Aggregate Review

Aggregate Demand and Supply Review

1. What does aggregate demand represent?

(A) The total demand for goods and services in an economy

(B) The partial demand for goods and services in an economy

(C) The total demand for goods in an economy

(D) The partial demand for goods in an economy

2.What information is needed in order to maximize the usefulness of the aggregate demand curve?

(A) The interest rate

(B) The aggregate supply curve

(C) The price level

(D) The output level

3.What is the AS-AD model?

(A) A model of the interest rate

(B) A labor market representation

(C) A supply and demand model for the entire economy

(D) A model of savings and consumption

4.What does the aggregate supply curve show?

(A) The total demand for goods and services in an economy

(B) The supply of goods in an economy

(C) The supply of services in an economy

(D) The total supply of goods and services in an economy

5.What is the slope of the aggregate demand curve?

(A) Downward

(B) Upward

(C) Vertical

(D) Horizontal

6.What is the slope of the short-run aggregate supply curve?

(A) Downward

(B) Upward

(C) Vertical

(D) Horizontal

7. What is the slope of the long-run aggregate supply curve?

(A) Downward

(B) Upward

(C) Vertical

(D) Horizontal

8.Why is the long-term aggregate supply curve vertical?

(A) In the short run, output never changes

(B) In the short run, output is fixed by the factors of production

(C) In the long run, output never changes

(D) In the long run, output is fixed by the factors of production

9.What are the factors of production?

(A) Capital and labor

(B) Capital and investment

(C) Labor and investment

(D) Investment and output

10.What is one way that the long-run aggregate supply curve can shift?

(A) In the short run due to investment

(B) In the short run due to consumption

(C) In the long run due to investment

(D) In the long run due to consumption

11.Which curve usually shifts in the AS-AD model?

(A) Neither

(B) Both

(C) Aggregate demand

(D) Aggregate supply

12.Which of the following curves does not appear in the AS-AD model?

(A) Short-run aggregate supply

(B) Long-run aggregate supply

(C) Aggregate demand

(D) Long-run aggregate demand

13.Which of the following cannot shift the aggregate demand curve?

(A) Treasury

(B) Fed

(C) Government

(D) Consumers

14.Which way does expansionary policy shift the aggregate demand curve?

(A) Right

(B) Left

(C) No change

(D) Need more information

15.Which way does contractionary policy shift the aggregate demand curve?

(A) Right

(B) Left

(C) No change

(D) Need more information

16.What is aggregate supply fixed by in the long run?

(A) Aggregate demand

(B) Output

(C) Interest rates

(D) Factors of production

17.What do you call the intersection of the long-run aggregate supply curve and the aggregate demand curve?

(A) Long-run equilibrium

(B) Short-run equilibrium

(C) Unstable equilibrium

(D) Need more information

18.What do you call the intersection of the short-run aggregate supply curve and the aggregate demand curve?

(A) Long-run equilibrium

(B) Short-run equilibrium

(C) Unstable equilibrium

(D) Need more information

19.What is the short-run effect on output and the price level of the Fed pursuing expansionary monetary policy?

(A) Output falls and the price level rises

(B) Output rises and the price level falls

(C) They both rise

(D) They both fall

20.What is the long-run effect on output and the price level of the Fed pursuing expansionary monetary policy?

(A) Output falls and the price level rises

(B) Output rises and the price level falls

(C) They both rise

(D) Output is unchanged and the price level rises

21.What is the short-run effect on output and the price level of the Fed pursuing contractionary monetary policy?

(A) They both fall

(B) They both rise

(C) Output falls and the price level rises

(D) Output rises and the price level falls

22.What is the long-run effect on output and the price level of the Fed pursuing contractionary monetary policy?

(A) Output falls and the price level is unaffected

(B) Output is unaffected and the price level falls

(C) They both rise

(D) They both fall

23.What is the short run effect on output and the price level of an adverse supply shock?

(A) They both fall

(B) They both rise

(C) Output falls and the price level rises

(D) Output rises and the price level falls

24.What is the long-run effect on output and the price level of an adverse supply shock?

(A) They both fall

(B) They both rise

(C) Output rises and the price level is unaffected

(D) Output is unaffected and the price level rises

25.What is a possible result of an adverse supply shock?

(A) Healthy economy

(B) Low prices

(C) Stagflation

(D) High employment

26.When the short-run aggregate supply curve shifts, what shifts in response?

(A) Both the long-run and the short run aggregate supply curves

(B) Long-run aggregate supply curve

(C) Short-run aggregate supply curve

(D) Aggregate demand curve

27.When the aggregate demand curve shifts, what shifts in response?

(A) Short-run aggregate supply curve

(B) Long-run aggregate supply curve

(C) Aggregate demand curve

(D) Both the long-run and the short-run aggregate supply curves

28.When does the long-run aggregate supply curve shift?

(A) When consumers purchase more goods and services

(B) When the capital stock increases

(C) When producers create more output

(D) When foreign countries import more goods

29.Which of the following is an example of an adverse supply shock?

(A) Increase in consumption

(B) Increase in profits

(C) Large increase in oil prices

(D) Decrease in wage costs

30.Which of the following is best for the economy?

(A) Right shift of the aggregate supply curve

(B) Left shift of the aggregate supply curve

(C) Right shift of the aggregate demand curve

(D) Left shift of the aggregate demand curve

31.Which of the following is not a possible result of a right shift of the aggregate supply curve?

