Aggregate Demand and Aggregate Supply

Question 1

What is Recession

Answer 1

It is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

Question 2

What is Depression

Answer 2

It is a severe recession

Question 3

Money is a veil behind the actions of real economic forces are concealed.
A. True
B. False

Answer 3

True

Question 4

Money does not matter in a classical model.
A. True
B. False

Answer 4

True

Question 5

In the long run, prices change and real variables are fixed.
A. True
B. False

Answer 5

True

Question 6

Money neutrality holds nominal variables and doesn’t affect real variables.
A. True
B. False

Answer 6

True

Question 7

In the short run, prices are fixed, and real variables change. Money neutrality does not hold.
A. True
B. False

Answer 7

True

Question 8

When studying year to year fluctuations in the economy, the assumption of monetary neutrality is not appropriate.
A. True
B. False

Answer 8

True

Question 9

In the short run, most real and nominal variables are intertwined.
A. True
B. False

Answer 9

True

Question 10

What is the model of aggregate demand and aggregate supply.

Answer 10

It is the model that economists use to explain short run fluctuations in economic activity around its long-run trend.

Question 11

What is aggregate-demand curve

Answer 11

It is a curve that shows the quantity of goods and services that households, firms, and the government want to buy at each price level.

Question 12

What is aggregate-supply curve

Answer 12

It is a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level.

Question 13

What is the Wealth effect

Answer 13

It is an economic theory that suggests that individuals tend to spend more when they perceive themselves to be wealthier when there’s a decrease in price level.

Question 14

What is the Interest rate effect

Answer 14

It is a concept in monetary economics that describes how changes in interest rate decrease can influence overall economic activity.

Question 15

What is the real exchange rate effect

Answer 15

It is the tendency for a fall in the price level to decrease the real exchange rate and increase net exports.

Question 16

What are the 4 changes why the aggregate-demand curve might shift.

Answer 16

1. Change in consumption
2. Change in investment
3. Change in government purchases
4. Change in net exports

Question 17

If Canadians become more concerned with saving for retirement and reduce current consumption,aggregate-demand will decline and shift to the left.
A. True
B. False

Answer 17

True

Question 18

If the government cuts taxes, it encourages people to pend more, resulting in an increase in aggregate-demand and will shift right.
A. True
B. False

Answer 18

True

Question 19

If firms become pessimistic about future business conditions, they may cut back on investment spending, shifting aggregate-demand to the left.
A. True
B. False

Answer 19

True

Question 20

Suppose the computer industry introduces a faster line of computers and many firms decide to invest in new computer systems. This will lead the aggregate-demand curve to the right.
A. True
B. False

Answer 20

True

Question 21

An increase in the supply of money lowers the interest rate on the short run.
A. True
B. False

Answer 21

True

Question 22

If the value of the Canadian dollar increases, Canadian goods become more expensive to foreigners. Net exports fall, and aggregate demand shifts to the left.
A. True
B. False

Answer 22

True

Question 23

The vertical LRAS curve is a graphical representation of the classical dichotomy and money neutrality.
A. True
B. False

Answer 23

True

Question 24

What is the Natural rate of output

Answer 24

It is the production of goods and services that an economy achieves in the long run when unemployment is at its normal rate.

Question 25

What are the 4 changes why aggregate-supply curve might shift.

Answer 25

1. Changes in capital 2. Changes in labour 3. Changes in natural resources 4. Changes in technological knowledge

Question 26

In the short run, the price level does affect the economy's output. A. True B. False

Answer 26

True

Question 27

An increase in the overall level of prices tends to raise the quantity of goods and services supplied. A. True B. False

Answer 27

True

Question 28

What is the sticky wage theory

Answer 28

It is an economic concept that suggests that wages do not adjust immediately to price changes in the overall price level or economic conditions.

Question 29

What is the sticky price theory

Answer 29

It is an economic concept that suggests that prices of goods and services do not adjust immediately to changes in the overall price level or economic conditions.

Question 30

What is the misperceptions theory

Answer 30

It is an economic concept that is part of the New Keynesian school of thought. It offers an explanation for why changes in the overall price level or the inflation rate can affect real economic activity in the short run.

Question 31

In the short run, shifts in aggregate demand cause fluctuations in the economy's output of goods and services. A. True B. False

Answer 31

True

Question 32

In the long run, shifts in aggregate demand affect the overall price level but do not affect the level of output. A. True B. False

Answer 32

True

Question 33

Policymakers who influence aggregate demand can potentially mitigate that severity of economic fluctuations. A. True B. False

Answer 33

True

Question 34

What is Stagflation

Answer 34

Stagflation is a situation in which the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high.

Question 35

Shifts in aggregate supply can cause stagflation. A. True B. False

Answer 35

True

Question 36

Policymakers who can influence aggregate demand can potentially mitigate the adverse impact on output but only at the cost of exacerbating the problem of inflation. A. True B. False

Answer 36

True