Deck 8: Aggregate Demand and Aggregate Supply

Question 1

As interest rates drop, households tend to borrow more and businesses tend to borrow less.

Answer 1

False

Question 2

As the dollar depreciates, foreign goods become more expensive for Americans to purchase.

Answer 2

True

Question 3

In short-run equilibrium, the quantities supplied and demanded of Real GDP can be less than or greater than Natural Real GDP.

Answer 3

True

Question 4

The interest rate effect, the real balance effect, and the international trade effect all begin with a change in the price level.

Question 5

If velocity is rising, an increase in one spending component can occur without requiring other spending components to decline.

Question 6

When the dollar appreciates, U.S. net exports fall and aggregate demand decreases.

Question 7

Unusually good weather that improves crop production and a major oil discovery are both examples of a beneficial supply shock.

Question 8

If businesses are optimistic about future sales, the short-run aggregate supply curve will shift leftward.

Question 9

Some of the factors that can shift the short-run aggregate supply curve can also cause a shift in the long-run aggregate supply curve.

Question 10

The short-run aggregate supply curve slopes upward as a result of the real balance effect, the interest rate effect, and the international trade effect.

Question 11

An aggregate demand (AD) curve shows the

A)amount of a particular good people are willing and able to buy at a particular price, ceteris paribus.
B)real output (Real GDP) people are willing and able to sell at different price levels, ceteris paribus.
C)real output (Real (GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
D)real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.

Question 12

When foreign real national income rises, domestic Real GDP rises, ceteris paribus.

Question 13

The aggregate demand (AD) curve is the graphical representation of production in the short run.

Question 14

The level of Real GDP that the economy produces in long-run equilibrium is Natural Real GDP.

Question 15

The interest rate effect occurs because a change in interest rates causes a change in the price level.

Question 16

A change in the money supply can affect one or more of the components of spending and therefore shift the short-run aggregate supply (SRAS) curve.

Question 17

An adverse supply shock results in an increase in the price level and an increase in Real GDP.

Question 18

Only a change in the price level can cause a movement from one point to another point along a given aggregate demand curve.

Question 19

When wage rates rise the short-run aggregate supply curve shifts to the right.

Question 20

The level of Real GDP and the price level always have a direct relationship.

Question 21

Part of the story of the interest rate effect is that a lower price level causes __________ in the demand for credit, which then causes the interest rate to __________.

A)a decrease; fall
B)a decrease; rise
C)an increase; fall
D)an increase; rise

Question 22

If consumption changes because of a change in a factor other than the price level, then the

A)economy moves from one point on an AD curve to another point on the same curve.
B)AD curve shifts.
C)economy moves from one point on a short-run aggregate supply (SRAS) curve to another point on the same curve.
D)SRAS curve shifts.
E)none of the above

Question 23

If consumption changes because of a change in the price level, then the

A)economy moves from one point on an AD curve to another point on the same curve.
B)AD curve shifts.
C)economy moves from one point on a SRAS curve to another point on the same curve.
D)SRAS curve shifts.
E)none of the above

Question 24

The real balance effect helps to explain "a change in

A)aggregate demand."
B)the quantity demanded of Real GDP."
C)aggregate supply."
D)the quantity supplied of Real GDP."

Question 25

If some of a person's wealth is in cash, it follows that

A)this person's monetary wealth will change as the price level changes.
B)this person's monetary wealth will not change as the price level changes.
C)this person is wealthier than a person who holds all his wealth in nonmonetary form.
D)a and c
E)b and c

Question 26

Suppose consumption increases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________.

A)increases; leftward
B)decreases; leftward
C)increases; rightward
D)decreases; rightward

Question 27

Aggregate demand curves are

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

Question 28

Changes in which of the following factors can shift the AD curve?

