Correct answers are indicated by
underlined letter.
All contents are ©2001 by Ray Bromley
13-1 The natural rate of unemployment
A. is the average unemployment rate for the past three years.
B. is equal to zero, if we are at full employment.
C. occurs when the economy is operating at long-run supply
capacity.
D.occurs because some people are too lazy to look for a job.
E. is due to structural changes in the economy, as well as business
cycles.
13-2 Which of the following is a possible reason why the short-run
supply curve is postulated to slope up?
A. As the price level rises, real interest rates rise, and thus
consumers buy less.
B. As the price level rises, profits decline and thus suppliers
produce less output.
C. As the price level rises, producers may mistake the
price rise as an increase in demand for their products, and increase
output to meet the perceived demand.
D. As the price level rises, exports will increase, as our products
will be in demand overseas.
E. As the price level rises, real wealth will decrease, reducing
purchases by consumers, which will free up funds to be used for
new investment and production.
13-3 Which of the following is most likely to increase short run
aggregate supply?
A. Reductions in the prices of resources.
B. Increases in the prices of resources.
C. Increases in government regulation and red tape.
D. Natural disasters.
E. Decreases in the value of the currency.
13-4 Which of the following is most likely to increase short run
aggregate supply, shifting the curve to the right?
A. Increases in the prices of resources.
B. Inflation.
C. Increases in government regulation and red tape.
D. Favorable weather for growing and transporting goods.
E. Inflationary expectations.
13-5 Which of the following is most likely to decrease short run
aggregate supply, shifting the curve to the left?
A. Increases in the prices of resources.
B. Inflation in the prices of goods.
C. Increases in real wealth of consumers.
D. Favorable weather for growing and transporting goods.
E. Reduced inflationary expectations.
13-6 Which of the following is most likely to lead to an increase
in aggregate demand?
A. A natural disaster, wiping out people's wealth.
B. A rise in the price level.
C. A fall in real interest rates (for some reason unrelated
to the price level).
D. A fall in inflationary expectations.
E. An increase in the value of the currency (dollar).
13-7 Which of the following is most likely to lead to an increase
in aggregate demand?
A. A natural disaster, wiping out people's wealth.
B. A rise in the price level.
C. A rise in real interest rates (for some reason unrelated to
the price level).
D. A rise in inflationary expectations.
E. An increase in the value of the currency (dollar).
13-8 Which of the following is most likely to lead to an increase
in aggregate demand?
A. A fall in people's wealth.
B. A rise in the price level.
C. A rise in real interest rates (for some reason unrelated to
the price level).
D. A fall in inflationary expectations.
E. A decrease in the value of the currency (dollar).
13-9 Which of the following is most likely to lead to a decrease
in aggregate demand?
A. A fall in the price level.
B. A rise in the price level.
C. A rise in real interest rates (for some reason unrelated
to the price level).
D. A rise in inflationary expectations.
E. A decrease in the value of the currency (dollar).
13-10 Which of the following will tend to increase long-run aggregate
supply, and hence, full employment output?
A. New technologies.
B. Natural disasters.
C. Increases in the price level.
D. Reductions in the price level.
E. Increased optimism in the economy.
13-11 Which of the following will increase aggregate demand for
goods and services?
A. An increase in the real interest rate.
B. An increase in the cost of resources.
C. An increase in the nominal (money) interest rate.
D. An increase in the expected growth rate of the economy.
E. A decrease in the actual price level (that is, actual inflation).
13-12 What result would you most expect if there is increased
optimism in the economy (in the short run)?
A. Real output would decline.
B. Real output would remain unchanged.
C. The price level would decline
D. The price level would remain unchanged.
E. None of the above.
13-13 What result would you most expect if there is decreased
optimism in the economy (in the short run)?
A. Real output would decline.
B. Real output would remain unchanged.
C. The price level would rise.
D. The price level would remain unchanged.
E. None of the above.
13-14 What result would you most expect if there is increased
optimism in the economy (in the short run)?
