Question 1

Describe the determinants of aggregate demand and their effects on the aggregate demand curve.

Accepted Answer

The determinants of aggregate demand are

Question 2

The Great Depression demonstrated that

Accepted Answer

A)  government intervention in the economy results in economic depressions. 
B)  short-run equilibrium can occur at levels substantially less than full employment. 
C)  inflation is a problem worse than unemployment. 
D)  there can be no macroeconomic equilibrium. 
A)  government intervention in the economy results in economic depressions. 
B)  short-run equilibrium can occur at levels substantially less than full employment. 
C)  inflation is a problem worse than unemployment. 
D)  there can be no macroeconomic equilibrium.

Question 3

Because of the wealth effect, a rising aggregate price level _____ the purchasing power of wealth and therefore _____ output demanded.

Accepted Answer

A)  increases; increases 
B)  increases; reduces 
C)  reduces; increases 
D)  reduces; reduces 
A)  increases; increases 
B)  increases; reduces 
C)  reduces; increases 
D)  reduces; reduces

Question 4

The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS) model is that the

Accepted Answer

A)  Keynesian model assumes that prices are constant. 
B)  AD/AS model assumes that prices are constant. 
C)  Keynesian model assumes full employment. 
D)  AD/AS model assumes that equilibrium always occurs at less than full employment. 
A)  Keynesian model assumes that prices are constant. 
B)  AD/AS model assumes that prices are constant. 
C)  Keynesian model assumes full employment. 
D)  AD/AS model assumes that equilibrium always occurs at less than full employment.

Question 5

A(n) _____ in government spending, a _____ domestic currency, and _____ interest rates will shift the aggregate demand curve to the left.

Accepted Answer

A)  decrease; stronger; higher 
B)  increase; weaker; higher 
C)  increase; stronger; lower 
D)  decrease; weaker; lower 
A)  decrease; stronger; higher 
B)  increase; weaker; higher 
C)  increase; stronger; lower 
D)  decrease; weaker; lower

Question 6

Which of these would NOT affect (shift) the short-run aggregate supply curve?

Accepted Answer

A)  an increase in labor productivity 
B)  a decline in the price of imported oil 
C)  a decline in business taxes 
D)  an increase in the price level 
A)  an increase in labor productivity 
B)  a decline in the price of imported oil 
C)  a decline in business taxes 
D)  an increase in the price level

Question 7

____ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises.

Accepted Answer

A)  Cost-push 
B)  Unnecessary 
C)  Overextended 
D)  Demand-pull 
A)  Cost-push 
B)  Unnecessary 
C)  Overextended 
D)  Demand-pull

Question 8

Which of these BEST illustrates the wealth effect?

Accepted Answer

A)  Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000. 
B)  Simon felt he needed at least $800,000 to retire comfortably. He increased his savings to build up his wealth. 
C)  The Jones family has $50,000 in the bank. But when prices rose dramatically, their purchasing power diminished by $50,000. 
D)  Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks. 
A)  Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000. 
B)  Simon felt he needed at least $800,000 to retire comfortably. He increased his savings to build up his wealth. 
C)  The Jones family has $50,000 in the bank. But when prices rose dramatically, their purchasing power diminished by $50,000. 
D)  Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks.

Question 9

Other things equal, when the U.S. aggregate price level falls, U.S. exports _____ and U.S. imports _____.

Accepted Answer

A)  fall; rise 
B)  fall; fall 
C)  rise; fall 
D)  rise; rise 
A)  fall; rise 
B)  fall; fall 
C)  rise; fall 
D)  rise; rise

Question 10

If the economy shown in the figure begins at point C, an increase in consumer confidence leads to what changes in the short run?

Accepted Answer

A)  an increase in unemployment 
B)  cost-push inflation 
C)  a decline in tax revenue 
D)  demand-pull inflation 
A)  an increase in unemployment 
B)  cost-push inflation 
C)  a decline in tax revenue 
D)  demand-pull inflation

Question 11

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium?

