AGEC 217: Purdue University || with Errorless Solutions
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Potential output is correct answers The amount that can be produced when resources are
normally employed
On the goods market diagram, correct answers The vertical axis is the price level, and the
horizontal axis is the level of output
What two goods market diagrams show recession? correct answers When AD-1 moves down and
to the left to AD-2 and AS stays the same, and when AS-1 moves up and to the left to AS-2 and
AD stays the same.
What goods market diagram shows a decrease in aggregate demand? correct answers When AD-
1 moves down and to the left to AD-2 and AS stays the same
What money market diagram shows a decrease in money supply? correct answers When MS-1
moves up and to the left to MS-2 and MD stays the same.
On the goods market diagram, the intersection of the aggregate demand and aggregate supply
curve shows correct answers The equilibrium price level and the equilibrium level of output
What two goods market diagrams show deflation? correct answers When AD-1 moves down and
to the left to AD-2 and AS stays the same, and when AS-1 moves down and to the right to AS-2
and AD stays the same
What two goods market diagrams show expansion? correct answers When AD-1 moves up and
to the right to AD-2 and AS stays the same, and when AS-1 moves down and to the right to AS-2
and AD stays the same
On the goods market diagram, correct answers The downward sloping curve is aggregate
demand, and the upward sloping curve is aggregate supply
On the money market diagram, correct answers The vertical axis is the real interest rate, and the
horizontal axis is the quantity of money
What good market diagram shows a decrease in aggregate supply? correct answers When AS-1
moves up and to the left to AS-2 and AD stays the same
What money market diagram shows a decrease in money demand? correct answers When MD-1
moves down and to the left to MD-2 and MS stays the same
When incomes rise, correct answers People make more purchases, so the demand for money
rises.
, Prices probably do not adjust to equilibrium instantly because, correct answers Contracts and
lagging price expectations cause wages, cost and prices to be "sticky"
When the money supply increases in the money market, correct answers The equilibrium real
interest rate decreases, which increases investment spending in the goods market, increasing
aggregate demand, and raising the price level and output
When money demand decreases in the money market, correct answers The equilibrium real
interest rate decreases, which increases investment spending in the goods market, increasing
aggregate demand, and raising the price level and output
One reason that interest rates tend to rise during expansions is correct answers Rising prices and
income increase money demand
If banks are pessimistic about the prospects of business repaying loans, correct answers They
lend less, which decreases the money supply and increases the real interest rate
In the macroeconomic model, if an improvement in technology increases productivity, correct
answers Aggregate supply will increase, output will increase and the price level will decrease
In the goods market correct answers In the short run there is a trade-off between inflation and
unemployment, but there is no trade-off in the long run
When aggregate demand falls in the goods market, so that equilibrium output is less than
potential output correct answers The price level will fall in the goods market, which reduces
input cost, which increases aggregate supply, moving equilibrium output back towards potential
output
When aggregate demand rises in the goods market, so that equilibrium output is greater than
potential output correct answers The price level will rise in the goods market, which increases
input cost, which decreases aggregate supply, moving equilibrium output back towards potential
output
The Federal Reserve conducts monetary policy by correct answers Changing the supply of
money, to influence interest rate
In the macroeconomic model, if a drop in home prices causes consumers o save more and spend
less, correct answers Aggregate demand will decrease, output will decrease and the price level
will decrease
When aggregate demand decreases in the goods market, correct answers the equilibrium price
level and equilibrium output decrease, which decreases money demand in the money market,
causing the real interest rate to fall
If prices adjust to equilibrium instantly, correct answers The aggregate supply curve is perfectly
inelastic at the potential output level
