Question 1

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. 
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.

Question 2

Exhibit 14A-1 Aggregate demand and supply model
 
As shown in Exhibit 14A-1 and assuming the aggregate demand curve shifts from AD 1 to AD 2 , the full-employment level of real GDP is:

Accepted Answer

A)  $12 billion. 
B)  $8 billion. 
C)  $150 billion. 
D)  unable to be determined. 
A)  $12 billion. 
B)  $8 billion. 
C)  $150 billion. 
D)  unable to be determined.

Question 3

The real balance effect (wealth effect), the interest rate effect, and the net exports effect all help to explain the:

Accepted Answer

A)  decrease in supply in the loanable funds market. 
B)  large federal budget deficit. 
C)  increase in short-run aggregate supply. 
D)  downward-sloping aggregate demand curve. 
A)  decrease in supply in the loanable funds market. 
B)  large federal budget deficit. 
C)  increase in short-run aggregate supply. 
D)  downward-sloping aggregate demand curve.

Question 4

In the United States during the 1960s, government spending dramatically increased to fight the Vietnam War, which resulted in:

Accepted Answer

A)  demand-pull inflation. 
B)  cost-push inflation. 
C)  a disinflationary recession. 
D)  stagflation. 
A)  demand-pull inflation. 
B)  cost-push inflation. 
C)  a disinflationary recession. 
D)  stagflation.

Question 5

Which of the following causes a leftward shift in the short-run aggregate supply curve?

Accepted Answer

A)  An increase of goods prices while nominal incomes are unchanged. 
B)  An increase in nominal incomes. 
C)  An increase of full-employment real GDP. 
D)  An increase of personal consumption expenditures while the price level is unchanged. 
A)  An increase of goods prices while nominal incomes are unchanged. 
B)  An increase in nominal incomes. 
C)  An increase of full-employment real GDP. 
D)  An increase of personal consumption expenditures while the price level is unchanged.

Question 6

Economic growth is measured by the percentage change in:

Accepted Answer

A)  potential nominal GDP. 
B)  structural unemployment. 
C)  inflation 
D)  potential real GDP (LRAS). 
A)  potential nominal GDP. 
B)  structural unemployment. 
C)  inflation 
D)  potential real GDP (LRAS).

Question 7

If nominal wages and salaries are fixed as firms change product prices, the short-run aggregate supply curve is:

Accepted Answer

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

Question 8

As prices rise, people will buy fewer goods and services because:

Accepted Answer

A)  the interest rate has declined. 
B)  aggregate demand has increased. 
C)  the purchasing power of the fixed quantity of money has declined. 
D)  the income of households has increased. 
A)  the interest rate has declined. 
B)  aggregate demand has increased. 
C)  the purchasing power of the fixed quantity of money has declined. 
D)  the income of households has increased.

Question 9

Suppose the economy is on the intermediate range of the aggregate supply curve. Which of the following would reduce both real GDP and the price level?

Accepted Answer

A)  a decrease in aggregate supply 
B)  an increase in aggregate supply 
C)  a decrease in aggregate demand 
D)  an increase in aggregate demand 
A)  a decrease in aggregate supply 
B)  an increase in aggregate supply 
C)  a decrease in aggregate demand 
D)  an increase in aggregate demand

Question 10

How will an increase in the world price of crude oil influence the economy of an oil-importing country such as the United States?

Accepted Answer

A)  Aggregate supply will decrease, leading to a decrease in real GDP. 
B)  Aggregate supply will increase, leading to an increase in real GDP. 
C)  Aggregate supply will increase, leading to an increase in prices and smaller GDP. 
D)  A change in the price of an imported good will not affect the domestic economy of an oil-importing country. 
A)  Aggregate supply will decrease, leading to a decrease in real GDP. 
B)  Aggregate supply will increase, leading to an increase in real GDP. 
C)  Aggregate supply will increase, leading to an increase in prices and smaller GDP. 
D)  A change in the price of an imported good will not affect the domestic economy of an oil-importing country.

Question 11

When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which in turn reduces consumption and investment spending. This argument is called the:

Accepted Answer

A)  real balances effect. 
B)  interest-rate effect. 
C)  net exports effect. 
D)  substitution effect. 
A)  real balances effect. 
B)  interest-rate effect. 
C)  net exports effect. 
D)  substitution effect.

Question 12

The aggregate demand curve will shift rightward when there is:

Accepted Answer

A)  a decrease in government spending. 
B)  a decrease in incomes abroad. 
C)  a tax increase. 
D)  the expectation that future consumer income will rise. 
A)  a decrease in government spending. 
B)  a decrease in incomes abroad. 
C)  a tax increase. 
D)  the expectation that future consumer income will rise.

Question 13

Which of the following correctly describes the interest-rate effect?

Accepted Answer

A)  If the price level decreases, consumer purchasing power decreases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
B)  If the price level decreases, consumer purchasing power increases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
C)  If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
D)  If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates fall, debt-financed borrowing increases, and real GDP demanded increases. 
A)  If the price level decreases, consumer purchasing power decreases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
B)  If the price level decreases, consumer purchasing power increases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
C)  If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
D)  If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates fall, debt-financed borrowing increases, and real GDP demanded increases.

