Question 1

Refer to the diagram below. Which of the following would shift the aggregate demand curve from AD2 to AD1?

Accepted Answer

A)  a decline in personal income tax rates 
B)  an increase in the international value of the dollar 
C)  an increase in government spending 
D)  an upward revision of profit expectations on investment projects 
A)  a decline in personal income tax rates 
B)  an increase in the international value of the dollar 
C)  an increase in government spending 
D)  an upward revision of profit expectations on investment projects

Question 2

The passage of new legislation requiring more extensive government regulation of business will most likely:

Accepted Answer

A)  increase aggregate demand. 
B)  increase aggregate supply. 
C)  decrease aggregate demand. 
D)  decrease aggregate supply. 
A)  increase aggregate demand. 
B)  increase aggregate supply. 
C)  decrease aggregate demand. 
D)  decrease aggregate supply.

Question 3

The shape of the aggregate demand curve is explained by the:

Accepted Answer

A)  interest rate, real balances, and foreign trade effects. 
B)  rate of inflation and the natural rate of unemployment. 
C)  policies to stabilize prices and reduce unemployment. 
D)  ratchet effect. 
A)  interest rate, real balances, and foreign trade effects. 
B)  rate of inflation and the natural rate of unemployment. 
C)  policies to stabilize prices and reduce unemployment. 
D)  ratchet effect.

Question 4

The interest-rate effect suggests that:

Accepted Answer

A)  a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. 
B)  an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. 
C)  an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. 
D)  an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending. 
A)  a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. 
B)  an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. 
C)  an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. 
D)  an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

Question 5

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.
-Refer to the information above, the level of productivity is:

Accepted Answer

A)  20. 
B)  10. 
C)  5. 
D)  2. 
A)  20. 
B)  10. 
C)  5. 
D)  2.

Question 6

If there is a decrease in the price level, then it will increase aggregate expenditures and this change is equivalent to a(n):

Accepted Answer

A)  increase in aggregate supply. 
B)  increase in aggregate demand. 
C)  decrease in aggregate demand. 
D)  movement along an aggregate demand curve. 
A)  increase in aggregate supply. 
B)  increase in aggregate demand. 
C)  decrease in aggregate demand. 
D)  movement along an aggregate demand curve.

Question 7

A decrease in government spending will cause a(n):

Accepted Answer

A)  increase in the quantity of real domestic output demanded. 
B)  decrease in the quantity of real domestic output demanded. 
C)  decrease in aggregate demand. 
D)  increase in aggregate demand. 
A)  increase in the quantity of real domestic output demanded. 
B)  decrease in the quantity of real domestic output demanded. 
C)  decrease in aggregate demand. 
D)  increase in aggregate demand.

Question 8

Which effect best explains the downward slope of the aggregate demand curve?

Accepted Answer

A)  a multiplier effect 
B)  an income effect 
C)  a substitution effect 
D)  an interest rate effect 
A)  a multiplier effect 
B)  an income effect 
C)  a substitution effect 
D)  an interest rate effect

Question 9

-Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf. In the long run, demand-pull inflation could best be shown as:

Accepted Answer

A)  a move from b to c on AS2. 
B)  a move from b to f to d. 
C)  a change of aggregate supply from AS2 to AS1. 
D)  a move from b to d. 
A)  a move from b to c on AS2. 
B)  a move from b to f to d. 
C)  a change of aggregate supply from AS2 to AS1. 
D)  a move from b to d.

Question 10

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

Accepted Answer

A)  decrease in aggregate demand. 
B)  increase in aggregate demand. 
C)  decrease in the quantity of real domestic output demanded. 
D)  increase in the quantity of real domestic output demanded. 
A)  decrease in aggregate demand. 
B)  increase in aggregate demand. 
C)  decrease in the quantity of real domestic output demanded. 
D)  increase in the quantity of real domestic output demanded.

