Deck 12: Aggregate Demand and Aggregate Supply

Question 1

Which one of the following would not shift the aggregate demand curve?

A) a change in the price level
B) depreciation of the international value of the dollar
C) a decline in the interest rate at each possible price level
D) an increase in personal income tax rates

Answer 1

a change in the price level

Question 2

The foreign purchases effect

A) shifts the aggregate demand curve rightward.
B) shifts the aggregate demand curve leftward.
C) shifts the aggregate supply curve rightward.
D) moves the economy along a fixed aggregate demand curve.

Answer 2

moves the economy along a fixed aggregate demand curve.

Question 3

The determinants of aggregate demand

A) explain why the aggregate demand curve is downsloping.
B) explain shifts in the aggregate demand curve.
C) demonstrate why real output and the price level are inversely related.
D) include input prices and resource productivity.

Answer 3

explain shifts in the aggregate demand curve.

Question 4

Which of the following is incorrect?

A) As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise.
B) As the price level falls, the demand for money declines, the interest rate declines, and interest-rate-sensitive spending increases.
C) When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending.
D) Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward-flexible prices, reduces the price level.

Question 5

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will

A) increase the amount of U.S. real output purchased.
B) increase U.S. imports and decrease U.S. exports.
C) increase both U.S. imports and U.S. exports.
D) decrease both U.S. imports and U.S. exports.

Question 6

If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift

A) leftward by $50 billion at each price level.
B) rightward by $10 billion at each price level.
C) rightward by $50 billion at each price level.
D) leftward by $40 billion at each price level.

Question 7

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

A) aggregate demand curve would shift to the right.
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 8

The interest-rate effect suggests that

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 9

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the

A) real-balances, interest-rate, and foreign purchases effects.
B) determinants of aggregate supply.
C) determinants of aggregate demand.
D) sole determinants of the equilibrium price level and the equilibrium real output.

Question 10

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the

A) net export effect.
B) wealth effect.
C) real-balances effect.
D) multiplier effect.

Question 11

Other things equal, a decrease in the real interest rate will

A) expand investment and shift the AD curve to the left.
B) expand investment and shift the AD curve to the right.
C) reduce investment and shift the AD curve to the left.
D) reduce investment and shift the AD curve to the right.

Question 12

An increase in net exports will shift the AD curve to the

A) left by a multiple of the change in net exports.
B) left by the same amount as the change in net exports.
C) right by the same amount as the change in net exports.
D) right by a multiple of the change in net exports.

Question 13

If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift

A) leftward by $40 billion at each price level.
B) rightward by $20 billion at each price level.
C) rightward by $40 billion at each price level.
D) leftward by $20 billion at each price level.

Question 14

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will

A) shift the aggregate demand curve leftward.
B) shift the aggregate supply curve leftward.
C) decrease U.S. exports and increase U.S. imports.
D) increase U.S. exports and decrease U.S. imports.

Question 15

A decline in investment will shift the AD curve to the

A) left by a multiple of the change in investment.
B) left by the same amount as the change in investment.
C) right by the same amount as the change in investment.
D) right by a multiple of the change in investment.

Question 16

The aggregate demand curve is

A) vertical under conditions of full employment.
B) horizontal when there is considerable unemployment in the economy.
C) downsloping because of the interest-rate, real-balances, and foreign purchases effects.
D) downsloping because production costs decrease as real output rises.

Question 17

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes

A) the output effect.
B) the foreign purchases effect.
C) the real-balances effect.
D) the shift-of-spending effect.

Question 18

The real-balances, interest-rate, and foreign purchases effects all help explain

A) why the aggregate demand curve is downsloping.
B) why the aggregate supply curve is upsloping.
C) shifts in the aggregate demand curve.
D) shifts in the aggregate supply curve.

Question 19

The real-balances effect indicates that

A) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending.
B) a lower price level will decrease the real value of many financial assets and therefore reduce spending.
C) a higher price level will increase the real value of many financial assets and therefore increase spending.
D) a higher price level will decrease the real value of many financial assets and therefore reduce spending.

Question 20

The aggregate demand curve

A) is upsloping because a higher price level is necessary to make production profitable as production costs rise.
B) is downsloping because production costs decline as real output increases.
C) shows the amount of expenditures required to induce the production of each possible level of real output.
D) shows the amount of real output that will be purchased at each possible price level.

Question 21

The immediate-short-run aggregate supply curve is

A) downsloping.
B) upsloping.
C) vertical.
D) horizontal.

