ECN 211 Exam 3
1. According to the interest-rate effect, aggregate de- d. lower prices reduce
mand slopes downward because _______. money holdings, increase
a. lower prices increase the value of money holdings lending, interest rates fall,
and consumer spending increases and investment spending
b. lower prices decrease the value of money holdings increases
and consumer spending decreases
c. lower prices increase money holdings, decrease
lending, interest rates rise, and investment spending
falls
d. lower prices reduce money holdings, increase lend-
ing, interest rates fall, and investment spending in-
creases
2. Which of the following would not cause a shift in the d. A change in price ex-
long-run aggregate-supply curve? pectations
a. A change in the available labor
b. A change in the available capital Because price expec-
c. A change in the available technology tations primarily affect
d. A change in price expectations short-run aggregate sup-
e. All of the answer choices shift the long-run aggre- ply (SRAS), not long-run
gate-supply curve. aggregate supply (LRAS).
3. The Wealth Effect: When the price level decreases... the real value of mon-
ey increases, making con-
sumers feel wealthier and
encouraging more con-
sumption, increasing ag-
gregate demand.
4. The Interest-Rate Effect: A lower price level leads to lower interest rates, which
encourages more invest-
ment and consumption
, ECN 211 Exam 3
spending, increasing ag-
gregate demand.
5. The Exchange-Rate Effect: A lower price level reduces Currency depreciation.
interest rates, leading to __________. This makes do-
mestic goods cheaper for foreign buyers, increasing
net exports and aggregate demand.
6. In classical economic theory, prices and wages are output is determined by
flexible, and changes in the price level do not affect supply-side factors (like
real output in the long run. The classical model as- labor, capital, and technol-
sumes that output is determined by _______. ogy), rather than changes
in demand.
7. Which of the following statements is true regarding b. is vertical because an
the long-run aggregate-supply curve? The long-run equal change in all prices
aggregate-supply curve _______. and wages leaves output
a. shifts left when the natural rate of unemployment unaffected
falls
b. is vertical because an equal change in all prices and
wages leaves output unaffected
c. is positively sloped because price expectations and
wages tend to be fixed in the long run
d. shifts right when the government raises the mini-
mum wage
8. According to the wealth effect, aggregate demand a. lower prices increase
slopes downward because _______. the value of money
a. lower prices increase the value of money holdings holdings and consumer
and consumer spending increases spending increases
b. lower prices decrease the value of money holdings
and consumer spending decreases
c. lower prices reduce money holdings, increase lend-
, ECN 211 Exam 3
ing, interest rates fall, and investment spending in-
creases
d. lower prices increase money holdings, decrease
lending, interest rates rise, and investment spending
falls
9. The natural level of output is the amount of real GDP d. when the economy is at
produced _______. the natural rate of unem-
a. when there is no unemployment ployment
b. when the government has a balanced budget
c. when the economy is at the natural level of con-
sumption
d. when the economy is at the natural rate of unem-
ployment
10. Suppose the price level falls. Because of fixed nominal a. sticky-wage theory
wage contracts, firms become less profitable and they of the short-run aggre-
cut back on production. This is a demonstration of the gate-supply curve
_______.
a. sticky-wage theory of the short-run aggregate-sup-
ply curve
b. sticky-price theory of the short-run aggregate-sup-
ply curve
c. misperceptions theory of the short-run aggre-
gate-supply curve
d. classical theory of the long-run aggregate-supply
curve
11. Sticky-price theory of the short-run aggregate-supply Curve slopes upward. It
curve suggests that some prices
(especially wages and
the prices of goods/ser-
, ECN 211 Exam 3
vices) are slow to adjust
to changes in econom-
ic conditions, leading to
short-term fluctuations in
output and employment.
12. Suppose the price level falls but suppliers only notice b. misperceptions theory
that the price of their particular product has fallen. of the short-run aggre-
Thinking there has been a fall in the relative price of gate-supply curve
their product, they cut back on production. This is a
demonstration of the _______. The misperceptions the-
a. sticky-price theory of the short-run aggregate-sup- ory of the short-run ag-
ply curve gregate supply (SRAS)
b. misperceptions theory of the short-run aggre- curve suggests that firms
gate-supply curve and workers sometimes
c. sticky-wage theory of the short-run aggregate-sup- misinterpret changes in
ply curve the overall price level
d. classical theory of the long-run aggregate-supply as changes in relative
curve prices.
In this case, the price lev-
el falls, but suppliers only
notice that the price of
their specific product has
dropped.
13. Stagflation occurs when the economy experiences d. rising prices and falling
_______. output
a. falling prices and falling output
b. falling prices and rising output
c. rising prices and rising output
d. rising prices and falling output
14.