Accepted Answer

A)  Short-run aggregate supply falls; then aggregate demand falls, leading to a new long-run equilibrium with lower prices and lower output. 
B)  Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output. 
C)  Aggregate demand falls causing prices to fall; at lower prices, aggregate demand then rises back to its original level, leading to a return to the original price and output levels. 
D)  Short-run aggregate supply falls causing unemployment; with less output, investment falls, leading to a reduction in long-run aggregate supply and a new long-run equilibrium with lower output and higher prices. 
A)  Short-run aggregate supply falls; then aggregate demand falls, leading to a new long-run equilibrium with lower prices and lower output. 
B)  Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output. 
C)  Aggregate demand falls causing prices to fall; at lower prices, aggregate demand then rises back to its original level, leading to a return to the original price and output levels. 
D)  Short-run aggregate supply falls causing unemployment; with less output, investment falls, leading to a reduction in long-run aggregate supply and a new long-run equilibrium with lower output and higher prices.

Question 12

The idea behind the spending multiplier is that new spending causes more spending, income, and output than just an amount equal to the new spending itself.

Accepted Answer

A) True 
 B)False

Question 13

In macroeconomics, the long run is

Accepted Answer

A)  a period long enough that participants in the economy will have enough time to gain all relevant information but not enough time to act correctly on that information. 
B)  the same period accountants use to measure long-term assets and liabilities. 
C)  a period long enough that participants in the economy will have enough time to gain all relevant information and enough time to act correctly on that information. 
D)  a period long enough that participants in the economy will have enough time to act correctly on all relevant information but not enough time to collect all of it. 
A)  a period long enough that participants in the economy will have enough time to gain all relevant information but not enough time to act correctly on that information. 
B)  the same period accountants use to measure long-term assets and liabilities. 
C)  a period long enough that participants in the economy will have enough time to gain all relevant information and enough time to act correctly on that information. 
D)  a period long enough that participants in the economy will have enough time to act correctly on all relevant information but not enough time to collect all of it.

Question 14

The long-run aggregate supply curve is vertical because of the assumption that all variables are fixed in the long run.

Accepted Answer

A) True 
 B)False

Question 15

The proportion of additional income that consumers spend is known as the

Accepted Answer

A)  marginal propensity to save. 
B)  marginal propensity to consume. 
C)  average propensity to save. 
D)  average propensity to consume. 
A)  marginal propensity to save. 
B)  marginal propensity to consume. 
C)  average propensity to save. 
D)  average propensity to consume.

Question 16

Which set of events clearly would lead to a decrease in aggregate demand if the events occurred simultaneously?

Accepted Answer

A)  Taxes are cut, giving the government less revenue while household debt levels rise. 
B)  Interest rates fall, giving savers less interest income while government spending on research is cut. 
C)  There is a strong expansion in the economy of the country's main trading partner at the same time that the country's currency appreciates. 
D)  Debt levels in the country rise at the same time that the country's currency appreciates. 
A)  Taxes are cut, giving the government less revenue while household debt levels rise. 
B)  Interest rates fall, giving savers less interest income while government spending on research is cut. 
C)  There is a strong expansion in the economy of the country's main trading partner at the same time that the country's currency appreciates. 
D)  Debt levels in the country rise at the same time that the country's currency appreciates.

Question 17

In the short run, the aggregate supply curve is

Accepted Answer

A)  horizontal. 
B)  negatively sloped. 
C)  positively sloped. 
D)  vertical. 
A)  horizontal. 
B)  negatively sloped. 
C)  positively sloped. 
D)  vertical.

Question 18

According to Keynes, what determines the level of employment and income?

Accepted Answer

A)  aggregate expenditures 
B)  aggregate savings 
C)  aggregate supply 
D)  government spending 
A)  aggregate expenditures 
B)  aggregate savings 
C)  aggregate supply 
D)  government spending

Question 19

Which factor will cause the aggregate demand curve to shift to the left?

