Question 1

The real-balances effect indicates that inflation makes the public feel wealthier and they therefore spend more out of their current incomes.

Accepted Answer

A) True 
 B)False

Question 2

The foreign purchases effect on aggregate demand suggests that a

Accepted Answer

A) fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand. 
B) fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand. 
C) rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand. 
D) rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand. 
A) fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand. 
B) fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand. 
C) rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand. 
D) rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand.

Question 3

A decrease in interest rates caused by a change in the price level would cause a(n)

Accepted Answer

A) decrease (or shift left) in aggregate demand. 
B) increase (or shift right) in aggregate demand. 
C) decrease in the quantity of real output demanded (or movement up along A
D) . 
D) increase in the quantity of real output demanded (or movement down along A
D) . 
A) decrease (or shift left) in aggregate demand. 
B) increase (or shift right) in aggregate demand. 
C) decrease in the quantity of real output demanded (or movement up along A
D) . 
D) increase in the quantity of real output demanded (or movement down along A
D) .

Question 4

Minimum wage laws tend to make the price level more flexible rather than less flexible.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that an economy produces 2,400 units of output, employing the 60 units of input, and the price of the input is $30 per unit.All else equal, if the price of each unit of input decreased from $30 to $20, then productivity would

Accepted Answer

A) increase from $40 to $90 and aggregate supply would decrease. 
B) increase from $50 to $60 and aggregate supply would decrease. 
C) increase from $60 to $70 and aggregate supply would increase. 
D) remain unchanged but aggregate supply would increase. 
A) increase from $40 to $90 and aggregate supply would decrease. 
B) increase from $50 to $60 and aggregate supply would decrease. 
C) increase from $60 to $70 and aggregate supply would increase. 
D) remain unchanged but aggregate supply would increase.

Question 6

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit.The per-unit cost of production is

Accepted Answer

A) $0.25. 
B) $0.50. 
C) $0.75. 
D) $2.00. 
A) $0.25. 
B) $0.50. 
C) $0.75. 
D) $2.00.

Question 7

If the cost of resources decreases, then real domestic output will increase.

Accepted Answer

A) True 
 B)False

Question 8

A rightward shift in the aggregate supply curve is best explained by an increase in

Accepted Answer

A) business taxes. 
B) productivity. 
C) nominal wages. 
D) the price of imported resources. 
A) business taxes. 
B) productivity. 
C) nominal wages. 
D) the price of imported resources.

Question 9

Which of the following is not an effect that occurs when the general price level in our economy increases?

Accepted Answer

A) The purchasing power of people's savings will increase. 
B) The interest rate will also tend to increase. 
C) Foreign buyers will buy less of our output, and we tend to import more. 
D) Our net exports will tend to decrease. 
A) The purchasing power of people's savings will increase. 
B) The interest rate will also tend to increase. 
C) Foreign buyers will buy less of our output, and we tend to import more. 
D) Our net exports will tend to decrease.

Question 10

(Last Word) In response to the Great Recession, the federal government engaged in significant deficit-funded spending.While it kept the recession from getting worse, and did result in some positive economic growth, it did not fully achieve the desired result.Which of the following best explains why the fiscal policy actions fell short of their objective?

Accepted Answer

A) Despite the fiscal stimulus, aggregate demand continued to shift to the right. 
B) The fiscal stimulus caused a significant leftward shift of aggregate supply. 
C) Offsetting monetary policy caused the aggregate demand to remain virtually unchanged, meaning that all gains in output came from aggregate supply shifts. 
D) The fiscal stimulus shifted aggregate demand to the right, but not enough to restore full employment. 
A) Despite the fiscal stimulus, aggregate demand continued to shift to the right. 
B) The fiscal stimulus caused a significant leftward shift of aggregate supply. 
C) Offsetting monetary policy caused the aggregate demand to remain virtually unchanged, meaning that all gains in output came from aggregate supply shifts. 
D) The fiscal stimulus shifted aggregate demand to the right, but not enough to restore full employment.

Question 11

When national income in other nations decreases, aggregate demand in our economy

Accepted Answer

A) increases because our exports will increase. 
B) decreases because our exports will decrease. 
C) increases because our imports will decrease. 
D) decreases because our imports will increase. 
A) increases because our exports will increase. 
B) decreases because our exports will decrease. 
C) increases because our imports will decrease. 
D) decreases because our imports will increase.