A)net exports
B)government purchases
C)the money supply
D)b and c
E)a, b, and c

Question 29

The real balance effect describes the change in

A)checking account balances that occur when the money supply increases or decreases.
B)the value of physical assets (e.g., houses) that results from a change in the price level.
C)the output producers produce as they attempt to balance their production in response to changes in consumers' demand.
D)the value of cash holdings that results from a change in the price level.
E)the balance of cash holdings that results from a change in the amount of income earned.

Question 30

One of the reasons why the AD curve slopes downward is that as the

A)price level rises, purchasing power rises.
B)price level falls, purchasing power rises.
C)nation's income level rises, purchasing power rises.
D)nation's income level rises, purchasing power falls.
E)This is a trick question, because the AD curve is upward sloping.

Question 31

Suppose consumption decreases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________.

A)increases; leftward
B)decreases; leftward
C)increases; rightward
D)decreases; rightward

Question 32

As the price level rises, ceteris paribus, people holding some of their wealth in monetary form become

A)less wealthy and they buy less.
B)more wealthy and they buy more.
C)less wealthy and they buy more.
D)more wealthy and they buy less.

Question 33

Which of the following will cause a movement from one point on an AD curve to another point on the same AD curve?

A)a change in consumption
B)a change in government expenditures
C)a change in net exports
D)a change in the price level
E)all of the above

Question 34

The interest rate effect is one of the

A)reasons why an AD curve is downward-sloping.
B)shifters of an AD curve.
C)reasons why a short-run aggregate supply curve can be derived.
D)shifters of a short-run aggregate supply curve.

Question 35

The real balance effect is one of the

A)reasons why an AD curve is downward-sloping.
B)shifters of an AD curve.
C)reasons why a short-run aggregate supply curve can be derived.
D)shifters of a short-run aggregate supply curve.

Question 36

As the price level falls, ceteris paribus, people holding some of their wealth in monetary form become

A)less wealthy and they buy less.
B)more wealthy and they buy more.
C)less wealthy and they buy more.
D)more wealthy and they buy less.

Question 37

As the price level falls,

A)the purchasing power of cash holdings rises.
B)the purchasing power of cash holdings falls.
C)the purchasing power of cash holdings remains constant.
D)cash holdings turn into dollar-denominated assets.
E)none of the above

Question 38

If investment changes because of a change in a factor other than the price level, then the

A)economy moves from one point on an AD curve to another point on the same curve.
B)AD curve shifts.
C)economy moves from one point on a short-run aggregate supply (SRAS) curve to another point on the same curve.
D)SRAS curve shifts.
E)none of the above

Question 39

If investment changes because of a change in the price level, then the

A)economy moves from one point on an AD curve to another point on the same curve.
B)AD curve shifts.
C)economy moves from one point on a SRAS curve to another point on the same curve.
D)SRAS curve shifts.
E)none of the above

Question 40

The change in the purchasing power of dollar-denominated assets (such as cash holdings) is the

A)money effect.
B)interest rate effect.
C)asset effect.
D)real balance effect.
E)none of the above

Question 41

A rise in foreign real national income tends to raise U.S. __________, shifting the U.S. AD curve to the __________.

A)exports; left
B)exports; right
C)imports; left
D)imports; right

Question 42

An appreciation of the U.S. dollar against foreign currencies tends to __________ U.S. net exports and shift the U.S. AD curve to the __________.

A)raise; right
B)raise; left
C)lower; right
D)lower; left

Question 43

As the interest rate rises, the cost of a given investment project __________ and businesses invest __________.

A)rises; more
B)rises; less
C)falls; more
D)falls; less

Question 44

Suppose the real exchange rate of 115 Japanese yen to the dollar changes to 105 yen to the dollar. In this situation, the dollar has __________, making Japanese goods __________ expensive for Americans.

A)appreciated; less
B)appreciated; more
C)depreciated; less
D)depreciated; more

Question 45

An economic policy initiative results in the AD curve shifting to the right. As a result,

A)the price level will rise.
B)the price level will stay constant.
C)the price level will fall.
D)Real GDP will rise in the short run.
E)a and d

Question 46

A falling interest rate affects the demand for consumer __________ and shifts the AD curve to the __________.