A. Aggregate demand would rise.
B. Aggregate demand would remain unchanged.
C. Aggregate supply would decline
D. Aggregate supply would rise.
E. None of the above.
13-15 What result would you most expect if there is a fall in
the real interest rate (in the short run)?
A. Real output would decline.
B. Real output would remain unchanged.
C. The price level would decline
D. The price level would remain unchanged.
E. None of the above.
13-16 What result would you most expect if there is a fall in
the real interest rate (in the short run)?
A. Real output would decline.
B. Real output would remain unchanged.
C. The price level would rise.
D. The price level would remain unchanged.
E. The price level would fall.
13-17 What result would you most expect if there is a fall in
aggregate demand (in the short run)?
A. Real output would decline.
B. Real output would remain unchanged.
C. The price level would rise.
D. The price level would remain unchanged.
E. None of the above.
13-18 What result would you most expect if there is a fall in
aggregate demand (in the short run)?
A. Real output would decline, and the price level would increase.
B. Real output would remain unchanged, and the price level would
fall.
C. The price level would fall, and real output would decline.
D. The price level would remain unchanged, as would real output.
E. The price level would rise and real output would also rise.
13-19 What result would you most expect if there is a rise in
aggregate demand (in the short run)?
A. Real output would decline, and the price level would increase.
B. Real output would remain unchanged, and the price level would
rise.
C. The price level would fall, and real output would decline.
D. The price level would remain unchanged, and real output would
rise.
E. The price level would rise and real output would also
rise.
13-20 If the government lowers the capital gains tax , it will
increase the supply of loanable funds. If this happens...
A. we might expect real interest rates to fall.
B. we might expect aggregate demand to increase.
C. we might expect real output to rise.
D. we might expect the price level to rise.
E. all of the above.
13-21 If the anticipated rate of inflation goes up, which of the
following is most likely?
A. Short-run aggregate supply will rise.
B. Short-run aggregate supply will fall.
C. Long-run aggregate supply will increase.
D. Aggregate demand will rise.
E. Aggregate demand will fall.
13-22 Which of the following is likely to accompany an unanticipated
decrease in aggregate demand?
A. An increase in the price level.
B. An increase in employment.
C. A decrease in real GDP.
D. An increase in real GDP.
E. A decrease in unemployment.
13-23 Which of the following is likely to accompany a decrease
in short--run aggregate supply?
A. An increase in nominal GDP.
B. An increase in investment.
C. A rise in real GDP.
D. A fall in the price level.
E. A decrease in real GDP.
13-24 What result would you most expect if there is a rise in
short run aggregate supply?
A. Real output would decline, and the price level would increase.
B. Real output would remain unchanged, and the price level would
fall.
C. The price level would fall, and real output would increase.
D. The price level would remain unchanged, and real output would
rise.
E. The price level would rise and real output would also rise.
13-25 What result would you most expect if there is a fall in
resource prices (in the short run)?
A. The price level would fall, and real output would increase.
B. The price level would remain unchanged, and real output would
rise.
C. The price level would rise and real output would also rise.
D. Real output would decline, and the price level would increase.
E. Real output would remain unchanged, and the price level would
fall.
13-26 If the real interest rate suddenly increases by 3%,
A. the aggregate demand curve will shift to the left.
B. the aggregate demand curve would shift to the right.
C. the short--run aggregate supply curve would shift to the right.
D. real GDP would increase.
E. long run aggregate supply would increase.
13-27 What result would you most expect if there is a fall in
expected inflation (in the short run)?
A. The price level would remain unchanged, as would real output.
B. The price level would fall, and real output would decline.
C. The price level would rise and real output would also rise.
D. Real output would decline, and the price level would increase.
E. Real output would rise, and the price level would fall.
13-28 What result would you most expect if there is a rise in
optimism about the economy (in the short run)?
A. The price level would remain unchanged, as would real output.
B. The price level would fall, and real output would decline.
C. The price level would rise and real output would also
rise.
D. Real output would decline, and the price level would increase.
E. Real output would rise, and the price level would fall.
13-29 What result would you most expect if weather and other factors
make production difficult (in the short run)?