Question 14

An aggregate supply curve with a positive slope is associated with an economy in which:

Accepted Answer

A)  input prices and final goods prices always change by the same amount. 
B)  firms expect output prices to be unaffected by changes in input prices. 
C)  nominal wages and salaries do not change much in the short run. 
D)   firms expect consumer demand to be unaffected by changes in prices of final goods. 
A)  input prices and final goods prices always change by the same amount. 
B)  firms expect output prices to be unaffected by changes in input prices. 
C)  nominal wages and salaries do not change much in the short run. 
D)   firms expect consumer demand to be unaffected by changes in prices of final goods.

Question 15

Which of the following would cause a decrease (leftward shift) in the short-run aggregate supply curve (SRAS)?

Accepted Answer

A)  an increase in oil prices 
B)  an advance in technology 
C)  an increase in the CPI 
D)  an increase in the long-run aggregate supply curve (LRAS) 
A)  an increase in oil prices 
B)  an advance in technology 
C)  an increase in the CPI 
D)  an increase in the long-run aggregate supply curve (LRAS)

Question 16

In the upward-sloping segment of the aggregate supply curve,

Accepted Answer

A)  increases in output are linked to decreases in the price level. 
B)  firms are willing to pay higher wages to get more labor. 
C)  producers can hire more workers without having to raise the wage rate. 
D)  the economy can increase aggregate supply without prices going up. 
A)  increases in output are linked to decreases in the price level. 
B)  firms are willing to pay higher wages to get more labor. 
C)  producers can hire more workers without having to raise the wage rate. 
D)  the economy can increase aggregate supply without prices going up.

Question 17

Exhibit 14-5 Aggregate demand curves
 
In Exhibit 14-5, which one of the following could cause the U.S. aggregate demand curve to move from AD3 to AD2?

Accepted Answer

A)  greater resource availability 
B)  nonfluctuating resource availability 
C)  a recession in Japan 
D)  an increase in government grants for AIDS awareness programs 
A)  greater resource availability 
B)  nonfluctuating resource availability 
C)  a recession in Japan 
D)  an increase in government grants for AIDS awareness programs

Question 18

Beginning from the full-employment level of real GDP, an increase in one of the components of the aggregate demand curve will increase the:

Accepted Answer

A)  average level of prices (CPI). 
B)  unemployment rate. 
C)  natural level of real GDP. 
D)  level of investment spending. 
A)  average level of prices (CPI). 
B)  unemployment rate. 
C)  natural level of real GDP. 
D)  level of investment spending.

Question 19

The full-employment level of real GDP is the level which can be produced with:

Accepted Answer

A)  given technology and productive resources. 
B)  frictional and structural unemployment equal to zero. 
C)  cyclical unemployment greater than zero. 
D)  future technology. 
A)  given technology and productive resources. 
B)  frictional and structural unemployment equal to zero. 
C)  cyclical unemployment greater than zero. 
D)  future technology.

Question 20

If the overall price level rises from 100 to 150, the aggregate

Accepted Answer

A)  quantity demanded could increase from $5 trillion to $6 trillion. 
B)  quantity demanded could decrease from $5 trillion to $4 trillion. 
C)  demand curve could shift to the right. 
D)  demand curve could shift to the left. 
A)  quantity demanded could increase from $5 trillion to $6 trillion. 
B)  quantity demanded could decrease from $5 trillion to $4 trillion. 
C)  demand curve could shift to the right. 
D)  demand curve could shift to the left.

Exam 14: Aggregate Demand and Supply

The aggregate demand curve is downward sloping because:

Exhibit 14A-1 Aggregate demand and supply model As shown in Exhibit 14A-1 and assuming the aggregate demand curve shifts from AD 1 to AD 2 , the full-employment level of real GDP is:

The real balance effect (wealth effect), the interest rate effect, and the net exports effect all help to explain the:

In the United States during the 1960s, government spending dramatically increased to fight the Vietnam War, which resulted in:

Which of the following causes a leftward shift in the short-run aggregate supply curve?

Economic growth is measured by the percentage change in:

If nominal wages and salaries are fixed as firms change product prices, the short-run aggregate supply curve is:

As prices rise, people will buy fewer goods and services because:

Suppose the economy is on the intermediate range of the aggregate supply curve. Which of the following would reduce both real GDP and the price level?

How will an increase in the world price of crude oil influence the economy of an oil-importing country such as the United States?

When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which in turn reduces consumption and investment spending. This argument is called the:

The aggregate demand curve will shift rightward when there is:

Which of the following correctly describes the interest-rate effect?

An aggregate supply curve with a positive slope is associated with an economy in which:

Which of the following would cause a decrease (leftward shift) in the short-run aggregate supply curve (SRAS)?

In the upward-sloping segment of the aggregate supply curve,

Exhibit 14-5 Aggregate demand curves In Exhibit 14-5, which one of the following could cause the U.S. aggregate demand curve to move from AD3 to AD2?

Beginning from the full-employment level of real GDP, an increase in one of the components of the aggregate demand curve will increase the:

The full-employment level of real GDP is the level which can be produced with:

If the overall price level rises from 100 to 150, the aggregate

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Filters

Exhibit 14A-1 Aggregate demand and supply model As shown in Exhibit 14A-1 and assuming the aggregate demand curve shifts from AD ₁ to AD ₂ , the full-employment level of real GDP is:

Exhibit 14-5 Aggregate demand curves In Exhibit 14-5, which one of the following could cause the U.S. aggregate demand curve to move from AD₃ to AD₂?