an output level beyond its full-employment capacity,
which of the following would most likely direct the economy back to long-run
equilibrium? - Answers - an increase in resource prices
The international substitution effect exists because a - Answers - lower price level will
make domestically produced goods less expensive relative to foreign goods
An improvement in technology would shift which of the following curves? - Answers -
short-run and long-run aggregate supply
Which of the following contributed to the crisis of 2008? - Answers - falling housing and
stock prices
Since the end of World War II, the U.S. has almost always had rising prices and an
upward trend in real GDP. To explain this, - Answers - both aggregate demand and
long-run aggregate supply must be shifting right and aggregate demand must shift
farther.
The actions of borrowers and lenders are coordinated by - Answers - the interest rate in
the loanable funds market
If an economy is experiencing both full employment and price stability, with the
Keynesian model, a major tax reduction probably would cause - Answers - an increase
in the general level of prices unless government expenditures are also reduced
The incentive to consume tax-deductible goods, instead of nondeductible goods,
increases when - Answers - marginal tax are high
Within the Keynesian model, the multiplier effects tends to - Answers - magnify small
changes in spending into much larger changes in output and employment
The new classical model implies that a - Answers - substitution of debt for tax financing
will leave aggregate demand and real output unchanged
According to Keynesian view, the rapid increase in government spending and large
budget deficits in response to the recession of 2008-2009 - Answers - stimulated the
recovery process and provided the foundation for strong long-term of real GDP