1. According to the interest-rate effect, aggregate de- d. lower prices reduce
mand slopes downward because _______. money holdings, increase
a. lower prices increase the value of money holdings lending, interest rates fall,
and consumer spending increases and investment spending
b. lower prices decrease the value of money holdings increases
and consumer spending decreases
c. lower prices increase money holdings, decrease
lending, interest rates rise, and investment spending
falls
d. lower prices reduce money holdings, increase lend-
ing, interest rates fall, and investment spending in-
creases
2. Which of the following would not cause a shift in the d. A change in price ex-
long-run aggregate-supply curve? pectations
a. A change in the available labor
b. A change in the available capital Because price expec-
c. A change in the available technology tations primarily affect
d. A change in price expectations short-run aggregate sup-
e. All of the answer choices shift the long-run aggre- ply (SRAS), not long-run
gate-supply curve. aggregate supply (LRAS).
3. The Wealth Effect: When the price level decreases... the real value of mon-
ey increases, making con-
sumers feel wealthier and
encouraging more con-
sumption, increasing ag-
gregate demand.
4. The Interest-Rate Effect: A lower price level leads to lower interest rates, which
encourages more invest-
ment and consumption
, ECN 211 Exam 3
spending, increasing ag-
gregate demand.
5. The Exchange-Rate Effect: A lower price level reduces Currency depreciation.
interest rates, leading to __________. This makes do-
mestic goods cheaper for foreign buyers, increasing
net exports and aggregate demand.
6. In classical economic theory, prices and wages are output is determined by
flexible, and changes in the price level do not affect supply-side factors (like
real output in the long run. The classical model as- labor, capital, and technol-
sumes that output is determined by _______. ogy), rather than changes
in demand.
7. Which of the following statements is true regarding b. is vertical because an
the long-run aggregate-supply curve? The long-run equal change in all prices
aggregate-supply curve _______. and wages leaves output
a. shifts left when the natural rate of unemployment unaffected
falls
b. is vertical because an equal change in all prices and
wages leaves output unaffected
c. is positively sloped because price expectations and
wages tend to be fixed in the long run
d. shifts right when the government raises the mini-
mum wage
8. According to the wealth effect, aggregate demand a. lower prices increase
slopes downward because _______. the value of money
a. lower prices increase the value of money holdings holdings and consumer
and consumer spending increases spending increases
b. lower prices decrease the value of money holdings
and consumer spending decreases
c. lower prices reduce money holdings, increase lend-
, ECN 211 Exam 3
ing, interest rates fall, and investment spending in-
creases
d. lower prices increase money holdings, decrease
lending, interest rates rise, and investment spending
falls
9. The natural level of output is the amount of real GDP d. when the economy is at
produced _______. the natural rate of unem-
a. when there is no unemployment ployment
b. when the government has a balanced budget
c. when the economy is at the natural level of con-
sumption
d. when the economy is at the natural rate of unem-
ployment
10. Suppose the price level falls. Because of fixed nominal a. sticky-wage theory
wage contracts, firms become less profitable and they of the short-run aggre-
cut back on production. This is a demonstration of the gate-supply curve
_______.
a. sticky-wage theory of the short-run aggregate-sup-
ply curve
b. sticky-price theory of the short-run aggregate-sup-
ply curve
c. misperceptions theory of the short-run aggre-
gate-supply curve
d. classical theory of the long-run aggregate-supply
curve
11. Sticky-price theory of the short-run aggregate-supply Curve slopes upward. It
curve suggests that some prices
(especially wages and
the prices of goods/ser-
, ECN 211 Exam 3
vices) are slow to adjust
to changes in econom-
ic conditions, leading to
short-term fluctuations in
output and employment.
12. Suppose the price level falls but suppliers only notice b. misperceptions theory
that the price of their particular product has fallen. of the short-run aggre-
Thinking there has been a fall in the relative price of gate-supply curve
their product, they cut back on production. This is a
demonstration of the _______. The misperceptions the-
a. sticky-price theory of the short-run aggregate-sup- ory of the short-run ag-
ply curve gregate supply (SRAS)
b. misperceptions theory of the short-run aggre- curve suggests that firms
gate-supply curve and workers sometimes
c. sticky-wage theory of the short-run aggregate-sup- misinterpret changes in
ply curve the overall price level
d. classical theory of the long-run aggregate-supply as changes in relative
curve prices.
In this case, the price lev-
el falls, but suppliers only
notice that the price of
their specific product has
dropped.
13. Stagflation occurs when the economy experiences d. rising prices and falling
_______. output
a. falling prices and falling output
b. falling prices and rising output
c. rising prices and rising output
d. rising prices and falling output
14.
