When the Fed decreases the money supply:
a. aggregate demand and aggregate supply both increase.
b. aggregate demand increases, which leads to movement along the short-run aggregate supply curve.
c. aggregate demand decreases, which leads to movement along the short-run aggregate supply curve.
d. aggregate supply increases, which leads to movement along the aggregate demand curve.
e. aggregate supply decreases, which leads to movement along the aggregate demand curve.
QUESTION 2Which of the following does not influence the position of the long-run aggregate supply curve?
a. The quantity of raw materials available for production
b. The quantity of capital used in production
c. The quality of the labor force
d. The actual price level
e. The size of the labor force
QUESTION 3Given an upward sloping aggregate supply curve, which of the following changes in the aggregate demand curve is observed when the Fed reduces the money supply?
a. The aggregate demand curve shifts leftward, lowering real GDP and the price level.
b. The aggregate demand curve shifts leftward, raising real GDP and the price level.
c. The aggregate demand curve shifts leftward, lowering real GDP but raising the price level.
d. The aggregate demand curve shifts rightward, raising real GDP and the price level.
e. The aggregate demand curve shifts rightward, lowering real GDP but raising the price level.
QUESTION 4An increase in aggregate demand in the long run will most likely result in:
a. a decrease in price and output levels.
b. an increase in price and output levels.
c. an increase in the price level and a decrease in output.
d. a decrease in the price level and an increase in output.
e. an increase in the price level but no change in output.
QUESTION 5An increase in investment can lead to a greater increase in aggregate demand if the value of the spending multiplier is:
a. greater than 1.
b. less than 1 but more than zero.
c. negative.
d. exactly equal to zero.
e. exactly equal to one.
QUESTION 6Which of the following is true in the long run?
a. The aggregate demand curve determines the level of potential output.
b. The long-run aggregate supply curve is horizontal.
c. The actual price level and the expected price level are equal.
d. Cyclical unemployment is between 5 percent and 6 percent.
e. The price level is determined entirely by the long-run aggregate supply curve.
QUESTION 7Which of the following monetary policies would be appropriate to close a recessionary gap?
a. A tax cut
b. A decrease in government purchases
c. An increase in reserve requirements
d. The Fed's purchase of U.S. government securities
e. The Fed's raising the discount rate
QUESTION 8When resource prices are negotiable, the long-run aggregate supply curve is represented by:
a. an upward-sloping line
b. a downward-sloping line
c. a vertical line at potential output.
d. a horizontal line at the actual price level.
e. a horizontal line at the expected price level.
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