Deck 12: Aggregatedemand and Aggregate Supply

Question 1

The quantity measure in the aggregate demand relationship is the:

A) total quantity of goods and services demanded in the economy.
B) total quantity of goods and services supplied in the economy.
C) market value of the total quantity of goods and services demanded in the economy.
D) market value of the total quantity of goods and services supplied in the economy.

Answer 1

market value of the total quantity of goods and services demanded in the economy.

Question 2

The aggregate supply and aggregate demand model describes the:

A) overall health of the economy.
B) overall effect of large markets within the economy.
C) way sellers and buyers interact within a particular market.
D) way unemployment affects output, ignoring the impact of the price level.

Answer 2

overall health of the economy.

Question 3

In the macroeconomic model of aggregate supply and aggregate demand:

A) unemployment is negatively related to the overall price level.
B) quantity represents GDP.
C) price is calculated as a weighted average of services traded in the economy.
D) All of these are true.

Answer 3

quantity represents GDP.

Question 4

Increases in the overall price level:

A) increase people's dollar-denominated wealth.
B) generally have no effect on spending.
C) increase consumption.
D) reduce consumption.

Question 5

Which of the following is a component of aggregate demand?

A) Consumption
B) Investment
C) Net exports
D) All of these are components of aggregate demand.

Question 6

A rise in the overall price level means that:

A) a given number of dollars will buy fewer real goods and services.
B) output has decreased.
C) the cost of living has gone down.
D) None of these are true.

Question 7

Which of the following statements is true about the aggregate demand curve?

A) It shows the relationship between the overall price level and the level of total demand.
B) It maps to the price level on the horizontal axis and output on the vertical axis.
C) It is upward-sloping, unlike the individual demand curve.
D) It shows the relationship between the price of goods and services and the level of total demand.

Question 8

What occurs when the price level increases?

A) People demand a smaller aggregate quantity of goods and services.
B) Consumers feel wealthier.
C) The same real value of assets is held by the public, regardless of the change in the price level.
D) People want to spend more.

Question 9

The aggregate demand curve:

A) has a constant slope.
B) slopes downward.
C) slopes upward.
D) can slope upward or downward depending on economic conditions.

Question 10

Which of the following is a component of aggregate demand?

A) Consumption
B) Income
C) Taxes
D) Transfer payments

Question 11

When the price level increases, people:

A) feel less wealthy.
B) feel wealthier.
C) have the same real value of assets, regardless of the change in the price level.
D) work less.

Question 12

The aggregate supply and aggregate demand model describes the interaction of which macroeconomic variables?

A) Output and the price level
B) Employment and the price level
C) Prices and immigration
D) Output and the number of sellers

Question 13

The aggregate supply and aggregate demand model is used to explain:

A) how individual markets affect other markets.
B) how entire markets operate, not just each individual seller within a market.
C) how the market price is determined by all buyers and sellers interacting in a market.
D) how output, prices, and employment are tied together in a single economic equilibrium.

Question 14

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

A) It shows the relationship between the overall price level and the level of total demand.
B) It maps to the price level on the vertical axis and output on the horizontal axis.
C) It slopes downward.
D) It shows the relationship between the overall price level and the level of consumption.

Question 15

In the macroeconomic model of aggregate supply and aggregate demand, quantity is:

A) the amount traded by all individual buyers and sellers in a market.
B) only influenced by changes in aggregate demand.
C) a measure of total output.
D) All of these are true.

Question 16

In the macroeconomic model of aggregate supply and aggregate demand, price is:

A) the measure of the value of all goods and services produced by the economy.
B) not a factor that is considered.
C) calculated as a weighted average of the prices of all goods and services.
D) None of these are true.

Question 17

Which three macroeconomic variables together best describe the health of the economy?

A) Housing starts, GDP, and inflation
B) Output, inflation, and the exchange rate
C) GDP, unemployment, and interest rates
D) Output, prices, and employment

Question 18

Consumption spending is _______ the overall price level.

A) negatively related to
B) positively related to
C) equal to
D) not correlated with

Question 19

Consumption:

A) is a major component of aggregate demand.
B) is negatively related to the national price level.
C) measures people's expenditures on real goods and services.
D) All of these are true.

Question 20

Which of the following is a component of aggregate demand?

A) Net exports
B) Income
C) Government revenues
D) Interest rates

Question 21

A(n) _______ relationship exists between the price level and net exports.