Question 12

If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift

Accepted Answer

A) leftward by $40 billion at each price level. 
B) rightward by $20 billion at each price level. 
C) rightward by $40 billion at each price level. 
D) leftward by $20 billion at each price level. 
A) leftward by $40 billion at each price level. 
B) rightward by $20 billion at each price level. 
C) rightward by $40 billion at each price level. 
D) leftward by $20 billion at each price level.

Question 13

If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect

Accepted Answer

A) aggregate demand to decrease and aggregate supply to increase. 
B) both aggregate demand and aggregate supply to decrease. 
C) both aggregate demand and aggregate supply to increase. 
D) aggregate demand to increase and aggregate supply to decrease. 
A) aggregate demand to decrease and aggregate supply to increase. 
B) both aggregate demand and aggregate supply to decrease. 
C) both aggregate demand and aggregate supply to increase. 
D) aggregate demand to increase and aggregate supply to decrease.

Question 14

The price level in the United States is more flexible downward than upward.

Accepted Answer

A) True 
 B)False

Question 15

The table gives aggregate demand and supply schedules for a hypothetical economy.If the amount of real output demanded at each price level falls by $200, this might have been caused by

Accepted Answer

A) an increase in net exports. 
B) a worsening of business expectations. 
C) an increase in consumer wealth. 
D) a decrease in the personal income tax. 
A) an increase in net exports. 
B) a worsening of business expectations. 
C) an increase in consumer wealth. 
D) a decrease in the personal income tax.

Question 16

An increase in real interest rates will increase investment and aggregate demand.

Accepted Answer

A) True 
 B)False

Question 17

The oil crises of the 1970s and 1980s can best be illustrated as a shift of the aggregate demand curve to the left.

Accepted Answer

A) True 
 B)False

Question 18

The aggregate demand curve

Accepted Answer

A) is upsloping because a higher price level is necessary to make production profitable as production costs rise. 
B) is downsloping because production costs decline as real output increases. 
C) shows the amount of expenditures required to induce the production of each possible level of real output. 
D) shows the amount of real output that will be purchased at each possible price level. 
A) is upsloping because a higher price level is necessary to make production profitable as production costs rise. 
B) is downsloping because production costs decline as real output increases. 
C) shows the amount of expenditures required to induce the production of each possible level of real output. 
D) shows the amount of real output that will be purchased at each possible price level.

Question 19

The real-balance and interest-rate effects help explain why aggregate demand might shift to the right or to the left.

Accepted Answer

A) True 
 B)False

Question 20

When the stock market crashed in 2008, the so-called reverse wealth effect caused consumer spending to decrease.

Accepted Answer

A) True 
 B)False

Exam 32: Aggregate Demand and Aggregate Supply

The real-balances effect indicates that inflation makes the public feel wealthier and they therefore spend more out of their current incomes.

The foreign purchases effect on aggregate demand suggests that a

A decrease in interest rates caused by a change in the price level would cause a(n)

Minimum wage laws tend to make the price level more flexible rather than less flexible.

Suppose that an economy produces 2,400 units of output, employing the 60 units of input, and the price of the input is $30 per unit.All else equal, if the price of each unit of input decreased from $30 to $20, then productivity would

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit.The per-unit cost of production is

If the cost of resources decreases, then real domestic output will increase.

A rightward shift in the aggregate supply curve is best explained by an increase in

Which of the following is not an effect that occurs when the general price level in our economy increases?

When national income in other nations decreases, aggregate demand in our economy

If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift

If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect

The price level in the United States is more flexible downward than upward.

The table gives aggregate demand and supply schedules for a hypothetical economy.If the amount of real output demanded at each price level falls by $200, this might have been caused by

An increase in real interest rates will increase investment and aggregate demand.

The oil crises of the 1970s and 1980s can best be illustrated as a shift of the aggregate demand curve to the left.

The aggregate demand curve

The real-balance and interest-rate effects help explain why aggregate demand might shift to the right or to the left.

When the stock market crashed in 2008, the so-called reverse wealth effect caused consumer spending to decrease.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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