Question 22

The aggregate supply curve

A) is explained by the interest rate, real-balances, and foreign purchases effects.
B) gets steeper as the economy moves from the top of the curve to the bottom of the curve.
C) shows the various amounts of real output that businesses will produce at each price level.
D) is downsloping because real purchasing power increases as the price level falls.

Question 23

A) decrease in interest rates.
B) increase in business taxes and costly government regulation.
C) decrease in the prices of domestic resources.
D) decrease in the price level.

Question 24

The immediate-short-run aggregate supply curve represents circumstances where

A) both input and output prices are fixed.
B) both input and output prices are flexible.
C) input prices are fixed, but output prices are flexible.
D) input prices are flexible, but output prices are fixed.

Question 25

A) stricter government regulations.
B) an increase in the prices of imported resources.
C) a decrease in the prices of domestic resources.
D) an increase in business taxes.

Question 26

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

A) an increase in stock prices that increases consumer wealth
B) increased fear that a recession will cause workers to lose their jobs
C) an increase in personal income tax rates
D) a reduction in household borrowing because of tighter lending practices

Question 27

A) business taxes and government regulation.
B) the prices of imported resources.
C) the prices of domestic resources.
D) productivity.

Question 28

What percentage of the average U.S. firm's costs is accounted for by wages and salaries?

A) 40
B) 60
C) 75
D) 85

Question 29

In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines

A) 4 and 3.
B) 4 and 1.
C) 2 and 4.
D) 2 and 3.

Question 30

The shape of the immediate-short-run aggregate supply curve implies that

A) total output depends on the volume of spending.
B) increases in aggregate demand are inflationary.
C) output prices are flexible, but input prices are not.
D) government cannot bring an economy out of a recession by increasing spending.

Question 31

Other things equal, an improvement in productivity will

A) shift the aggregate demand curve to the left.
B) shift the aggregate supply curve to the left.
C) shift the aggregate supply curve to the right.
D) increase the price level.

Question 32

The aggregate supply curve (short run)

A) slopes downward and to the right.
B) graphs as a vertical line.
C) slopes upward and to the right.
D) graphs as a horizontal line.

Question 33

In the diagram, the economy's immediate-short-run aggregate supply curve is shown by line

A) 1.
B) 2.
C) 3.
D) 4.

Question 34

A) increase in productivity.
B) increase in the prices of imported resources.
C) decrease in the prices of domestic resources.
D) decrease in business taxes.

Question 35

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to

A) affect neither aggregate supply nor aggregate demand.
B) increase aggregate demand.
C) reduce aggregate demand.
D) reduce aggregate supply.

Question 36

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?

A) a reduced amount of excess capacity
B) increased government spending on military equipment
C) an appreciation of the U.S. dollar
D) increased consumer optimism regarding future economic conditions

Question 37

The aggregate supply curve (short run) is upsloping because

A) wages and other resource prices match changes in the price level.
B) the price level is flexible upward but inflexible downward.
C) per-unit production costs rise as the economy moves toward and beyond its full- employment real output.
D) wages and other resource prices are flexible upward but inflexible downward.

Question 38

In the diagram, the economy's immediate-short-run AS curve is line ______, its short-run AS curve is _____, and its long-run AS curve is line ______.

A) 1; 2; 4
B) 1; 2; 3
C) 2; 3; 4
D) 3; 2; 1

Question 39

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand?

A) $12 billion
B) $20 billion
C) $33.3 billion
D) $50 billion

Question 40

The aggregate supply curve (short run)

A) graphs as a horizontal line.
B) is steeper above the full-employment output than below it.
C) slopes downward and to the right.
D) presumes that changes in wages and other resource prices match changes in the price level.

Question 41

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

A) a reduction in business taxes
B) production bottlenecks occurring when producers near full plant capacity
C) an increase in the price of imported resources
D) deregulation of industry

Question 42

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each
Unit of labor, $3. If the per-unit price of raw materials rises from $4 to $8 and all else remains
Constant, the aggregate

A) supply curve would shift to the left.
B) supply curve would shift to the right.
C) demand curve would shift to the left.
D) demand curve would shift to the right.

Question 43

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. The level of productivity is

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

Question 44

A rightward shift in the aggregate supply curve is best explained by an increase in

A) business taxes.
B) productivity.
C) nominal wages.
D) the price of imported resources.