(A) Left shift of the aggregate demand curve

(B) Lower output

(C) Higher output

(D) Lower price level

Exam Review October

Ap Exam Review

What is a resource?

What is scarcity?

What is an Opportunity Cost?

Normative vs Positive Statements.

Macroeconomics vs. Microeconomics.

GDP vs. GNP

Factors of Production (define: Land, Labor, Capital, Entrepreneurship).

Production Possibilities Graph.

Identify Efficient, inefficient, unattainable,

What is growth?

Shifting vs. movement along the frontier.

Capital vs consumer goods.

Unemployment vs Employed

Who makes up the labor force (who counts and who doesn’t count)?

What are the 4 types of unemployment?
Calculate Unemployment rate as a %

Supply and Demand

Normal vs. Inferior goods

Complements vs. Substitutes

What are the Dependent variables and independent variables.

What is a price floor and price ceiling?

What are the business cycle phases?

What is inflation?

What is ceteris paribus?

Absolute Advantage vs. Comparative Advantage.

What is a quota?

Topics 1-7

Macro Economics:  Possible Scope and Sequence

Semester Topics and Graphs: Guide to Basics

Topic 1:  Introductory Materials and Production Possibilities

·         For an economist, everything is scarce.

·         All decisions require an opportunity cost.

·         Most problems of predicting changes will require ceteris paribus assumptions.

·         The most common labels on the PPC are Y Axis = Capital Goods, X Axis = Consumer Goods

·         Students must know the significance of points inside the Frontier, on the Frontier, and outside the Frontier.  These are equal to:  inefficient, efficient, not available.

·         Students must understand that moving the Frontier requires more Factors of Production

·         Big Chart Graph:  Production Possibilities Curves/Frontiers (#1)

Topic 2:  Supply and Demand Basics and Currency Exchanges

·         When product prices are changed first, move points on the line.  This is known as a “Quantity” Change and this will create a surplus or a shortage.

·         When government steps in with artificial price floors and ceilings, they are trying to help suppliers with floors and consumers with ceilings. 

·         Artificial floors always create greater surpluses.

·         Artificial ceilings always create greater shortages.

·         When any other product factor changes first, move either the S or the D lines.  This is known as a “Supply or Demand” Change.

·         This will create a new EP and EQ for that market.

·         When the price of a good increases, a substitute’s demand will increase.

·         When the price of a good increases, a complement’s demand will decrease.

·         Perfectly inelastic supply lines are vertical

·         For the rest of a macro course, skip discussions or lessons on elasticity.

·         Currencies are supply and demand products.

·         Demand for currencies will flow to the “better” economy.

·         If D changes for one currency, S must change for the other currency.

·         The two currency graphs will move in the same direction.

·         One currency will always appreciate, the other will depreciate.

·         Appreciation of a currency hurts exports, depreciation helps make them cheaper.

·         Big Chart Graphs:  Dollar Graph, Other Currency Graph (#2, #3)

Topic 3: Goods and Government

·         Durable goods and non-durable goods are based on length of product life.

·         Transfer payments are from government to individuals.

·         Subsidies are payments from government to businesses.

Topic 4:  GDP Accounting

·         The expenditure approach of C + Ig + G + Xn must be memorized.

·         The expenditure approach is equal to AD.

·         The expenditure approach is also equal to GDP.

·         C is the most significant in the US, G has no savings leak, Ig is affected by interest rates (in an inverse way for the domestic market).

·         For GDP accounting, intermediate goods are not counted.

·         Unsold inventory is counted as Ig at year’s end.

·         Used goods do not count in the year the re-sell.

·         Goods and services are both counted as Consumption.

·         GDP to NDP accounts for Depreciation of Capital or Consumption of Fixed Capital (CFC).   This gives the real measure of growth.

·         Nominal minus Inflation = Real

Topic 5:  Business Cycles

·         The up-sloping Secular Trend is a Classical Theory of gradual improvement of lifestyles over time.  It can be connected to Say’s Law.

·         The minimum time span for a change in the cycle is 6 months (2 “quarters”).

·         The cycle is measured from trough to trough.

·         Peaks and troughs can only be recognized after they have occurred.

·         Expansions and Contractions/Recessions can be recognized as they occur.

·         The average cycle for the US has been about 6 years (200 years of data).

·         Recessions have historically lasted about 14 months (20 century and beyond).

·         It will be assumed that Recession will have excess unemployment.

·         It will be assumed that Expansions will have some excess inflation.

·         Big Chart Graph:  Business Cycles (#4)

Topic 6: Employment and Unemployment

·         Part time workers are counted as “employed”.

·         Discouraged workers are not counted as unemployed.

·         “Full Employment Unemployment” (FE) is the Natural Rate of Unemployment (NRU) for a country.

·         The differences between frictional and structural unemployment are important.

Topic 7:  CPI, GDP Deflators, Inflation

·         An Index Year is always made equal to 100.

·         Real change of values over time can always be calculated with the formula:  Later Year – Earlier Year/Earlier Year.  This = the Rate of Change.  The Rate x 100 = Inflation %. 

·         CPI measures monthly purchases by consumers, the GDP deflator looks at all the economy.

·         G spending changes are assumed to be more important that private C changes because C changes always have a savings leak.

·         Demand Pull inflation is caused by excessive consumption.  It can be manipulated by governmental policies.

·         Cost Push inflation is a loss of Supply and often can’t be corrected.

·         Stagflation is the presence of rising unemployment and rising inflation, and can be created by Supply Shocks.