Question 1

The idea that higher prices reduce the purchasing power of financial assets and lead to less consumption is known as the:

Accepted Answer

A) real balances effect. 
B) interest rate effect. 
C) foreign purchases effect. 
D) income effect. 
E) aggregate demand effect. 
A) real balances effect. 
B) interest rate effect. 
C) foreign purchases effect. 
D) income effect. 
E) aggregate demand effect.

Question 2

Exhibit 10-8 Aggregate demand and supply   In Exhibit 10-8, if aggregate demand shifts from AD4 to AD5, real GDP will:

Accepted Answer

A) not change, and the price level will rise from 120 to 170. 
B) increase from $7.0 to $8.0, and the price level will rise from 120 to 170. 
C) not change, and the price level will rise from 140 to 170. 
D) increase from $4.0 to $7.0, and the price level will not change. 
E) not change, and the price level will rise from 100 to 170. 
A) not change, and the price level will rise from 120 to 170. 
B) increase from $7.0 to $8.0, and the price level will rise from 120 to 170. 
C) not change, and the price level will rise from 140 to 170. 
D) increase from $4.0 to $7.0, and the price level will not change. 
E) not change, and the price level will rise from 100 to 170.

Question 3

Suppose an increase in government spending stimulates real GDP without affecting the price level. What is the relevant range of the aggregate supply curve in this case?

Accepted Answer

A) The classical range. 
B) The intermediate range. 
C) The Keynesian range. 
D) The monetarist range. 
A) The classical range. 
B) The intermediate range. 
C) The Keynesian range. 
D) The monetarist range.

Question 4

The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a(n):

Accepted Answer

A) vertical line. 
B) upward-sloping line. 
C) horizontal line. 
D) downward-sloping line. 
A) vertical line. 
B) upward-sloping line. 
C) horizontal line. 
D) downward-sloping line.

Question 5

Which of the following is not a component of the aggregate demand curve?

Accepted Answer

A) Government spending (G). 
B) Investment (I). 
C) Consumption (
C) . 
D) Net exports (X-M). 
E) Saving. 
A) Government spending (G). 
B) Investment (I). 
C) Consumption (
C) . 
D) Net exports (X-M). 
E) Saving.

Question 6

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

Accepted Answer

A) People's desire to maintain real wealth holdings, the interest rate, and international trade. 
B) People's desire to increase the price level, the interest rate, and the economic growth effect. 
C) The interest rate, the economic growth effect, and international trade. 
D) Cost-pull inflation, demand-pull inflation, and the need to maintain real wealth holdings. 
E) Recession phases of the business cycle, upturns, and downturns. 
A) People's desire to maintain real wealth holdings, the interest rate, and international trade. 
B) People's desire to increase the price level, the interest rate, and the economic growth effect. 
C) The interest rate, the economic growth effect, and international trade. 
D) Cost-pull inflation, demand-pull inflation, and the need to maintain real wealth holdings. 
E) Recession phases of the business cycle, upturns, and downturns.

Question 7

The aggregate demand curve is drawn downward-sloping, because increases in the price level cause decreases in:

Accepted Answer

A) unemployment. 
B) total spending (real GDP). 
C) households' savings. 
D) the value of the dollar. 
A) unemployment. 
B) total spending (real GDP). 
C) households' savings. 
D) the value of the dollar.

Question 8

Stagflation is a period of time when the economy is experiencing:

Accepted Answer

A) inflation and low unemployment. 
B) high unemployment and low levels of inflation at the same time. 
C) high inflation and high unemployment at the same time. 
D) low inflation and low unemployment at the same time. 
A) inflation and low unemployment. 
B) high unemployment and low levels of inflation at the same time. 
C) high inflation and high unemployment at the same time. 
D) low inflation and low unemployment at the same time.

Question 9

The aggregate demand curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 10

_________ inflation can be explained by an _________ shift in the aggregate _________ curve.

Accepted Answer

A) Demand-pull, rightward, demand 
B) Cost-push, rightward, supply 
C) Demand-pull, leftward supply 
D) Cost-push, leftward, supply 
A) Demand-pull, rightward, demand 
B) Cost-push, rightward, supply 
C) Demand-pull, leftward supply 
D) Cost-push, leftward, supply

Question 11

Demand-pull inflation is associated with a(n):

Accepted Answer

A) decrease in the aggregate supply curve. 
B) increase in the aggregate supply curve. 
C) increase in the aggregate demand curve. 
D) decrease in the aggregate demand curve. 
E) decline in the availability of a productive resource 
A) decrease in the aggregate supply curve. 
B) increase in the aggregate supply curve. 
C) increase in the aggregate demand curve. 
D) decrease in the aggregate demand curve. 
E) decline in the availability of a productive resource

Question 12

Exhibit 10-4 Aggregate supply and demand curves   In Exhibit 10-4, point E2 represents:

Accepted Answer

A) real GDP above full-employment GDP. 
B) real GDP that equals full-employment GDP. 
C) a depression. 
D) real GDP below full-employment GDP. 
A) real GDP above full-employment GDP. 
B) real GDP that equals full-employment GDP. 
C) a depression. 
D) real GDP below full-employment GDP.

Question 13

Which of the following helps explain why real GDP is inversely related to the price level within the framework of the AD-AS model?

Accepted Answer

A) As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services. 
B) As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the quantity of goods and services purchased. 
C) As prices fall, the government will have to reduce taxes, which will lead to an increase in the quantity of goods and services purchased. 
D) As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services. 
A) As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services. 
B) As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the quantity of goods and services purchased. 
C) As prices fall, the government will have to reduce taxes, which will lead to an increase in the quantity of goods and services purchased. 
D) As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services.