A. The price level would remain unchanged, as would real output.
B. The price level would fall, and real output would decline.
C. The price level would rise and real output would also rise.
D. Real output would decline, and the price level would
increase.
E. Real output would rise, and the price level would fall.
13-30 What result would you most expect if there is a fall in
consumer wealth (in the short run)?
A. The price level would remain unchanged, as would real output.
B. The price level would fall, and real output would decline.
C. The price level would rise and real output would also rise.
D. Real output would decline, and the price level would increase.
E. Real output would rise, and the price level would fall.
13-31 What result would you most expect in the U.S. economy if
there is a rise in the value of the dollar (in the short run)?
A. The price level would remain unchanged, as would real output.
B. The price level would fall, and real output would decline.
C. The price level would rise and real output would also rise.
D. Real output would decline, and the price level would increase.
E. Real output would rise, and the price level would fall.
13-32 What result would you most expect if there is a rise in
interest rates (in the short run)?
A. The price level would remain unchanged, as would real output.
B. The price level would fall, and real output would decline.
C. The price level would rise and real output would also rise.
D. Real output would decline, and the price level would increase.
E. Real output would rise, and the price level would fall.
13-33 What result would you most expect if there is a fall in
the real interest rate (in the short run)?
A. The price level would remain unchanged, as would real output.
B. The price level would fall, and real output would decline.
C. The price level would rise and real output would also
rise.
D. Real output would decline, and the price level would increase.
E. Real output would rise, and the price level would fall.
13-34 What result would you most expect if oil prices rise (in
the short run)?
A. The price level would remain unchanged, as would real output.
B. The price level would fall, and real output would decline.
C. The price level would rise and real output would also rise.
D. Real output would decline, and the price level would
increase.
E. Real output would rise, and the price level would fall.
13-35 Which of the following is most likely to cause the price
level to fall while real output is falling (in the short run)?
A. A rise in short run aggregate supply
B. A fall in aggregate demand.
C. A fall in short run aggregate supply.
D. A rise in aggregate demand.
E. A rise in long run aggregate supply.
13-36 Which of the following is most likely to cause the price
level to fall while real output is rising (in the short run)?
A. A rise in short run aggregate supply
B. A fall in aggregate demand.
C. A fall in short run aggregate supply.
D. A rise in aggregate demand.
E. A fall in long run aggregate supply.
13-37 Which of the following is most likely to cause the price
level to rise while real output is rising (in the short run)?
A. A rise in short run aggregate supply
B. A fall in aggregate demand.
C. A fall in short run aggregate supply.
D. A rise in aggregate demand.
E. A rise in long run aggregate supply.
13-38 Which of the following is most likely to cause the price
level to rise while real output is falling (in the short run)?
A. A rise in short run aggregate supply
B. A fall in aggregate demand.
C. A fall in short run aggregate supply.
D. A rise in aggregate demand.
E. A rise in long run aggregate supply.
13-39 If expected inflation increases permanently, what is most
likely to happen?
A. The price level will be lower in the long run than it was before
the change in expected inflation.
B. The price level will be higher in the long run than
it was before the change in expected inflation.
C. Real GDP will be lower in the short run than it was before
the change in expected inflation.
D. Real GDP will be higher in the long run than it was before
the change in expected inflation.
E. Real GDP will be lower in the long run than it was before the
change in expected inflation.
13-40 If expected inflation decreases permanently, what is most
likely to happen (compared to the original situation)?
A. In the long run, the price level will be higher, but real GDP
will be lower.
B. In the long run, the price level will be higher, and real GDP
will be higher.
C. In the long run, the price level will be lower, and real GDP
will be higher.
D. In the long run, the price level will be lower, and
real GDP will stay the same.
E. In the long run, the price level will be lower, and real GDP
will be lower.
13-41 If real interest rates increase permanently, what is most
likely to happen (compared to the original situation)?
A. In the long run, the price level will be higher, but real GDP
will be lower.
