Chapter 10: Real GDP and the Price Level in the Long Run

1. Chapter 10: Real GDP and the Price Level in the Long Run

2. All of the following would shift the LRAS curve to the right EXCEPT • an increase in the size of the labor force. • a net inflow of human capital. • an increase in the overall price level. • an improvement in technology.

3. Which of the following statements is TRUE? • The long-run aggregate supply curve is upward sloping. • The long-run aggregate demand curve is upward sloping. • The short-run aggregate supply curve is vertical. • The long-run aggregate supply curve is vertical.

4. Which of these questions does aggregate demand help us answer?I. What determines the total amount of our output that individuals, firms, governments and foreigners want to buy?II. What is the economy's long-run real Gross Domestic Product (GDP)?III. What determines the economy's equilibrium price level and the rate of inflation? • I only • I and II • II and III • I and III

5. Higher interest rates tend to • reduce the total planned spending on goods and services. • lower the costs of building new plants and equipment. • increase the quantity demanded of goods and services. • make it less costly for people to buy houses and cars.

6. Which of the following would cause aggregate demand to decrease? • The government increases taxes on both business and personal income. • The foreign exchange value of the dollar drops. • The Fed increases the amount of money in circulation. • Businesses and households believe that the economy is headed for good times, so they begin to feel increased security about their jobs.

7. A weakening in consumer confidence causes a • shift of the aggregate demand curve to the right. • shift of the aggregate demand curve to the left. • movement up along the aggregate demand curve. • movement down along the aggregate demand curve.

8. An increase in the amount of money in circulation would cause a • shift of the aggregate demand curve to the right. • shift of the aggregate demand curve to the left. • movement up the aggregate demand curve. • movement down the aggregate demand curve.

9. Which of the following would likely result in a decrease in aggregate demand? • tax increases • a reduction in the real interest rate • increased job and future income security • a rise in the quantity of money in circulation

10. Other things being equal, a depreciation of the dollar • increases aggregate demand in the United States, and may increase aggregate supply by reducing the prices of imported resources. • increases aggregate demand in the United States, and may decrease aggregate supply by increasing the prices of imported resources. • decreases aggregate demand in the United States, and may increase aggregate supply by reducing the prices of imported resources. • decreases aggregate demand in the United States, and may decrease aggregate supply by increasing the prices of imported resources.

11. The shape of the aggregate demand curve does not tell us anything about how the total dollar value of spending will ultimately be divided between output and prices. For this we need • information about the standard of living in the country. • information that only the Consumers' Price Index can provide. • an aggregate supply curve. • to know how far from the origin the aggregate demand curve is.

12. Secular deflation occurs when • there is no economic growth and aggregate demand falls. • aggregate demand increases at the same time there is no economic growth. • aggregate demand remains unchanged while economic growth increases long-run aggregate supply. • both aggregate demand and aggregate supply are shifting left.

13. When the price level is below the level at which the aggregate demand curve crosses the long-run aggregate supply curve, • there will be no price level change. • there will be pressures that will lead to a shift of either the aggregate demand or the long-run aggregate supply curves. • total planned real expenditures will exceed actual real GDP, and the price level will increase. • total planned real expenditure will be lower than actual real GDP, and the price level will increase.

14. Over the last 20 years, real GDP in the U.S. economy has increased and there has been inflation. This indicates that • aggregate demand has increased while aggregate supply has been constant. • aggregate demand has been constant while aggregate supply has increased. • aggregate demand has increased more than aggregate supply. • aggregate demand has increased less than aggregate supply.

15. In the long run, an increase in government spending, other things equal, generates • a higher real GDP in the long run. • a lower real GDP in the short run. • a higher price level. • both a higher real GDP and a lower price level.

16. Over the past several decades, what has been true about price levels in the United States? • Inflation rates have been consistently negative. • The nation has experienced persistent deflation. • Price levels have been very stable. • Inflation rates have been consistently positive.

17. Suppose that an economy is initially producing at the full-employment level of output. Now suppose there is a reduction in the money supply. Other things being equal we can expect • supply-side inflation. • demand-side inflation. • cost-pull inflation. • deflation.

18. Refer to the figure below. Suppose the economy's initial equilibrium is represented by the intersection of LRAS1 and AD1. Suppose there is a persistent reduction in labor force participation, which reduces total planned production at any given price level. The resulting change in the economy's long-run equilibrium position would be represented by a • movement from A to C. • movement from A to B. • movement from B to C. • movement from C to A.

19. When the economy is in long-run equilibrium, the price level adjusts so as to equate which two values with one another? • import and export spending • the inflation rate and the unemployment rate • government spending and tax revenues • total planned real expenditures and total planned production

20. Which of the following would unambiguously generate inflation? • a decrease in aggregate demand accompanied by an increase in aggregate supply • an increase in aggregate demand accompanied by an increase in aggregate supply • a decrease in aggregate demand accompanied by a decrease in aggregate supply • an increase in aggregate demand accompanied by a decrease in aggregate supply

21. If long-run economic growth is not accompanied by a change in aggregate demand, the result will be • persistent inflation. • secular deflation. • devaluation of the dollar. • appreciation of the dollar.