A)nondurables; right
B)nondurables; left
C)durables; right
D)durables; left

Question 47

An increase in the interest rate __________ purchases of consumer __________.

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

Question 48

As income taxes rise, disposable income __________, causing __________ the AD curve.

A)increases; movement down along
B)increases; a rightward shift of
C)decreases; movement up along
D)decreases; a leftward shift of

Question 49

When the government lowers income taxes, consumption is ______________, causing a __________ the AD curve.

A)stimulated; rightward shift of
B)stimulated; movement down along
C)reduced; leftward shift of
D)reduced; movement up along

Question 50

Greater wealth makes people _____________ willing to spend on consumption, causing __________ the economy's AD curve.

A)more; movement down along
B)more; a rightward shift of
C)less; movement up along
D)less; a rightward shift of

Question 51

Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar. In this situation, the dollar has __________________, making American goods __________ expensive for Mexicans.

A)appreciated; less
B)appreciated; more
C)depreciated; less
D)depreciated; more

Question 52

As the interest rate rises, businesses invest __________ and the AD curve shifts to the __________.

A)more; right
B)more; left
C)less; right
D)less; left

Question 53

Individuals' expectations of lower future prices is a

A)rightward shifter of the AD curve.
B)leftward shifter of the AD curve.
C)reason for moving up along a given AD curve.
D)reason for moving down along a given AD curve.

Question 54

Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar. In this situation, the dollar has ________________, making Mexican goods __________ expensive for Americans.

A)appreciated; less
B)appreciated; more
C)depreciated; less
D)depreciated; more

Question 55

Individuals' expectations of higher future income is a

A)rightward shifter of the AD curve.
B)leftward shifter of the AD curve.
C)reason for moving up along a given AD curve.
D)reason for moving down along a given AD curve.

Question 56

A decrease in business taxes, causes the expected profitability of investment projects to __________, which then shifts the AD curve to the __________.

A)rise; right
B)rise; left
C)decline; right
D)decline; left

Question 57

Business optimism about future sales tends to __________ investment expenditures, shifting the AD curve to the __________.

A)increase; left
B)increase; right
C)decrease; left
D)decrease; right

Question 58

Suppose the price level is rising and it is widely forecast to rise even further. This forecast might cause __________ of some consumption plans, resulting in __________ the AD curve.

A)postponement; a rightward shift of
B)postponement; a leftward shift of
C)acceleration; a rightward shift of
D)acceleration; movement down along

Question 59

Suppose a drop in prices in the stock market makes people feel less financially secure. This would cause __________ the economy's AD curve.

A)movement down along
B)movement up along
C)a rightward shift of
D)a leftward shift of

Question 60

Suppose the real exchange rate of 105 Japanese yen to the dollar changes to 115 yen to the dollar. In this situation, the dollar has _________________, making Japanese goods __________ expensive for Americans.

A)appreciated; less
B)appreciated; more
C)depreciated; less
D)depreciated; more

Question 61

If aggregate quantity demanded is greater than aggregate quantity supplied at a particular price level, then

A)consumers will bid prices upward, and a greater quantity of output will be supplied.
B)the shortage will likely be eliminated.
C)a and b
D)none of the above

Question 62

An increase in the price of a nonlabor input such as oil will cause

A)a movement down the SRAS curve.
B)a movement up the SRAS curve.
C)a leftward shift in the SRAS curve.
D)a rightward shift in the SRAS curve.
E)no change regarding the SRAS curve.

Question 63

The short-run aggregate supply curve is

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

Question 64

An increase in labor productivity shifts the

A)AD curve rightward.
B)AD curve leftward.
C)short-run aggregate supply (SRAS) curve leftward.
D)SRAS curve rightward.
E)none of the above

Question 65

Which of the following statements is false?

A)An increase in wage rates causes producers to move up along the SRAS curve.
B)An increase in the price level causes producers to move up along the SRAS curve.
C)The short-run aggregate supply (SRAS) curve is upward sloping.
D)The long-run aggregate supply (LRAS) curve is vertical.