B. In the long run, the price level will be higher, and real GDP
will be higher.
C. In the long run, the price level will be lower, and real GDP
will be higher.
D. In the long run, the price level will be lower, and
real GDP will stay the same.
E. In the long run, the price level will be lower, and real GDP
will be lower.
13-42 If consumer income increases permanently, what is most likely
to happen (compared to the original situation)?
A. In the long run, the price level will be higher, but real GDP
will be lower.
B. In the long run, the price level will be higher, and
real GDP will stay the same.
C. In the long run, the price level will be higher, and real GDP
will be higher.
D. In the long run, the price level will be lower, and real GDP
will be higher.
E. In the long run, the price level will be lower, and real GDP
will be lower.
13-43 If the supply of resources increases permanently, what is
most likely to happen (compared to the original situation)?
A. In the long run, the price level will be higher, but real GDP
will be lower.
B. In the long run, the price level will be higher, and real GDP
will stay the same.
C. In the long run, the price level will be higher, and real GDP
will be higher.
D. In the long run, the price level will be lower, and
real GDP will be higher.
E. In the long run, the price level will be lower, and real GDP
will be lower.
13-44 When an economy is operating at less than full capacity,
then a market economy may tend to be self-correcting (and move
towards equilibrium at full employment capacity) since
A. lower resource prices will increase aggregate supply.
B. lower retail prices will increase aggregate demand.
C. high unemployment will lead the government to raise taxes to
balance the budget.
D. both a and B.
E. all of the above.
13-45 When population rises, so does the workforce. With more
workers, we should be able to produce more. This will tend to
A. shift the SRAS and the LRAS to the right.
B. shift the SRAS to the left and the LRAS to the right.
C. shift the SRAS and the LRAS to the left.
D. shift the SRAS to the left and the LRAS to the left.
E. none of the above.
13-46 During the 1980's, the real price of crude oil fell sharply
on the world market. Other things constant, how would this price
fall have influenced the price level and output of oil-importing
nations?
A. Both real output and price level would have fallen.
B. Both real output and price level would have risen.
C. Real output would have fallen, while the price level would
have risen.
D. Real output would have risen, while the price level
would have fallen.
E. We cannot tell without more information.
13-47 Other things constant, what impact did the sharp rise in
the price of imported oil during the Persian Gulf War have on
the economy?
A. Aggregate supply fell, real GNP growth fell, inflation
increased.
B. Aggregate supply fell, real GNP growth rose, inflation increased.
C. Aggregate supply fell, real GNP growth fell, inflation decreased.
D. Aggregate supply rose, real GNP growth fell, inflation increased.
E. Aggregate demand rose, real GNP growth rose, inflation increased.
13-48 Suppose that, during this year, two major earthquakes destroy
roads, factories, and homes on the West Coast. Also, hurricanes,
floods, and tornados destroy large amounts of the east and midwest.
What will happen to the economy?
A. Aggregate demand will rise.
B. Aggregate demand will fall.
C. Short run aggregate supply will rise.
D. Long run aggregate supply will rise.
E. Long run aggregate supply will fall.
13- 49 If a large drop in the stock market
reduces the wealth of many Americans and foreign investors,
A. In the short run, unemployment will fall, while inflation rises.
B. In the long run, unemployment will be lower than it is now.
C. In the short run, unemployment will rise and inflation
will fall.
D. In the long run, unemployment will be higher than it is now.
E. In the short run, unemployment will rise and inflation will
fall. In the long run, unemployment will be higher than it is
now.
13-50 Suppose an economy is at full employment with stable prices
and workers demand and receive a 10% increase in their wages.
All else constant, when comparing the short-run and long-run effects,
A. the price level and unemployment rate will be higher
in the short run than in the long run.
B. the price level will be lower and the unemployment rate higher
in the short run than in the long run
C. the price level will be higher and the unemployment rate lower
in the short run than in the long run.
D. the price level and unemployment rate will be lower in the
short run than in the long run.
E. none of the above.
All content on this page is ©2000 by Ray Bromley
Chapter 12Questions