Question 1

The aggregate demand curve shows how real GDP purchased varies with changes in:

Accepted Answer

A) unemployment. 
B) output. 
C) the price level. 
D) the interest rate. 
A) unemployment. 
B) output. 
C) the price level. 
D) the interest rate.

Question 2

Which of the following characterizes the classical view of the economy?

Accepted Answer

A) The economy is inherently unstable. 
B) Prices and wages are not flexible. 
C) The economy will "self-adjust" to full employment. 
D) None of these. 
A) The economy is inherently unstable. 
B) Prices and wages are not flexible. 
C) The economy will "self-adjust" to full employment. 
D) None of these.

Question 3

In the aggregate demand and aggregate supply model,

Accepted Answer

A) the factors that cause the demand curves in both models to slope downward are the same. 
B) the factors that cause the supply curves in both models to slope upward are the same. 
C) the upward-sloping aggregate demand curve intersects the downward-sloping aggregate supply curve to determine the economy's price level and GDP. 
D) the upward-sloping aggregate supply curve intersects the downward-sloping aggregate demand curve to determine the economy's price level and GDP. 
E) the price level never changes even with shifts in aggregate demand and aggregate supply. 
A) the factors that cause the demand curves in both models to slope downward are the same. 
B) the factors that cause the supply curves in both models to slope upward are the same. 
C) the upward-sloping aggregate demand curve intersects the downward-sloping aggregate supply curve to determine the economy's price level and GDP. 
D) the upward-sloping aggregate supply curve intersects the downward-sloping aggregate demand curve to determine the economy's price level and GDP. 
E) the price level never changes even with shifts in aggregate demand and aggregate supply.

Question 4

Exhibit 10-1 Aggregate supply curve   In Exhibit 10-1, resources are fully employed, and competition among producers for resources will lead to a higher price level in:

Accepted Answer

A) the segment labeled ab. 
B) the segment labeled bc. 
C) the segment labeled cd. 
D) both segment bc and segment cd. 
E) the entire curve. 
A) the segment labeled ab. 
B) the segment labeled bc. 
C) the segment labeled cd. 
D) both segment bc and segment cd. 
E) the entire curve.

Question 5

A change in which of the following would shift the aggregate demand curve?

Accepted Answer

A) Consumption (
C)  
B) Investment (I) 
C) Government spending (G) 
D) Net Exports (NX) 
E) All of these 
A) Consumption (
C)  
B) Investment (I) 
C) Government spending (G) 
D) Net Exports (NX) 
E) All of these

Question 6

Exhibit 10-4 Aggregate supply and demand curves   The increase in the price level as the economy moves from E1 to E2 in Exhibit 10-4 represents:

Accepted Answer

A) cost-push inflation. 
B) demand-shock inflation. 
C) wage push inflation. 
D) demand-pull inflation. 
A) cost-push inflation. 
B) demand-shock inflation. 
C) wage push inflation. 
D) demand-pull inflation.

Question 7

The pre-Keynesian or classical economic theory viewed the long-run aggregate supply curve for the economy to be:

Accepted Answer

A) horizontal at the full-employment level of real GDP. 
B) positively sloped at the full-employment level of real GDP. 
C) vertical at the full-employment level of real GDP. 
D) backward bending at the full-employment level of real GDP. 
A) horizontal at the full-employment level of real GDP. 
B) positively sloped at the full-employment level of real GDP. 
C) vertical at the full-employment level of real GDP. 
D) backward bending at the full-employment level of real GDP.

Question 8

The aggregate demand curve slopes downward indicating that:

Accepted Answer

A) an increase in the general price level will reduce the aggregate quantity of goods and services demanded. 
B) an increase in the general price level will increase the aggregate quantity of goods and services demanded. 
C) a change in the interest rate will alter the aggregate quantity of goods and services demanded. 
D) consumers substitute between domestic-made and foreign-made goods as their relative prices change. 
A) an increase in the general price level will reduce the aggregate quantity of goods and services demanded. 
B) an increase in the general price level will increase the aggregate quantity of goods and services demanded. 
C) a change in the interest rate will alter the aggregate quantity of goods and services demanded. 
D) consumers substitute between domestic-made and foreign-made goods as their relative prices change.

Question 9

The aggregate demand curve is downward sloping because:

Accepted Answer

A) an increase in the price level will cause an increase in spending. 
B) at lower price levels, real wealth decreases, causing a decrease in the quantities of goods and services demanded. 
C) at lower price levels, interest rates decrease, causing a decrease in the quantities of goods and services demanded. 
D) at lower price levels, exports increase, causing an increase in real GDP. 
E) increases in the price level do not affect people's real wealth. 
A) an increase in the price level will cause an increase in spending. 
B) at lower price levels, real wealth decreases, causing a decrease in the quantities of goods and services demanded. 
C) at lower price levels, interest rates decrease, causing a decrease in the quantities of goods and services demanded. 
D) at lower price levels, exports increase, causing an increase in real GDP. 
E) increases in the price level do not affect people's real wealth.

Question 10

In the aggregate demand\aggregate supply model, a country's full-employment real GDP is represented by:

Accepted Answer

A) prices. 
B) aggregate demand. 
C) aggregate supply. 
D) an increase in the general level of prices. 
A) prices. 
B) aggregate demand. 
C) aggregate supply. 
D) an increase in the general level of prices.

