Macroeconomics Exercise

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Macroeconomics I
Spring 2012
Homework 5
Instructor: Dang Vu, Ph.D.

Student name:
Student ID:
Due date: 04/26/12

Part I: Multiple Choice Questions: (60 points)
Choose the best answer (1) among the choices for each question. Please make sure you understand the economics behind all answers rather than just copying your friend’s answers! I will ask you to explain your answer in class. Failure to explain your answer even though you did it right in your homework will lead to deduction of points for that answer. Each True/False question count as half of a normal multiple choice question. 1. At every point on the AD curve

a. aggregate expenditure is equal to output.
b. the demand for money is equal to the supply of money.
c. the change in aggregate inventories is equal to zero.
d. all of the above.
e. none of the above.
2. A rise in the price level causes a
a. rightward shift of the AD curve.
b. leftward shift of the AD curve.
c. movement rightward along the AD curve.
d. movement leftward along the AD curve.
e. leftward shift of the AD curve, as well as a movement leftward along the AD curve.
3. As we move rightward along the AD curve,
a. the price level falls.
b. the interest rate falls.
c. investment spending increases.
d. all of the above.
e. none of the above.
4. According to the AS-AD model, the short-run effects of an increase in government spending include
a. a rise in the interest rate.
b. a fall in output.
c. a fall in the price level.
d. all of the above.
e. none of the above.


 
 
 
 

5. According to the AS-AD model and its behavior in the long run, the long-run effects of an increase in government spending include
a. a drop in the interest rate.
b. a rise in output.
c. a rise in the price level.
d. all of the above.
e. none of the above.
6. The aggregate supply curve tells us
a. the level of output at which aggregate expenditure equals output, for each possible price level.
b. the price level consistent with firms' units costs and the average percentage markup, for each possible output level.
c. the output level at which the demand for money is equal to the supply of money, for each possible price level.
d. the output level at which investment spending is equal to household saving, for each possible price level.
e. all of the above.
7. Which of the following would directly shift the AS curve upward? a. A decrease in the money supply
b. An increase in the average nominal wage
c. An increase in investment spending
d. An increase in autonomous consumption spending
e. An increase in output
8. Which of the following is an example of a positive demand shock? a. A decrease in the money supply
b. An increase in world oil prices
c. A decrease in world oil prices
d. An increase in investment spending
e. An increase in taxes
9. The long-run aggregate supply curve tells us that, in the long run, a. the higher the price level, the higher the level of output. b. the higher the level of output, the higher the interest rate. c. the greater the money supply, the lower the interest rate. d. demand shocks can change the level of output, but not the price level. e. demand shocks can change the price level, but not the level of output. 10. In the short run, a negative supply shock - with no change in fiscal or monetary policy - will cause

a. the price level to rise.
b. output to fall.

 
 
 
 

c. the interest rate to rise.
d. all of the above.
e. none of the above.
11. When the economy is hit with a negative demand shock,
a. the aggregate supply curve shifts leftward and the price level rises. b. the aggregate demand curve shifts leftward and the price level rises. c. the aggregate demand curve shift rightward and the price level rises. d. the aggregate demand curve shifts rightward and the price level falls. e. none of the above.

12. Which of the following does not occur as the economy self-corrects from an equilibrium GDP greater than full-employment...
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