Question 66

A decrease in the price of a nonlabor input such as electricity will cause

A)a movement down the SRAS curve.
B)a movement up the SRAS curve.
C)a leftward shift in the SRAS curve.
D)a rightward shift in the SRAS curve.
E)no change regarding the SRAS curve.

Question 67

An increase in the price of nonlabor inputs

A)shifts the AD curve leftward.
B)shifts the SRAS curve leftward.
C)is the same thing as a beneficial supply shock.
D)shifts the AD curve rightward.
E)shifts the SRAS curve rightward.

Question 68

A depreciation of the U.S. dollar against foreign currencies tends to __________ U.S. net exports and shift the U.S. AD curve to the __________.

A)raise; right
B)raise; left
C)lower; right
D)lower; left

Question 69

A simultaneous rise in aggregate demand and fall in short-run aggregate supply will definitely

A)raise the price level, but there is not enough information to know how Real GDP will change.
B)lower Real GDP, but there is not enough information to know how the price level will change.
C)raise the price level and Real GDP.
D)raise Real GDP, but there is not enough information to know how the price level will change.
E)raise the price level and lower Real GDP.

Question 70

Changes in which of the following will not cause the SRAS curve to shift?

A)the wage rate
B)prices of nonlabor inputs
C)the price level
D)productivity
E)All of the above will cause the SRAS curve to shift.

Question 71

If consumption increases,

A)the SRAS curve will shift rightward, which will push the price level up.
B)the SRAS curve will shift leftward, which will push the price level up.
C)the AD curve will shift leftward, which will push the price level down.
D)the AD curve will shift rightward, which will push the price level up.

Question 72

A short-run aggregate supply curve shows the

A)amount of a particular good producers are willing and able to buy at a particular price, ceteris paribus.
B)real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.
C)real output (Real GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
D)real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.

Question 73

If aggregate quantity supplied is greater than aggregate quantity demanded at a particular price level, then a

A)shortage exists and consumers will bid the price level up.
B)surplus exists and consumers will bid the price level up.
C)surplus exists and the price level will decline.
D)shortage exists and the price level will decline.
E)c and d

Question 74

Which of the following is an example of an adverse supply shock?

A)a nationwide drought lasting for many months
B)an outbreak of war among several of the Middle Eastern oil-producing countries
C)an influenza virus that affects 50 percent of the labor force over a two month period
D)a, b, and c
E)a and c

Question 75

A decrease in the money supply may __________ total expenditures and thus __________ aggregate demand.

A)raise; raise
B)raise; lower
C)lower; raise
D)lower; lower

Question 76

An increase in the money supply may __________ total expenditures, leading to a __________ shift of the AD curve.

A)increase; rightward
B)increase; leftward
C)decrease; rightward
D)decrease; leftward

Question 77

A simultaneous rise in both aggregate demand and short-run aggregate supply will definitely

A)raise the price level, but there is not enough information provided to know how Real GDP will change.
B)lower Real GDP, but there is not enough information provided to know how the price level will change.
C)raise the price level and Real GDP.
D)raise Real GDP, but there is not enough information provided to know how the price level will change.
E)raise the price level and lower Real GDP.

Question 78

A rise in wage rates

A)causes the AD curve to shift leftward.
B)causes the short-run aggregate supply (SRAS) curve to shift rightward.
C)does not affect the present position of the SRAS curve.
D)causes the AD curve to shift rightward.
E)causes the SRAS curve to shift leftward.

Question 79

An increase in labor's productivity will cause the SRAS curve to shift __________ and the price level to __________.

A)leftward; increase
B)rightward; decrease
C)rightward; increase
D)leftward; decrease

Question 80

If the price level remains constant but the wage rate increases, then there will be __________ in production and the SRAS curve will shift __________.

A)an increase; rightward
B)a decrease; rightward
C)an increase; leftward
D)a decrease; leftward