Question 11

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then:

Accepted Answer

A) both real GDP and the price level will fall. 
B) real GDP will fall and the price level will rise. 
C) real GDP will rise and the price level will fall. 
D) both real GDP and the price level will rise. 
A) both real GDP and the price level will fall. 
B) real GDP will fall and the price level will rise. 
C) real GDP will rise and the price level will fall. 
D) both real GDP and the price level will rise.

Question 12

Exhibit 10-3 Aggregate supply and demand curves   The shift from AS1 to AS2 in Exhibit 10-3 could be caused by a(n):

Accepted Answer

A) sudden increase in the price of oil. 
B) increase in input prices for most firms. 
C) increase in workers' wages. 
D) all of these. 
A) sudden increase in the price of oil. 
B) increase in input prices for most firms. 
C) increase in workers' wages. 
D) all of these.

Question 13

The aggregate supply curve:

Accepted Answer

A) shows the level of real GDP produced in the economy at different possible price levels during a period of time. 
B) is horizontal in the Keynesian range. 
C) is vertical in the classical range. 
D) all of these. 
A) shows the level of real GDP produced in the economy at different possible price levels during a period of time. 
B) is horizontal in the Keynesian range. 
C) is vertical in the classical range. 
D) all of these.

Question 14

The interest-rate effect is the impact on real GDP caused by the inverse relationship between the price level and the interest rate.

Accepted Answer

A) True 
 B)False

Question 15

According to the net exports effect, as the price level falls relative to the rest of the world,

Accepted Answer

A) foreigners buy fewer goods. 
B) foreigners buy more U.S. goods. 
C) the aggregate demand curve shifts to the left. 
D) the aggregate demand curve shifts to the right. 
E) the supply of U.S.-made goods increases. 
A) foreigners buy fewer goods. 
B) foreigners buy more U.S. goods. 
C) the aggregate demand curve shifts to the left. 
D) the aggregate demand curve shifts to the right. 
E) the supply of U.S.-made goods increases.

Question 16

When prices rise, consumers and businesses hold larger money balances. This reduces the supply of loanable funds, increases the interest rate, and discourages both consumption and investment. This process is called the:

Accepted Answer

A) interest-rate effect. 
B) real balance effect. 
C) investment effect. 
D) disinvestment effect. 
A) interest-rate effect. 
B) real balance effect. 
C) investment effect. 
D) disinvestment effect.

Question 17

According to classical theory, if the aggregate demand curve decreased and the economy experienced unemployment, then:

Accepted Answer

A) the economy would remain in this condition indefinitely. 
B) the government must increase spending to restore full employment. 
C) prices and wages would fall quickly to restore full employment. 
D) the supply of money would increase until the economy returned to full employment. 
A) the economy would remain in this condition indefinitely. 
B) the government must increase spending to restore full employment. 
C) prices and wages would fall quickly to restore full employment. 
D) the supply of money would increase until the economy returned to full employment.

Question 18

The net exports effect is the direct relationship between net exports and the price level of an economy.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

Accepted Answer

A) The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power. 
B) The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more. 
C) The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services. 
D) None of the above. 
A) The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power. 
B) The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more. 
C) The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services. 
D) None of the above.

Question 20

The real balances effect occurs because a higher price level will reduce the real value of people's:

Accepted Answer

A) financial assets. 
B) wages. 
C) unpaid debt. 
D) physical investments. 
A) financial assets. 
B) wages. 
C) unpaid debt. 
D) physical investments.

Exam 10: Aggregate Demand and Supply

The aggregate demand curve shows how real GDP purchased varies with changes in:

Which of the following characterizes the classical view of the economy?

In the aggregate demand and aggregate supply model,

Exhibit 10-1 Aggregate supply curve In Exhibit 10-1, resources are fully employed, and competition among producers for resources will lead to a higher price level in:

A change in which of the following would shift the aggregate demand curve?

Exhibit 10-4 Aggregate supply and demand curves The increase in the price level as the economy moves from E1 to E2 in Exhibit 10-4 represents:

The pre-Keynesian or classical economic theory viewed the long-run aggregate supply curve for the economy to be:

The aggregate demand curve slopes downward indicating that:

The aggregate demand curve is downward sloping because:

In the aggregate demand\aggregate supply model, a country's full-employment real GDP is represented by:

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then:

Exhibit 10-3 Aggregate supply and demand curves The shift from AS1 to AS2 in Exhibit 10-3 could be caused by a(n):

The aggregate supply curve:

The interest-rate effect is the impact on real GDP caused by the inverse relationship between the price level and the interest rate.

According to the net exports effect, as the price level falls relative to the rest of the world,

When prices rise, consumers and businesses hold larger money balances. This reduces the supply of loanable funds, increases the interest rate, and discourages both consumption and investment. This process is called the:

According to classical theory, if the aggregate demand curve decreased and the economy experienced unemployment, then:

The net exports effect is the direct relationship between net exports and the price level of an economy.

Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

The real balances effect occurs because a higher price level will reduce the real value of people's:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters

Exhibit 10-4 Aggregate supply and demand curves The increase in the price level as the economy moves from E₁ to E₂ in Exhibit 10-4 represents:

Exhibit 10-3 Aggregate supply and demand curves The shift from AS₁ to AS₂ in Exhibit 10-3 could be caused by a(n):