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An increase in the money supply


A) and an investment tax credit both cause aggregate demand to shift right.
B) and an investment tax credit both cause aggregate demand to shift left.
C) causes aggregate demand to shift right, while an investment tax credit causes aggregate demand to shift left.
D) causes aggregate demand to shift left, while an investment tax credit causes aggregate demand to shift right.

E) B) and D)
F) C) and D)

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As the price level rises, the interest rate


A) falls, so the supply of dollars in the market for foreign currency exchange shifts left.
B) falls, so the supply of dollars in the market for foreign currency exchange shifts right.
C) rises, so the supply of dollars in the market for foreign currency exchange shifts left.
D) rises, so the supply of dollars in the market for foreign currency exchange shifts right.

E) B) and D)
F) All of the above

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Use sticky-wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

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When people expect the price l...

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Other things the same, a fall in an economy's overall level of prices tends to


A) raise both the quantity demanded and supplied of goods and services.
B) raise the quantity demanded of goods and services, but lower the quantity supplied.
C) lower the quantity demanded of goods and services, but raise the quantity supplied.
D) lower both the quantity demanded and the quantity supplied of goods and services.

E) A) and C)
F) None of the above

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Which of the following would cause stagflation?


A) rising government expenditures
B) rising oil prices
C) a falling money supply
D) technical progress

E) A) and D)
F) A) and C)

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Other things the same, which of the following is correct?


A) A decrease in the price level causes the dollar to appreciate. Aggregate demand shifts right.
B) A decrease in the price level causes the dollar to depreciate. Aggregate demand shifts right.
C) If speculators lose confidence in the American economy, the dollar appreciates. Aggregate demand shifts right.
D) If speculators lose confidence in the American economy, the dollar depreciates. Aggregate demand shifts right.

E) None of the above
F) B) and C)

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Political Instability Abroad Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. -Refer to Political Instability Abroad. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand?


A) Net exports would rise which by itself would increase U.S. aggregate demand.
B) Net exports would rise which by itself would decrease U.S. aggregate demand.
C) Net exports would fall which by itself would increase U.S. aggregate demand.
D) Net exports would fall which by itself would decrease U.S. aggregate demand.

E) B) and C)
F) None of the above

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The curve that shows the quantity of goods and services that firms produce and sell


A) as it relates to the quantity of goods and services that buyers want to buy is called the aggregate-demand curve.
B) as it relates to the quantity of goods and services that buyers want to buy is called the aggregate-supply curve.
C) as it relates to the overall price level is called the aggregate-demand curve.
D) as it relates to the overall price level is called the aggregate-supply curve.

E) B) and C)
F) None of the above

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The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,


A) production is more profitable and employment rises.
B) production is more profitable and employment falls.
C) production is less profitable and employment rises.
D) production is less profitable and employment falls.

E) C) and D)
F) B) and C)

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Most economists believe that classical macroeconomic theory is a good description of the economy


A) in neither the short nor long run.
B) in the short run and in the long run.
C) in the short run, but not in the long run.
D) in the long run, but not in the short run.

E) A) and B)
F) None of the above

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Other things the same, an increase in the price level induces people to hold


A) less money, so they lend less, and the interest rate rises.
B) less money, so they lend more, and the interest rate falls.
C) more money, so they lend more, and the interest rate falls.
D) more money, so they lend less, and the interest rate rises.

E) All of the above
F) B) and C)

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Other things the same, as the price level rises, exchange rates


A) and interest rates rise.
B) and interest rates fall.
C) fall and interest rates rise.
D) rise and interest rates fall.

E) B) and D)
F) A) and B)

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The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. -Refer to Stock Market Boom 2015. In the long run, the change in price expectations created by the stock market boom shifts


A) long-run aggregate supply right.
B) long-run aggregate supply left.
C) short-run aggregate supply right.
D) short-run aggregate supply left.

E) None of the above
F) A) and C)

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According to the aggregate demand and aggregate supply model, in the long run an increase in the money supply leads to


A) increases in both the price level and real GDP.
B) an increase in real GDP but does not change the price level.
C) an increase in the price level but does not change real GDP.
D) no change in either the price level or real GDP.

E) A) and C)
F) A) and D)

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Most economists believe that in the short run


A) real and nominal variables are determined independently and that money cannot move real GDP away from its long-run trend.
B) real and nominal variables are determined independently but that money can temporarily move real GDP away from its long-run trend.
C) real and nominal variables are highly intertwined but that money cannot move real GDP away from its long-run trend.
D) real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend.

E) B) and D)
F) A) and B)

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Which of the following decreases in response to the interest-rate effect from an increase in the price level?


A) both investment and consumption
B) consumption but not investment
C) investment but not consumption
D) neither investment nor consumption

E) A) and B)
F) B) and C)

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The short-run effects of an increase in the expected price level include


A) a lower level of output and a lower price level.
B) a lower level of output and a higher price level.
C) a higher level of output and a lower price level.
D) a higher level of output and a higher price level.

E) All of the above
F) C) and D)

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The aggregate demand and aggregate supply graph has


A) quantity of output on the horizontal axis. Output can be measured by the GDP deflator.
B) quantity of output on the horizontal axis. Output can be measured by real GDP.
C) quantity of output on the vertical axis. Output can be measured by the GDP deflator.
D) quantity of output on the vertical axis. Output can be measured by real GDP.

E) A) and B)
F) All of the above

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The aggregate-demand curve shows the


A) quantity of labor and other inputs that firms want to buy at each price level.
B) quantity of labor and other inputs that firms want to buy at each inflation rate.
C) quantity of domestically produced goods and services that households want to buy at each price level.
D) quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level.

E) A) and D)
F) A) and C)

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If aggregate demand shifts right, then eventually price level expectations rise. The increase in price level expectations causes the short-run aggregate-supply curve to shift to the left.

A) True
B) False

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