Name: 
 

Unit 7 - PRACTICE Quiz - MACRO AD-AS



Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 

World War I (the 'Great War') in 1914-1918 destroyed much of France's infrastructure and killed 1 in 7 working-age males in the country.  As a result:
a.
France's long-run aggregate supply curve shifted outward (to the right).
b.
France's long-run aggregate supply curve  shifted inward (to the left).
c.
there was a movement up along France's long-run aggregate supply curve, but the curve did not shift.
d.
there was a movement down along France fs long-run aggregate supply curve, but the curve did not shift.
 

 2. 

Which of the following events is likely to cause both an decrease in real GDP and an increase in the price level?  (Hint: Sketch a graph of the Aggregate Supply - Aggregate Demand model.)
a.
A decision by the Fed to lower interest rates causes businesses to increase their investment spending.
b.
The value of the dollar in terms of other countries' currencies goes up, causing a fall in exports.
c.
A business tax cut improves businesses  profitability and increases the supply of goods.
d.
An unexpected war interupts the supply of imported oil and raises it fs price significantly.
 

 3. 

If the SRAS curve intersects the AD curve to the left of full employment GDP (potential output), the economy is
a.
in a recessionary gap.
b.
at full employment.
c.
in an inflationary gap.
d.
in an expansionary gap..
 

 4. 

If actual Real GDP is less than full employment (potential) Real GDP, then the (actual) unemployment rate is
a.
less than the natural unemployment rate.
b.
equal to the natural unemployment rate.
c.
greater than the natural unemployment rate.
d.
equal to full employment.
e.
b and d
 

 5. 

If Real GDP is greater than potential GDP (full employment GDP), the economy is in a(n)
a.
frictional gap.
b.
structural gap.
c.
recessionary gap.
d.
inflationary (expansionary) gap.
e.
impossibility
 

 6. 

The long-run aggregate supply (LRAS) curve is
a.
horizontal and shows the potential of the economy to produce long-run, given it’s resources and technology.
b.
vertical and shows the potential of the economy to produce long-run, given it’s resources and technology.
c.
positively sloped and shows how firms change output in response to price level changes
d.
negatively sloped and shows how firms change output in response to price level changes.
 
 
Exhibit 8-1
nar001-1.jpg
 

 7. 

Refer to Exhibit 8-1. The economy is currently producing Q1. At this level of Real GDP, the economy is in a(n)
a.
inflationary gap.
b.
recessionary gap.
c.
unemployment gap.
d.
high Real GDP gap.
e.
none of the above
 
 
Exhibit 8-2
nar002-1.jpg
 

 8. 

Refer to Exhibit 8-2. The economy is currently producing Q1. At this level of Real GDP, the economy is in a(n)
a.
inflationary or expansionary gap.
b.
recessionary gap.
c.
unemployment gap.
d.
high Real GDP gap.
e.
none of the above
 
 
Exhibit 8-3

nar003-1.jpg
 

 9. 

Refer to Exhibit 8-3. The economy is at an equilibrium with full employment at point
a.
A.
b.
B.
c.
C.
d.
D.
e.
E.
 
 
Exhibit 8-6
nar004-1.jpg
 

 10. 

Refer to Exhibit 8-6. If the economy is currently at point 1, it follows that
a.
there is a surplus of labor in the labor market.
b.
the economy is currently producing to the capacity of it’s resources.
c.
the economy is currently in an inflationary gap.
d.
the labor market is in equilibrium.
e.
the actual unemployment rate is below the natural unemployment rate.
 
 
Exhibit 7-005
nar005-1.jpg
 

 11. 

Refer to Exhibit 7-005.  Then choose which of the following labels is not correctly identified:
a.
Unemployment
d.
long-run aggregate supply curve
b.
Price Level (price index)
e.
short-run aggregate supply curve
c.
aggregate demand curve
 

 12. 

Which of the following will cause the AD curve to shift to the left?
a.
household become more cautious/fearful for future and try to increase savings as a precautionary measure
c.
firms reduce their expectation of future economic growth and therefore reduce investment spending
b.
government reduces it’s spending without an equal reduction in taxes (reduces the defict)
d.
all of the above will shift AD to the left
 

 13. 

Which of the following will cause the SRAS curve to shift to the right?
a.
lower real wages paid to workers (assuming same prices for output)
c.
lower real prices for widely used inputs like oil
b.
improvements in productivity
d.
all of the above will shift SRAS to the right
 

 14. 

Which of the following will cause the LRAS curve to shift to the left?
a.
a war which destroys factories, capital, and kill many working-age males
c.
a natural disaster such as a massive earthquake
b.
an aging population where each year more older workers retire and leave the workforce than new, young people enter the workforce
d.
all of the above will shift LRAS to the left
 



 
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