Question 45

Other things equal, an improvement in productivity will

A) increase the equilibrium price level.
B) shift the aggregate supply curve to the left.
C) shift the aggregate supply curve to the right.
D) shift the aggregate demand curve to the left.

Question 46

Which of the following would not shift the aggregate supply curve?

A) an increase in labor productivity
B) a decline in the price of imported oil
C) a decline in business taxes
D) an increase in the price level

Question 47

The determinants of aggregate supply

A) are consumption, investment, government, and net export spending.
B) explain why real domestic output and the price level are directly related.
C) explain the three distinct ranges of the aggregate supply curve.
D) include resource prices and resource productivity.

Question 48

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. The per-unit cost of production in the economy described is

A) $0.50.
B) $1.
C) $2.
D) $5.

Question 49

$\begin{array} { | c | c | } \hline Input ~Quantity & Real ~Domestic ~Output \\\hline 100 & 200 \\\hline 150 & 300 \\\hline 200 & 400 \\\hline\end{array}$
The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. If the price of each input is $\$ 5$ , the per-unit cost of production in the economy is

A) $5.
B) $2.75.
C) $2.50.
D) $0.40.

Question 50

Per-unit production cost is

A) real output divided by inputs.
B) total input cost divided by units of output.
C) units of output divided by total input cost.
D) a determinant of aggregate demand.

Question 51

Other things equal, a reduction in personal and business taxes can be expected to

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

Question 52

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each
Unit of labor, $3. 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

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

Question 53

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each
Unit of labor, $3. The per-unit cost of production in this economy is

A) $0.05.
B) $0.10.
C) $0.50.
D) $1.00.

Question 54

$$\begin{array} { | c | c | } \hline \text { Input Quantity } & \text { Real Domestic Output } \\\hline 100 & 200 \\\hline 150 & 300 \\\hline 200 & 400 \\\hline\end{array}$$ The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. The level of productivity in the economy is

A) 2.
B) 0.5.
C) 4.
D) 200.

Question 55

Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate

A) demand curve will shift leftward.
B) supply curve will shift rightward.
C) supply curve will shift leftward.
D) expenditures curve will shift downward.

Question 56

Productivity measures

A) real output per unit of input.
B) per-unit production costs.
C) the changes in real wealth caused by price level changes.
D) the amount of capital goods used per worker.

Question 57

Other things equal, if the U.S. dollar were to depreciate, the

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 58

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. All else being equal, if the price of each input increased from $4 to $6,
Productivity would

A) fall from 2 to 3.
B) fall from 0.50 to 0.33.
C) rise from 1 to 2.
D) remain unchanged.

Question 59

Other things equal, appreciation of the dollar

A) increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
B) increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources.
C) decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
D) decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.

Question 60

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. Given an increase in input price from $4 to $6, we would expect the
Aggregate

A) supply curve to shift to the left.
B) supply curve to shift to the right.
C) demand curve to shift to the left.
D) supply and demand curves to both remain unchanged.

Question 61

The short-run aggregate supply curve represents circumstances where

A) both input and output prices are fixed.
B) both input and output prices are flexible.
C) input prices are fixed, but output prices are flexible.
D) input prices are flexible, but output prices are fixed.

Question 62

Graphically, cost-push inflation is shown as a

A) leftward shift of the AD curve.
B) rightward shift of the AS curve.
C) leftward shift of the AS curve.
D) rightward shift of the AD curve.

Question 63

In the diagram, the economy's short-run AS curve is line ___, and its long-run AS curve is line ___.

A) 1; 3
B) 2; 4
C) 3; 4
D) 2; 1

Question 64

$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Amount of Real Output } \\\text { Demanded }\end{array} & \text { Price Level (Index Value) } & \begin{array} { c } \text { Amount of Real Output } \\\text { Supplied }\end{array} \\\hline \$ 200 & 300 & \$ 500 \\\hline 300 & 250 & 450 \\\hline 400 & 200 & 400 \\\hline 500 & 150 & 300 \\\hline 600 & 100 & 200 \\\hline\end{array}$$ The table gives aggregate demand and supply schedules for a hypothetical economy. If the amount of real output demanded at each price level falls by $200, the equilibrium price level and
Equilibrium level of real domestic output will fall to

A) 250 and $200, respectively.
B) 200 and $300, respectively.
C) 150 and $300, respectively.
D) 150 and $200, respectively.

Question 65

In the diagram, the economy's long-run aggregate supply curve is shown by line

A) 1.
B) 2.
C) 3.
D) 4.