A) negative
B) positive
C) perfectly correlated
D) uncorrelated

Question 22

Which component of GDP is not correlated with the price level?

A) Consumption
B) Investment
C) Government spending
D) Net exports

Question 23

When the U.S. price level decreases relative to the rest of the world:

A) exports and net exports will increase.
B) imports and net exports will increase.
C) exports will increase and net exports will decrease.
D) exports will decrease and net exports will increase.

Question 24

When prices rise, the interest rate:

A) also tends to rise.
B) tends to fall.
C) is usually not affected.
D) will rise if the wealth effect outweighs the price effect.

Question 25

Higher interest rates:

A) make it more expensive to borrow.
B) make it less expensive to borrow.
C) make it easier to get a loan.
D) do not change the cost of getting a loan.

Question 26

If U.S. prices increase relative to the rest of the world, what effect would we expect to see on traded goods?

A) Imports and net exports would increase.
B) Exports and net exports would decrease.
C) Imports would decrease and net exports would increase.
D) Exports would decrease and net exports would increase.

Question 27

If prices were to _______, U.S. goods would become relatively less expensive than goods from other countries.

A) increase in the United States only
B) decrease in the United States only
C) increase globally
D) decrease globally

Question 28

A negative relationship exists between the price level and which components of GDP? I. Consumption
II) Investment
III) Government spending
IV) Net exports

A) I, II, and III only
B) II, III, and IV
C) I, II, III, and IV
D) I, II, and IV only

Question 29

If U.S. prices increase relative to the rest of the world, we would expect:

A) net exports to increase.
B) net exports to decrease.
C) imports to decrease.
D) imports to remain unaffected.

Question 30

If prices increase in the United States only, then:

A) U.S. goods will become relatively more expensive than goods from other countries.
B) the cost of production will fall in other countries.
C) the prices of goods from other countries will rise.
D) the income level in the United States will rise.

Question 31

The aggregate demand curve is downward-sloping partly due to the _______ relationship between the price level and _______.

A) positive; net exports
B) negative; net exports
C) positive; government spending
D) negative; government spending

Question 32

The wealth effect explains the _______ relationship that exists between consumer spending and overall _______.

A) negative; price level
B) positive; price level
C) negative; asset valuation
D) positive; asset valuation

Question 33

The relationship between government spending and the price level explains the:

A) upward-sloping aggregate demand curve.
B) downward-sloping aggregate demand curve.
C) perfect elasticity of the aggregate demand curve.
D) None of these is true.

Question 34

Government spending tends to:

A) increase when the price level rises.
B) increase when the price level falls.
C) be unaffected by changes in the price level.
D) decrease when the price level falls.

Question 35

If U.S. prices increase relative to the rest of the world, we would expect imports to _______ and exports to _______.

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

Question 36

Higher interest rates cause:

A) firms to invest less in new factories and working capital.
B) firms to invest more in human capital.
C) individuals to spend more on consumption goods.
D) individuals to spend more on housing.

Question 37

The wealth effect partially explains why the aggregate _______ curve is _______.

A) demand; downward-sloping
B) demand; upward-sloping
C) supply; downward-sloping
D) supply; upward-sloping

Question 38

Net exports is measured as:

A) exports minus imports.
B) imports minus exports.
C) imports divided by exports.
D) imports plus exports.

Question 39

Lower interest rates cause:

A) firms to invest less in human capital.
B) firms to invest more in new factories and working capital.
C) individuals to spend less on consumption goods.
D) individuals to spend less on housing.

Question 40

Higher interest rates occur at higher price levels, which explains the _______ relationship between the price level and investment spending.

A) negative
B) positive
C) constant
D) direct

Question 41

During the dot-com bubble, consumers believed that the Internet would radically change the shopping experience and lead to higher incomes throughout the economy. How would the dot-com bubble be best represented in the AD/AS model?

A) The aggregate demand curve shifts right.
B) The aggregate demand curve shifts left.
C) Prices increase along the aggregate demand curve.
D) Prices decrease along the aggregate demand curve.

Question 42

In general, a _______ relationship exists between the price level and _______.

A) negative; aggregate expenditure
B) positive; long-run aggregate supply
C) negative; short-run aggregate supply
D) positive; aggregate demand

Question 43

When the U.S. price level decreases, we would expect a(n) _______ the aggregate demand curve.

A) downward movement along
B) leftward shift of
C) rightward shift of
D) upward movement along

Question 44

Which of the following would likely cause the aggregate demand curve to shift to the left?

A) Decreased income taxes
B) Decreased consumer confidence
C) Increased government spending
D) increased investor confidence

Question 45

The difference in stimulus provided by government spending versus tax cuts is caused by the fact that:

A) people don't respond to tax policy as greatly as they do to as spending policy.
B) the government is able to target spending in high-need areas of the economy.
C) tax cuts take longer to implement legislatively.
D) only a fraction of tax cuts are spent immediately, while the full amount of government spending immediately makes it to the economy.

Question 46

Expenditures by _______ will remain unaffected as the U.S. price level increases.

A) consumers
B) businesses
C) the government
D) the rest of the world

Question 47

When a nonprice change affects any of the four components of GDP, the:

A) aggregate demand curve will shift.
B) economy will move up or down along the aggregate demand curve.
C) aggregate demand curve will remain unaffected.
D) aggregate supply curve will shift.

Question 48

If consumption increases, the aggregate demand curve will:

A) shift to the left.
B) shift to the right.
C) remain unchanged, but the economy will move upward along the curve to a higher quantity demanded.
D) remain unchanged, but the economy will move downward along the curve to a lower quantity demanded.

Question 49

The U.S. government cut the top corporate income tax rate from 35 percent to 21 percent through the 2017 Tax Cuts and Jobs Act. This legislation:

A) prompted a downward movement along the aggregate demand curve.
B) shifted the aggregate demand curve to the right.
C) shifted the aggregate demand curve to the left.
D) prompted an upward movement along the aggregate demand curve.

Question 50

The negative relationship that exists between the price level and aggregate expenditure partially explains why the aggregate demand curve is:

A) downward sloping.
B) upward sloping.
C) perfectly elastic.
D) perfectly inelastic.

Question 51

Who will increase spending as the price level decreases?

A) Domestic consumers
B) Businesses
C) Foreigners
D) Each entity will increase their expenditures.

Question 52

Which of the following scenarios would likely cause the aggregate demand curve to shift to the right?

A) Consumer confidence increases.
B) The government issues a tax credit for small businesses.
C) The government builds new highways.
D) All of these would likely cause the aggregate demand curve to shift to the right.

Question 53

Which of the following scenarios would likely cause the aggregate demand curve to shift to the left?

A) Interest rates increase.
B) Higher tariffs are placed on all imports into the United States.
C) Consumers gain greater confidence about the future.
D) All of these would likely cause the aggregate demand curve to shift to the left.

Question 54

If the government were to increase income taxes, we would predict:

A) a downward movement along the aggregate demand curve.
B) the aggregate demand curve to shift to the right.
C) the aggregate demand curve to shift to the left.
D) an upward movement along the aggregate demand curve.

Question 55

Which of the following would likely cause the aggregate demand curve to shift to the right?

A) Increased income taxes
B) Increased firm confidence
C) Decreased government spending
D) Increase in the aggregate price level

Question 56

When the U.S. price level increases, we would expect a(n) _______ the aggregate demand curve.

A) downward movement along
B) upward movement along
C) rightward shift of
D) leftward shift of

Question 57

In 2009, the U.S. government passed a bill that increased government spending. In response, the aggregate demand curve most likely:

A) shifted to the left.
B) shifted to the right.
C) remained unchanged, but the economy moved up along the curve to a higher quantity.
D) remained unchanged, but the economy moved down along the curve to a lower quantity.

Question 58

A decrease in consumer confidence will cause:

A) a downward movement along the aggregate demand curve.
B) the aggregate demand curve to shift to the right.
C) the aggregate demand curve to shift to the left.
D) an upward movement along the aggregate demand curve.

Question 59

An example of stimulus spending by the government might be:

A) road building and infrastructure repair.
B) the monthly payments a government agency makes to its employees.
C) hiring seasonal government employees to help complete the census.
D) the Federal Reserve engaging in open market sales of securities.

Question 60

Which of the following would likely cause the aggregate demand curve to shift to the right?

A) Increased income taxes
B) Decreased corporate income taxes
C) Decreased consumer confidence
D) Decreased government spending

Question 61

The slope of the short-run aggregate supply curve indicates that:

A) as overall price levels increase, firms are willing to produce more.
B) as overall price levels decrease, firms are willing to produce more.
C) firms are constrained to a certain level of output in the short run, regardless of the price.
D) firms are constrained to a certain price in the short run, regardless of output.

Question 62

The aggregate supply curve shows:

A) the relationship between the overall price level and firms' total production.
B) the relationship between the overall price level and firms' investment decisions.
C) the total production of all firms in an economy at every given demand level.
D) the total production of all firms in an economy for every level of profit.

Question 63

If the government increases spending by $400 billion, and the MPC is 0.75, the change in GDP will be:

A) $400 billion.
B) $1,600 billion.
C) $300 billion.
D) $1,200 billion.

Question 64

When the prices of final goods and services increase more quickly than the prices of inputs:

A) the prices of some inputs are sticky.
B) labor costs are increasing.
C) producers are making short-run decisions.
D) technology is improving.

Question 65

A vertical supply curve reflects:

A) aggregate supply in the short run.
B) aggregate supply in the long run.
C) an individual firm's supply curve.
D) an individual industry's supply curve.

Question 66

If the government lowers taxes by $400 billion, and the MPC is −0.75, the change in GDP will be:

A) $400 billion.
B) $1,600 billion.
C) $300 billion.
D) $1,200 billion.

Question 67

To counteract the effects of a recession, policymakers can:

A) reduce government spending.
B) increase government spending.
C) increase tariffs.
D) increase tax rates.

Question 68

The relationship between the overall price level and total production by firms is shown in the:

A) aggregate demand curve.
B) aggregate supply curve.
C) inflation rate.
D) business cycle.

Question 69

Because the prices of final goods and services tend to increase more quickly than the prices of inputs, the short-run aggregate supply curve:

A) slopes upward.
B) slopes downward.
C) has a constant slope.
D) None of these are true.

Question 70

During a recession, analysts at the CBO project that the economy is operating $1.5 trillion below potential output. Assuming the MPC is 0.8, by how much would the government have to increase spending to restore potential output?

A) $500 billion
B) $300 billion
C) $1.2 trillion
D) $800 billion

Question 71

One major difference between the aggregate supply curve and an individual supply curve is the aggregate supply curve represents:

A) production in the whole economy, rather than the production of just one good or service.
B) production in an entire market, rather than the production of just one firm.
C) the total amount of goods and services sold, rather than the total amount produced.
D) the amount of goods and services produced and sold by each firm.

Question 72

Aggregate supply is the market value of the total quantity of:

A) home production in the economy.
B) goods or services supplied by producers in a single market.
C) intermediate goods supplied in the economy.
D) goods and services supplied in the economy.

Question 73

Which of the following is a decision a firm would make in the short run?

A) How much to pay in rent
B) How many employees to hire
C) How much to pay employees
D) How much to produce

Question 74

A supply curve that slopes upward reflects:

A) aggregate supply in the short run.
B) aggregate supply in the long run.
C) an individual firm's supply curve.
D) an individual industry's supply curve.

Question 75

Which of the following is a basic factor of production that is used to produce output?

A) Technology
B) Labor
C) Capital
D) All of these are factor inputs.

Question 76

During a recession, analysts at the CBO project that the economy is operating $750 billion below potential output. Assuming the MPC is 0.6, by how much would the government have to increase spending to restore potential output?

A) $333 billion
B) $300 billion
C) $250 billion
D) $750 billion

Question 77

In the short run, the aggregate supply curve:

A) slopes upward.
B) slopes downward.
C) is perfectly elastic.
D) is perfectly inelastic.

Question 78

During a recession, analysts at the CBO project that the economy is operating $750 billion below potential output. Assuming the MPC is 0.6, by how much would the government have to cut taxes to restore potential output?

A) $375 billion
B) $300 billion
C) $350 billion
D) $500 billion

Question 79

If the government lowers taxes by $400 billion, and the MPC is 0.75, the change in GDP will be:

A) $400 billion.
B) $1,600 billion.
C) $300 billion.
D) $1,200 billion.

Question 80

During a recession, analysts at the CBO project that the economy is operating $1.5 trillion below potential output. Assuming the MPC is 0.8, by how much would the government have to cut taxes to restore potential output?

A) $375 billion
B) $300 billion
C) $1.2 trillion
D) $800 billion