Question 11

-Refer to the above diagram. When output increases from Q1 and the price level decreases from P1, this change will:

Accepted Answer

A)  be caused by a shift in the aggregate supply curve from AS1 to AS2. 
B)  be caused by a shift in the aggregate supply curve from AS1 to AS3. 
C)  result in a movement along the aggregate demand curve from e1 to e2. 
D)  result in a movement along the aggregate demand curve from e3 to e1. 
A)  be caused by a shift in the aggregate supply curve from AS1 to AS2. 
B)  be caused by a shift in the aggregate supply curve from AS1 to AS3. 
C)  result in a movement along the aggregate demand curve from e1 to e2. 
D)  result in a movement along the aggregate demand curve from e3 to e1.

Question 12

The short run aggregate supply curve:

Accepted Answer

A)  shows the various amounts of real output which businesses will produce at each price level. 
B)  is downward sloping because real purchasing power increases as the price level falls. 
C)  contains a vertical range where real output is variable and the price level is constant. 
D)  is explained by the interest rate, wealth, and foreign trade effects. 
A)  shows the various amounts of real output which businesses will produce at each price level. 
B)  is downward sloping because real purchasing power increases as the price level falls. 
C)  contains a vertical range where real output is variable and the price level is constant. 
D)  is explained by the interest rate, wealth, and foreign trade effects.

Question 13

In the late 1990s and early 2000s:

Accepted Answer

A)  both AD and AS increased 
B)  inflation was relatively high. 
C)  AD increased but AS decreased. 
D)  AD decreased but AS increased. 
A)  both AD and AS increased 
B)  inflation was relatively high. 
C)  AD increased but AS decreased. 
D)  AD decreased but AS increased.

Question 14

-Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf. In terms of this diagram, the long-run aggregate supply curve:

Accepted Answer

A)  is AS2. 
B)  is a vertical line extending from Qf upward through e, b, and d. 
C)  may be either AS1, AS2, or AS3 depending on whether the price level is P1, P2, or P3. 
D)  is a horizontal line extending from P2 rightward through f, b, and g. 
A)  is AS2. 
B)  is a vertical line extending from Qf upward through e, b, and d. 
C)  may be either AS1, AS2, or AS3 depending on whether the price level is P1, P2, or P3. 
D)  is a horizontal line extending from P2 rightward through f, b, and g.

Question 15

A decrease in consumer spending can be expected to shift the:

Accepted Answer

A)  aggregate expenditures curve downward and the aggregate demand curve leftward. 
B)  aggregate expenditures curve upward and the aggregate demand curve leftward. 
C)  aggregate expenditures curve downward and the aggregate demand curve rightward. 
D)  aggregate expenditures curve upward and the aggregate demand curve rightward. 
A)  aggregate expenditures curve downward and the aggregate demand curve leftward. 
B)  aggregate expenditures curve upward and the aggregate demand curve leftward. 
C)  aggregate expenditures curve downward and the aggregate demand curve rightward. 
D)  aggregate expenditures curve upward and the aggregate demand curve rightward.

Question 16

If the current price level was such that the aggregate quantity demanded exceeded the aggregate quantity supplied, we would expect:

Accepted Answer

A)  inflation to occur. 
B)  the aggregate demand curve to shift rightward. 
C)  the aggregate demand curve to shift leftward. 
D)  the ratchet effect to be applicable. 
A)  inflation to occur. 
B)  the aggregate demand curve to shift rightward. 
C)  the aggregate demand curve to shift leftward. 
D)  the ratchet effect to be applicable.

Question 17

-Which of the above diagrams best portrays the effects of declines in the prices of imported resources?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 18

An increase in imports (independently of a change in our price level) will increase both aggregate supply and aggregate demand.