Accepted Answer

A)  a rise in consumer confidence 
B)  a fall in excess capacity of businesses 
C)  an increase in foreign income 
D)  an appreciation of the dollar 
A)  a rise in consumer confidence 
B)  a fall in excess capacity of businesses 
C)  an increase in foreign income 
D)  an appreciation of the dollar

Question 20

The Potbelly Pothole Company is undertaking some investments in its plant. Suppose interest rates fall and new technologies increase the return on investment. What is likely to happen?

Accepted Answer

A)  The company's demand for investments will fall. 
B)  The company's demand for investments will rise. 
C)  The company's demand for investments will first fall as interest rates fall and then rise as technology improves. 
D)  There will be no change in the company's demand for investments. 
A)  The company's demand for investments will fall. 
B)  The company's demand for investments will rise. 
C)  The company's demand for investments will first fall as interest rates fall and then rise as technology improves. 
D)  There will be no change in the company's demand for investments.

Describe the determinants of aggregate demand and their effects on the aggregate demand curve.

The Great Depression demonstrated that

Because of the wealth effect, a rising aggregate price level _ the purchasing power of wealth and therefore _ output demanded.

The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS) model is that the

A(n) ___ in government spending, a _ domestic currency, and ___ interest rates will shift the aggregate demand curve to the left.

Which of these would NOT affect (shift) the short-run aggregate supply curve?

____ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises.

Which of these BEST illustrates the wealth effect?

Other things equal, when the U.S. aggregate price level falls, U.S. exports _ and U.S. imports _.

If the economy shown in the figure begins at point C, an increase in consumer confidence leads to what changes in the short run?

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium?

The idea behind the spending multiplier is that new spending causes more spending, income, and output than just an amount equal to the new spending itself.

In macroeconomics, the long run is

The long-run aggregate supply curve is vertical because of the assumption that all variables are fixed in the long run.

The proportion of additional income that consumers spend is known as the

Which set of events clearly would lead to a decrease in aggregate demand if the events occurred simultaneously?

In the short run, the aggregate supply curve is

According to Keynes, what determines the level of employment and income?

Which factor will cause the aggregate demand curve to shift to the left?

The Potbelly Pothole Company is undertaking some investments in its plant. Suppose interest rates fall and new technologies increase the return on investment. What is likely to happen?

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

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Exam 9: Aggregate Demand and Supply

Describe the determinants of aggregate demand and their effects on the aggregate demand curve.

The Great Depression demonstrated that

Because of the wealth effect, a rising aggregate price level _____ the purchasing power of wealth and therefore _____ output demanded.

The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS) model is that the

A(n) _____ in government spending, a _____ domestic currency, and _____ interest rates will shift the aggregate demand curve to the left.

Which of these would NOT affect (shift) the short-run aggregate supply curve?

____ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises.

Which of these BEST illustrates the wealth effect?

Other things equal, when the U.S. aggregate price level falls, U.S. exports _____ and U.S. imports _____.

If the economy shown in the figure begins at point C, an increase in consumer confidence leads to what changes in the short run?

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium?

The idea behind the spending multiplier is that new spending causes more spending, income, and output than just an amount equal to the new spending itself.

In macroeconomics, the long run is

The long-run aggregate supply curve is vertical because of the assumption that all variables are fixed in the long run.

The proportion of additional income that consumers spend is known as the

Which set of events clearly would lead to a decrease in aggregate demand if the events occurred simultaneously?

In the short run, the aggregate supply curve is

According to Keynes, what determines the level of employment and income?

Which factor will cause the aggregate demand curve to shift to the left?

The Potbelly Pothole Company is undertaking some investments in its plant. Suppose interest rates fall and new technologies increase the return on investment. What is likely to happen?

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

Filters

Because of the wealth effect, a rising aggregate price level _ the purchasing power of wealth and therefore _ output demanded.

A(n) ___ in government spending, a _ domestic currency, and ___ interest rates will shift the aggregate demand curve to the left.

Other things equal, when the U.S. aggregate price level falls, U.S. exports _ and U.S. imports _.