Question 66

$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Amount of Real Output } \\\text { Demanded }\end{array} & \text { Price Level (Index Value) } & \begin{array} { c } \text { Amount of Real Output } \\\text { Supplied }\end{array} \\\hline \$ 200 & 300 & \$ 500 \\\hline 300 & 250 & 450 \\\hline 400 & 200 & 400 \\\hline 500 & 150 & 300 \\\hline 600 & 100 & 200 \\\hline\end{array}$$ The table gives aggregate demand and supply schedules for a hypothetical economy. If the price level is 250 and producers supply $450 of real output,

A) a shortage of real output of $150 will occur.
B) a shortage of real output of $100 will occur.
C) a surplus of real output of $150 will occur.
D) neither a shortage nor a surplus of real output will occur.

Question 67

Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a

A) rightward shift of the aggregate demand curve along a fixed aggregate supply curve.
B) rightward shift of the aggregate supply curve along a fixed aggregate demand curve.
C) rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve.
D) leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

Question 68

The equilibrium price level and level of real output occur where

A) real output is at its highest possible level.
B) exports equal imports.
C) the price level is at its lowest level.
D) the aggregate demand and supply curves intersect.

Question 69

$\begin{array} { | c | c | } \hline Input ~Quantity & Real ~Domestic ~Output \\\hline 100 & 200 \\\hline 150 & 300 \\\hline 200 & 400 \\\hline\end{array}$
The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. Suppose that the price of each input increased from $\$ 5$ to $\$ 8$ . The per-unit cost of production in the economy would

A) rise by $1.50, and the aggregate supply curve would shift to the right.
B) rise by 60 percent, and the aggregate supply curve would shift to the left.
C) rise by 60 percent, and the aggregate demand curve would shift to the left.
D) fall by $1.50, and the aggregate demand curve would shift to the right.

Question 70

$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Amount of Real Output } \\\text { Demanded }\end{array} & \text { Price Level (Index Value) } & \begin{array} { c } \text { Amount of Real Output } \\\text { Supplied }\end{array} \\\hline \$ 200 & 300 & \$ 500 \\\hline 300 & 250 & 450 \\\hline 400 & 200 & 400 \\\hline 500 & 150 & 300 \\\hline 600 & 100 & 200 \\\hline\end{array}$$ The table gives aggregate demand and supply schedules for a hypothetical economy. The equilibrium price level will be

A) 150.
B) 200.
C) 250.
D) 300.

Question 71

A) A.
B) B.
C) C.
D) A and B.

Question 72

The economy's long-run aggregate supply curve

A) slopes upward and to the right.
B) is vertical.
C) is horizontal.
D) slopes downward and to the right.

Question 73

A) A.
B) B.
C) C.
D) B and C.

Question 74

$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Amount of Real Output } \\\text { Demanded }\end{array} & \text { Price Level (Index Value) } & \begin{array} { c } \text { Amount of Real Output } \\\text { Supplied }\end{array} \\\hline \$ 200 & 300 & \$ 500 \\\hline 300 & 250 & 450 \\\hline 400 & 200 & 400 \\\hline 500 & 150 & 300 \\\hline 600 & 100 & 200 \\\hline\end{array}$$ The table gives aggregate demand and supply schedules for a hypothetical economy. If the amount of real output demanded at each price level falls by $200, this might have been caused by

A) an increase in net exports.
B) a worsening of business expectations.
C) an increase in consumer wealth.
D) a decrease in the personal income tax.

Question 75

A) A.
B) B.
C) C.
D) B and C.

Question 76

The economy's long-run AS curve assumes that wages and other resource prices

A) eventually rise and fall to match upward or downward changes in the price level.
B) are flexible upward but inflexible downward.
C) rise and fall more rapidly than the price level.
D) are relatively inflexible both upward and downward.

Question 77

Graphically, demand-pull inflation is shown as a

A) rightward shift of the AD curve along an upsloping AS curve.
B) leftward shift of the AS curve along a downsloping AD curve.
C) leftward shift of the AS curve along an upsloping AD curve.
D) rightward shift of the AD curve along a downsloping AS curve.

Question 78

A) A.
B) B.
C) C.
D) B and C.

Question 79

In the diagram, the economy's relevant aggregate demand and long-run aggregate supply curves, are lines

A) 4 and 2, respectively.
B) 4 and 1, respectively.
C) 2 and 4, respectively.
D) 2 and 3, respectively.

Question 80

A) A.
B) B.
C) C.
D) B and C.