Accepted Answer

A) True 
 B)False

Question 19

Other things equal, if the international value of the dollar were to depreciate, the:

Accepted Answer

A)  aggregate demand curve would remain fixed in place. 
B)  aggregate supply curve would shift to the left. 
C)  aggregate supply curve would shift to the right. 
D)  aggregate demand curve would shift to the left. 
A)  aggregate demand curve would remain fixed in place. 
B)  aggregate supply curve would shift to the left. 
C)  aggregate supply curve would shift to the right. 
D)  aggregate demand curve would shift to the left.

Question 20

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labour to produce its total output of 640 units. Each unit of capital costs $10, each unit of raw materials, $4, and each unit of labour, $3.
-Refer to the above information. If the per unit price of raw materials rises from $4 to $8 and all else remains constant, the per unit cost of production will rise by about:

Accepted Answer

A)  100 percent. 
B)  50 percent. 
C)  40 percent. 
D)  30 percent. 
A)  100 percent. 
B)  50 percent. 
C)  40 percent. 
D)  30 percent.

Refer to the diagram below. Which of the following would shift the aggregate demand curve from AD₂ to AD₁?

The passage of new legislation requiring more extensive government regulation of business will most likely:

The shape of the aggregate demand curve is explained by the:

The interest-rate effect suggests that:

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. -Refer to the information above, the level of productivity is:

If there is a decrease in the price level, then it will increase aggregate expenditures and this change is equivalent to a(n):

A decrease in government spending will cause a(n):

Which effect best explains the downward slope of the aggregate demand curve?

-Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f. In the long run, demand-pull inflation could best be shown as:

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

-Refer to the above diagram. When output increases from Q₁ and the price level decreases from P₁, this change will:

The short run aggregate supply curve:

In the late 1990s and early 2000s:

-Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f. In terms of this diagram, the long-run aggregate supply curve:

A decrease in consumer spending can be expected to shift the:

If the current price level was such that the aggregate quantity demanded exceeded the aggregate quantity supplied, we would expect:

-Which of the above diagrams best portrays the effects of declines in the prices of imported resources?

An increase in imports (independently of a change in our price level) will increase both aggregate supply and aggregate demand.

Other things equal, if the international value of the dollar were to depreciate, the:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Fiscal Policy, Deficits, Surpluses, and Debt

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Financial Economics

Long-Run Macroeconomic Adjustments

International Trade

Exchange Rates and the Balance of Payments

Filters

Exam 10: Aggregate Demand and Aggregate Supply

Refer to the diagram below. Which of the following would shift the aggregate demand curve from AD2 to AD1?

The passage of new legislation requiring more extensive government regulation of business will most likely:

The shape of the aggregate demand curve is explained by the:

The interest-rate effect suggests that:

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. -Refer to the information above, the level of productivity is:

If there is a decrease in the price level, then it will increase aggregate expenditures and this change is equivalent to a(n):

A decrease in government spending will cause a(n):

Which effect best explains the downward slope of the aggregate demand curve?

-Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf. In the long run, demand-pull inflation could best be shown as:

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

-Refer to the above diagram. When output increases from Q1 and the price level decreases from P1, this change will:

The short run aggregate supply curve:

In the late 1990s and early 2000s:

-Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf. In terms of this diagram, the long-run aggregate supply curve:

A decrease in consumer spending can be expected to shift the:

If the current price level was such that the aggregate quantity demanded exceeded the aggregate quantity supplied, we would expect:

-Which of the above diagrams best portrays the effects of declines in the prices of imported resources?

An increase in imports (independently of a change in our price level) will increase both aggregate supply and aggregate demand.

Other things equal, if the international value of the dollar were to depreciate, the:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Fiscal Policy, Deficits, Surpluses, and Debt

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Financial Economics

Long-Run Macroeconomic Adjustments

International Trade

Exchange Rates and the Balance of Payments

Filters

Refer to the diagram below. Which of the following would shift the aggregate demand curve from AD₂ to AD₁?

-Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f. In the long run, demand-pull inflation could best be shown as:

-Refer to the above diagram. When output increases from Q₁ and the price level decreases from P₁, this change will:

-Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f. In terms of this diagram, the long-run aggregate supply curve: