Problem Set for Chapters 7 & 8

An increase in aggregate demand when the economy is operating at high levels of output is likely to result in

• a large increase in both output and the overall price level.

• little or no increase in either output or the overall price level.

• an increase in output but little or no increase in the overall price level.

• an increase in the overall price level but little or no increase in output.

An increase in the price level is likely to increase the aggregate amount of output supplied in the short run because

• interest rate is high in the short-run.

• the aggregate supply curve is vertical in the short-run.

• wages are sticky in the short-run.

• wages change in the short-run.

During the 1980s, many firms in the United States were not investing in new capital. This would have caused

• the economy to move from Point B to Point A along AS1

• the short-run aggregate supply curve to shift from AS1 to AS0

• the short-run aggregate supply curve to shift from AS1 to AS2

• the economy to move from Point C to Point B along AS1

The increased use of hydraulic fracturing, or fracking, in North Texas has significantly reduced energy prices across the country. This fracking would cause

• the short-run aggregate supply curve to shift from AS1 to AS0.

• the economy to move from Point C to Point B along AS1.

• the short-run aggregate supply curve to shift from AS1 to AS2.

• the economy to move from Point B to Point A along AS1.

Which of the following causes the economy to move from Point A to Point E?

• an increase in the price level

• an influx of immigrants

• an oil embargo that increases the price of oil

• technological progress

Suppose the economy is at Point A. An increase in the price level moves the economy to Point

• E.

• B.

• C.

• D.

Suppose the equilibrium price level is 110. An increase in the supply of oil would probably

• increase both the equilibrium output and the price level.

• increase the equilibrium output and decrease the price level.

• decrease both the equilibrium output and the price level.

• decrease the equilibrium output and increase the price level.

To increase the price level, the government could adopt policies that

• increase aggregate supply and aggregate demand.

• increase aggregate supply and decrease aggregate demand.

• decrease aggregate supply and aggregate demand.

• decrease aggregate supply and increase aggregate demand.

Suppose the equilibrium price level is 110. An increase in wages and an increase in government spending will, for sure, increase

• equilibrium output.

• equilibrium output and decrease the price level.

• both the equilibrium output and the price level.

• the price level.

Which of the following statements characterizes an output level of $800 billion?

• It is sustainable over the long run without inflation.

• It is attainable in the short run but it is associated with increases in the price level.

• It can be achieved only if investment is independent of the interest rate.

• It is achievable only in the long run.