ECO 229 FINAL EXAM COMPREHENSIVE EXAM QUESTIONS AND
CORRECT ANSWERS
Aggregate output (real GDP) can be divided into two components: the long-run
trend, which is referred to as _______, and fluctuations around this trend, which
are referred to as _______.
A. the business cycle; potential output
B. the business cycle; the output gap
C. potential output; the business cycle
D. potential output; inflation
C. potential output; the business cycle
Everything else held constant, when financial frictions increase, the real cost of
borrowing ________ so that planned investment spending ________ at any given
inflation rate.
A. decreases; rises
B. increases; falls
C. decreases; falls
D. increases; rises
B. increases; falls
The aggregate demand curve slopes downward because a rise in inflation leads:
A. the fiscal policy authorities to impose contractionary fiscal measures.
B. the monetary policy authorities to impose credit controls.
C. the monetary policy authorities to raise real interest rates.
D. consumers and businesses to increase autonomous expenditures.
C. the monetary policy authorities to raise real interest rates.
The short-run aggregate supply curve slopes upward because an increase in output
relative to potential output:
A. leads to unstable markets and higher inflation.
B. induces aggregate demand to increase, increasing inflation.
C. causes markets to have excess supplies, putting upward pressure on inflation.
D. creates tight labor and product markets that cause inflation to rise.
D. creates tight labor and product markets that cause inflation to rise.
,What relationship does the aggregate supply curve describe?
A. It describes the relationship between the total quantity of output supplied and
the unemployment rate.
B. It describes the relationship between the total quantity of output supplied and
the inflation rate.
C. It describes the relationship between the total quantity of money supplied and
the interest rate.
D. It describes the relationship between the total quantity of money supplied and
the inflation rate.
B. It describes the relationship between the total quantity of output supplied and
the inflation rate.
The long-run aggregate supply curve is:
A. upward-sloping because the output an economy can produce increases as does
the inflation rate in the long run.
B. vertical because changes in labor, capital, and technology (not the inflation rate)
change the output an economy can produce over the long run.
C. vertical because the output an economy can produce increases as does the
inflation rate in the long run.
D. upward-sloping because changes in labor, capital, and technology (not the
inflation rate) change the output an economy can produce over the long run.
B. vertical because changes in labor, capital, and technology (not the inflation rate)
change the output an economy can produce over the long run.
The ______ is where the economy gravitates to in the long run.
A. natural rate of consumption
B. natural rate of inflation
C. natural rate of unemployment
D. natural rate of investment
C. natural rate of unemployment
Which of the following factors would not cause an increase in aggregate demand?
A. A depreciation of the dollar.
B. An increase in the money supply.
C. A decrease in the price level.
D. A wave of investor optimism.
E. A decrease in taxes.
, C. A decrease in the price level.
When financial frictions increase, the real cost of borrowing __________, and the
AD curve __________.
A. increases, shifts right
B. decreases, shifts right
C. decreases, shifts left
D. increases comma shifts left
D. increases comma shifts left
When inflation increases, the AD curve
A.
does not shift
B.
shifts right
C.
shifts left
A.
does not shift
By analyzing aggregate quantity demanded through its component parts, we can
conclude that, everything else held constant, a decline in the inflation rate causes
A.
an increase in real interest rates, a decline in planned investment spending, and a
decline in aggregate output demanded.
B.
an increase in real interest rates, an increase in planned investment spending, and a
decline in aggregate output demanded.
C.
a decline in real interest rates, a decrease in planned investment spending, and an
increase in aggregate output demanded.
D.
a decline in real interest rates, an increase in planned investment spending, and an
increase in aggregate output demanded.
D.
a decline in real interest rates, an increase in planned investment spending, and an
increase in aggregate output demanded.
CORRECT ANSWERS
Aggregate output (real GDP) can be divided into two components: the long-run
trend, which is referred to as _______, and fluctuations around this trend, which
are referred to as _______.
A. the business cycle; potential output
B. the business cycle; the output gap
C. potential output; the business cycle
D. potential output; inflation
C. potential output; the business cycle
Everything else held constant, when financial frictions increase, the real cost of
borrowing ________ so that planned investment spending ________ at any given
inflation rate.
A. decreases; rises
B. increases; falls
C. decreases; falls
D. increases; rises
B. increases; falls
The aggregate demand curve slopes downward because a rise in inflation leads:
A. the fiscal policy authorities to impose contractionary fiscal measures.
B. the monetary policy authorities to impose credit controls.
C. the monetary policy authorities to raise real interest rates.
D. consumers and businesses to increase autonomous expenditures.
C. the monetary policy authorities to raise real interest rates.
The short-run aggregate supply curve slopes upward because an increase in output
relative to potential output:
A. leads to unstable markets and higher inflation.
B. induces aggregate demand to increase, increasing inflation.
C. causes markets to have excess supplies, putting upward pressure on inflation.
D. creates tight labor and product markets that cause inflation to rise.
D. creates tight labor and product markets that cause inflation to rise.
,What relationship does the aggregate supply curve describe?
A. It describes the relationship between the total quantity of output supplied and
the unemployment rate.
B. It describes the relationship between the total quantity of output supplied and
the inflation rate.
C. It describes the relationship between the total quantity of money supplied and
the interest rate.
D. It describes the relationship between the total quantity of money supplied and
the inflation rate.
B. It describes the relationship between the total quantity of output supplied and
the inflation rate.
The long-run aggregate supply curve is:
A. upward-sloping because the output an economy can produce increases as does
the inflation rate in the long run.
B. vertical because changes in labor, capital, and technology (not the inflation rate)
change the output an economy can produce over the long run.
C. vertical because the output an economy can produce increases as does the
inflation rate in the long run.
D. upward-sloping because changes in labor, capital, and technology (not the
inflation rate) change the output an economy can produce over the long run.
B. vertical because changes in labor, capital, and technology (not the inflation rate)
change the output an economy can produce over the long run.
The ______ is where the economy gravitates to in the long run.
A. natural rate of consumption
B. natural rate of inflation
C. natural rate of unemployment
D. natural rate of investment
C. natural rate of unemployment
Which of the following factors would not cause an increase in aggregate demand?
A. A depreciation of the dollar.
B. An increase in the money supply.
C. A decrease in the price level.
D. A wave of investor optimism.
E. A decrease in taxes.
, C. A decrease in the price level.
When financial frictions increase, the real cost of borrowing __________, and the
AD curve __________.
A. increases, shifts right
B. decreases, shifts right
C. decreases, shifts left
D. increases comma shifts left
D. increases comma shifts left
When inflation increases, the AD curve
A.
does not shift
B.
shifts right
C.
shifts left
A.
does not shift
By analyzing aggregate quantity demanded through its component parts, we can
conclude that, everything else held constant, a decline in the inflation rate causes
A.
an increase in real interest rates, a decline in planned investment spending, and a
decline in aggregate output demanded.
B.
an increase in real interest rates, an increase in planned investment spending, and a
decline in aggregate output demanded.
C.
a decline in real interest rates, a decrease in planned investment spending, and an
increase in aggregate output demanded.
D.
a decline in real interest rates, an increase in planned investment spending, and an
increase in aggregate output demanded.
D.
a decline in real interest rates, an increase in planned investment spending, and an
increase in aggregate output demanded.