Question 14

Exhibit 10-8 Aggregate demand and supply   In Exhibit 10-8, when aggregate demand shifts from AD4 to AD5, the economy experiences:

Accepted Answer

A) cost push-inflation. 
B) cost-pull inflation. 
C) demand-push inflation. 
D) demand-pull inflation. 
E) price-pull inflation. 
A) cost push-inflation. 
B) cost-pull inflation. 
C) demand-push inflation. 
D) demand-pull inflation. 
E) price-pull inflation.

Question 15

When OPEC caused the price of oil to rise in the early 1970s, the:

Accepted Answer

A) aggregate supply curve shifted to the right. 
B) aggregate supply curve shifted to the left. 
C) aggregate demand curve shifted to the right. 
D) aggregate demand curve shifted to the left. 
E) price level in the economy fell. 
A) aggregate supply curve shifted to the right. 
B) aggregate supply curve shifted to the left. 
C) aggregate demand curve shifted to the right. 
D) aggregate demand curve shifted to the left. 
E) price level in the economy fell.

Question 16

The pre-Keynesian or classical economic theory predicted that in the long-run the economy would experience:

Accepted Answer

A) long periods of high unemployment. 
B) rising rates of inflation. 
C) only temporary periods of high unemployment. 
D) idle factors of production. 
A) long periods of high unemployment. 
B) rising rates of inflation. 
C) only temporary periods of high unemployment. 
D) idle factors of production.

Question 17

Exhibit 10-8 Aggregate demand and supply   In Exhibit 10-8, if aggregate demand shifts from AD1 to AD2,

Accepted Answer

A) real GDP will increase from $3.0 to $7.0, and the price level will remain the same. 
B) real GDP will increase from $3.0 to $4.0, and the price level will remain the same. 
C) real GDP and the price level will both remain the same. 
D) real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140. 
A) real GDP will increase from $3.0 to $7.0, and the price level will remain the same. 
B) real GDP will increase from $3.0 to $4.0, and the price level will remain the same. 
C) real GDP and the price level will both remain the same. 
D) real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140.

Question 18

Exhibit 10-8 Aggregate demand and supply   In Exhibit 10-8, if aggregate demand shifts from AD3 to AD2, real GDP will:

Accepted Answer

A) fall from $7.0 to $4.0, and the price level will not change. 
B) not change, and the price level will fall from 120 to 100. 
C) fall from $7.0 to $3.0, and the price level will fall from 120 to 100. 
D) fall from $8.0 to $4.0, and the price level will fall from 120 to 100. 
E) fall from $7.0 to $4.0, and the price level will fall from 120 to 100. 
A) fall from $7.0 to $4.0, and the price level will not change. 
B) not change, and the price level will fall from 120 to 100. 
C) fall from $7.0 to $3.0, and the price level will fall from 120 to 100. 
D) fall from $8.0 to $4.0, and the price level will fall from 120 to 100. 
E) fall from $7.0 to $4.0, and the price level will fall from 120 to 100.

Question 19

The real balances effect is the impact on real GDP caused by the ____ relationship between the price level and the real value of financial assets.

Accepted Answer

A) direct 
B) inverse 
C) independent 
D) linear 
A) direct 
B) inverse 
C) independent 
D) linear

Question 20

Using the AD-AS model, if consumers and business become more optimistic about the future direction of the economy and increase spending, then:

Accepted Answer

A) aggregate demand will decrease. 
B) aggregate demand will increase. 
C) long-run aggregate supply will increase. 
D) long-run aggregate supply will decrease. 
A) aggregate demand will decrease. 
B) aggregate demand will increase. 
C) long-run aggregate supply will increase. 
D) long-run aggregate supply will decrease.

Exam 10: Aggregate Demand and Supply

The idea that higher prices reduce the purchasing power of financial assets and lead to less consumption is known as the:

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD4 to AD5, real GDP will:

Suppose an increase in government spending stimulates real GDP without affecting the price level. What is the relevant range of the aggregate supply curve in this case?

The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a(n):

Which of the following is not a component of the aggregate demand curve?

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

The aggregate demand curve is drawn downward-sloping, because increases in the price level cause decreases in:

Stagflation is a period of time when the economy is experiencing:

The aggregate demand curve is downward sloping.

_________ inflation can be explained by an _________ shift in the aggregate _________ curve.

Demand-pull inflation is associated with a(n):

Exhibit 10-4 Aggregate supply and demand curves In Exhibit 10-4, point E2 represents:

Which of the following helps explain why real GDP is inversely related to the price level within the framework of the AD-AS model?

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, when aggregate demand shifts from AD4 to AD5, the economy experiences:

When OPEC caused the price of oil to rise in the early 1970s, the:

The pre-Keynesian or classical economic theory predicted that in the long-run the economy would experience:

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD1 to AD2,

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD3 to AD2, real GDP will:

The real balances effect is the impact on real GDP caused by the ____ relationship between the price level and the real value of financial assets.

Using the AD-AS model, if consumers and business become more optimistic about the future direction of the economy and increase spending, then:

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 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD₄ to AD₅, real GDP will:

_____ inflation can be explained by an _ shift in the aggregate _____ curve.

Exhibit 10-4 Aggregate supply and demand curves In Exhibit 10-4, point E₂ represents:

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, when aggregate demand shifts from AD₄ to AD₅, the economy experiences:

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD₁ to AD₂,

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD₃ to AD₂, real GDP will: