Deck 33: Aggregate Demand and Aggregate Supply

Question 1

On a macroeconomic scale, demand and supply are represented by:

A)markets and the government.
B)government spending and taxation.
C)consumption and investment.
D)aggregate demand and aggregate supply.

Answer 1

D

Question 2

In the AD-AS framework, price and quantity are represented by _____, respectively.

A)the GDP deflator and the real GDP
B)the real GDP and the real interest rate
C)nominal interest rates and the real GDP
D)the real interest rate and consumption

Answer 2

A

Question 3

The aggregate demand curve shows the relationship between the price level and the:

A)equilibrium GDP in the economy.
B)total quantity of output that suppliers collectively produce.
C)total quantity of output that buyers collectively plan to purchase.
D)potential GDP in the economy.

Answer 3

C

Question 4

The aggregate supply curve shows the relationship between the price level and the:

A)equilibrium GDP in the economy.
B)total quantity of output that suppliers collectively produce.
C)total quantity of output that buyers collectively plan to purchase.
D)potential GDP in the economy.

Question 5

In the AD-AS framework, macroeconomic equilibrium occurs when:

A)AS meets potential GDP.
B)AD and AS intersect.
C)AD meets potential GDP.
D)the GDP deflator is equal to 100.

Question 6

Macroeconomic equilibrium occurs when:

A)the economy has reached its maximum capacity.
B)the real GDP is equal to the potential GDP.
C)the quantity of output that buyers collectively want to buy is equal to the quantity of output that sellers collectively produce.
D)unemployment is at the lowest possible level.

Question 7

Macroeconomic equilibrium occurs where:

A)aggregate demand intersects with aggregate supply.
B)the price level in the economy is at the lowest possible level.
C)aggregate demand is larger than aggregate supply.
D)the quantity of output that buyers plan to buy is less than the quantity of output produced in the economy.

Question 8

Consider the graph shown here. The equilibrium price level is:

A)P₃.
B)P₂.
C)P₁.
D)P₀.

Question 9

Consider the graph shown here. The equilibrium level of GDP is:

A)Q₀.
B)Q₁.
C)Q₂.
D)Q₃.

Question 10

Aggregate expenditure is made up of the following four components:

A)healthcare, infrastructure spending, defense spending, and social security spending.
B)consumption, investment, government expenditure, and net exports.
C)stocks, bonds, mutual funds, and certificates of deposit.
D)consumption, investment, government expenditure, and taxation.

Question 11

Suppose the economy is in short-run equilibrium. Use the AD-AS model to predict short-run changes in real GDP and the aggregate price level if commodity prices suddenly increase. Explain your reasoning.

Question 12

Consumption is $1.2 trillion, investment is $0.9 trillion, government expenditure is $0.75 trillion, exports are $0.45 trillion, and imports are $0.42 trillion. Aggregate expenditure is:

A)$2.82 trillion.
B)$3.30 trillion.
C)$2.88 trillion.
D)$2.85 trillion.

Question 13

When inflation rises above its target rate, the Federal Reserve will:

A)increase taxes.
B)place a ceiling on interest rates.
C)raise interest rates.
D)lower interest rates.

Question 14

When inflation falls below its target rate, the Federal Reserve will:

A)increase taxes.
B)place a ceiling on interest rates.
C)raise interest rates.
D)lower interest rates.

Question 15

When the price level in an economy decreases, the quantity of output demanded in the economy:

A)falls.
B)increases.
C)stays constant.
D)does not change unless the quantity of output supplied changes as well.

Question 16

When the price level in an economy increases, the quantity of output demanded in the economy:

A)falls.
B)increases.
C)stays constant.
D)does not change unless the quantity of output supplied changes as well.

Question 17

The exchange rate effect is the:

A)inverse relationship between prices and quantity of output demanded.
B)positive relationship between prices and quantity of output demanded.
C)inverse relationship between real interest rates and net exports.
D)positive relationship between real interest rates and net exports.

Question 18

The wealth effect is the:

A)inverse relationship between prices and consumption spending due to changes in real wealth.
B)positive relationship between prices and consumption spending due to changes in real wealth.
C)inverse relationship between real interest rates and consumption.
D)positive relationship between real interest rates and consumption.

Question 19

The debt effect helps explain the:

A)inverse relationship between prices and consumption spending.
B)positive relationship between prices and consumption spending.
C)inverse relationship between real interest rates and consumption.
D)positive relationship between real interest rates and consumption.

Question 20

The international trade effect is the:

A)inverse relationship between prices and investment.
B)positive relationship between prices and investment.
C)inverse relationship between domestic prices and net exports.
D)positive relationship between domestic prices and net exports.

Question 21

When interest rates rise in the United States, what is the effect on net exports and aggregate expenditure?

A)Inflows of foreign savings cause the dollar to depreciate, and this increases exports and reduces imports, leading to a rise in net exports and a rise in aggregate expenditure.
B)Government expenditure rises, and this increases imports, net exports, and aggregate expenditure.
C)The real value of savings increases, leading to increased imports and decreased exports, and this causes net exports and aggregate expenditure to fall.
D)Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure.

Question 22

When prices rise in the United States, what is the effect on net exports and aggregate expenditure?

A)Exports become cheaper, imports become more expensive, net exports rise, and aggregate expenditure rises.
B)Real interest rates rise, leading to capital inflows and dollar appreciation, and exports rise and imports fall; thus, both net exports and aggregate expenditure fall.
C)The real value of exports rises, the real value of imports falls, net exports fall, and aggregate expenditure falls.
D)Exports become more expensive, imports become cheaper, net exports fall, and aggregate expenditure falls.

Question 23

When prices rise in the United States, what is the effect on consumption and aggregate expenditure?

A)Real interest rates rise, and this decreases consumption and aggregate expenditures.
B)The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure.
C)The real value of wealth increases, leading to an increase in consumption and an increase in aggregate expenditure.
D)The real value of debt increases, and this increases consumption and aggregate expenditure.

Question 24

When prices fall in Germany, what is the effect on consumption and aggregate expenditure in Germany?

A)Real interest rates rise, and this decreases consumption and aggregate expenditures.
B)The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure.
C)The real value of wealth increases, leading to an increase in consumption and an increase in aggregate expenditure.
D)The real value of debt increases, and this increases consumption and aggregate expenditure.

Question 25

The higher the prices in an economy, the:
(i) lower the purchasing power of the currency.
(ii) lower the real wealth in the economy.
(iii) higher the real wealth in an economy.
(iv) more expensive the country's exports.

A)(i), (ii), and (iv)
B)(i), (ii), (iii), and (iv)
C)(iii) and (iv)
D)(iv) only

Question 26

The lower the prices in an economy, the:
(i) lower the purchasing power of the currency.
(ii) lower the real wealth in the economy.
(iii) higher the real wealth in an economy.
(iv) cheaper the country's exports.

A)(i) only
B)(i), (ii), (iii), and (iv)
C)(iii) and (iv)
D)(ii) only

Question 27

The lower the GDP deflator in an economy, the:
(i) higher the purchasing power of the currency.
(ii) lower the real wealth in the economy.
(iii) higher the real wealth in an economy.
(iv) cheaper the country's exports.

A)(i) only
B)(i), (ii), (iii), and (iv)
C)(ii) and (iv)
D)(i), (iii), and (iv)

Question 28

The higher the GDP deflator in an economy, the:
(i) higher the purchasing power of the currency.
(ii) lower the real wealth in the economy.
(iii) higher the real wealth in an economy.
(iv) more expensive the country's exports.

A)(i) only
B)(i), (ii), (iii), and (iv)
C)(ii) and (iv)
D)(i), (iii), and (iv)

Question 29

When prices fall in Germany, what is the effect on nominal debt and consumption in Germany?

A)Nominal debt remains unchanged, but the real value of debt falls, and this encourages consumers to spend more.
B)Nominal debt remains unchanged, but the real value of debt rises, and this discourages consumption.
C)Nominal value of debt falls, and this encourages consumers to spend more.
D)Nominal value of debt rises, and this encourages consumers to spend less.

Question 30

When prices rise in Germany, what is the effect on nominal debt and consumption in Germany?

A)Nominal debt remains unchanged, but the real value of debt falls, and this encourages consumers to spend more.
B)Nominal debt remains unchanged, but the real value of debt rises, and this discourages consumption.
C)Nominal value of debt falls, and this encourages consumers to spend more.
D)Nominal value of debt rises, and this encourages consumers to spend less.

Question 31

In 2019, cardamom prices in India fell by nearly 16%. How does this affect net exports and aggregate expenditure in India?

A)Exports rise, net exports rise, and aggregate expenditure rises.
B)Exports rise, net exports fall, and aggregate expenditure falls.
C)Exports fall, net exports fall, and aggregate expenditure falls.
D)Exports fall, net exports rise, and aggregate expenditure rises.

Question 32

A fall in prices causes:

A)a leftward shift of the aggregate demand curve
B)a rightward shift of the aggregate supply curve.
C)a rightward shift of the aggregate demand curve.
D)movement along a curve, not a shift in a curve.

Question 33

A rise in prices leads to a:

A)movement up and to the left, along the same aggregate demand curve.
B)movement down and to the right, along the same aggregate demand curve.
C)right shift of the aggregate demand curve.
D)left shift of the aggregate demand curve.

Question 34

A fall in prices leads to a:

A)movement up and to the left along the same aggregate demand curve.
B)movement down and to the right along the same aggregate demand curve.
C)right shift of the aggregate demand curve.
D)left shift of the aggregate demand curve.

Question 35

A spending cut leads to a:

A)movement up and to the left along the same aggregate demand curve.
B)movement down and to the right along the same aggregate demand curve.
C)right shift of the aggregate demand curve.
D)left shift of the aggregate demand curve.

Question 36

An increase in spending leads to a:

A)movement up and to the left along the same aggregate demand curve.
B)movement down and to the right along the same aggregate demand curve.
C)right shift of the aggregate demand curve.
D)left shift of the aggregate demand curve.

Question 37

Holding other things equal, an increase in consumer spending leads to a:

A)movement up and to the left along the same aggregate demand curve.
B)movement down and to the right along the same aggregate demand curve.
C)right shift of the aggregate demand curve.
D)left shift of the aggregate demand curve.

Question 38

Ceteris paribus, a decrease in government expenditure leads to a:

A)right shift of the aggregate demand curve.
B)left shift of the aggregate demand curve.
C)movement up and to the left along the same aggregate demand curve.
D)movement down and to the right along the same aggregate demand curve.

Question 39

Ceteris paribus, an increase in investment leads to a:

A)right shift of the aggregate demand curve.
B)left shift of the aggregate demand curve.
C)movement up and to the left along the same aggregate demand curve.
D)movement down and to the right along the same aggregate demand curve.

Question 40

Ceteris paribus, a decrease in exports leads to a:

A)movement up and to the left along the same aggregate demand curve.
B)movement down and to the right along the same aggregate demand curve.
C)right shift of the aggregate demand curve.
D)left shift of the aggregate demand curve.

Question 41

Ceteris paribus, an increase in imports leads to a:

A)movement up and to the left along the same aggregate demand curve.
B)movement down and to the right along the same aggregate demand curve.
C)right shift of the aggregate demand curve.
D)left shift of the aggregate demand curve.

Question 42

Ceteris paribus, a decrease in imports leads to a:

A)movement up and to the left along the same aggregate demand curve.
B)movement down and to the right along the same aggregate demand curve.
C)right shift of the aggregate demand curve.
D)left shift of the aggregate demand curve.

Question 43

Ceteris paribus, an increase in exports leads to a:

A)right shift of the aggregate demand curve.
B)left shift of the aggregate demand curve.
C)movement up and to the left along the same aggregate demand curve.
D)movement down and to the right along the same aggregate demand curve.

Question 44

Which of the following changes will lead to an increase in both the price level and the quantity of output in an economy?

A)a rise in aggregate demand
B)a rise in aggregate supply
C)a fall in aggregate demand
D)a fall in aggregate supply

Question 45

Which of the following changes will lead to a decrease in both the price level and the quantity of output in an economy?

A)a rise in aggregate demand
B)a rise in aggregate supply
C)a fall in aggregate demand
D)a fall in aggregate supply

Question 46

Which of the following changes will lead to an increase in the price level but a decrease in the quantity of output in an economy?

A)a rise in aggregate demand
B)a rise in aggregate supply
C)a fall in aggregate demand
D)a fall in aggregate supply

Question 47

Which of the following changes will lead to a decrease in the price level but an increase in the quantity of output in an economy?

A)a rise in aggregate demand
B)a rise in aggregate supply
C)a fall in aggregate demand
D)a fall in aggregate supply

Question 48

The stock market rises consistently and reaches a record high. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?

A)

B)

C)

D)

Question 49

The stock market drops significantly. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?

A)

B)

C)

D)

Question 50

Minimum wages rise sharply in the economy. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?

A)

B)

C)

D)

Question 51

Prices of rubber and steel (inputs in the production process) rise in the world markets. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework in countries that import rubber and steel?

A)

B)

C)

D)

Question 52

A 25% tariff on steel imports is implemented. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework for the importing country?

A)

B)

C)

D)

Question 53

A previously enacted steel tariff is removed. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework for the country exporting steel?

A)

B)

C)

D)

Question 54

Suppose that the Mexican government lowers personal income tax rates. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework in Mexico?

A)

B)

C)

D)

Question 55

Suppose that the Mexican government raises personal income tax rates. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework in Mexico?

A)

B)

C)

D)

Question 56

Suppose that the Indian manufacturing sector begins to adopt new and efficient production technologies. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework in India?

A)

B)

C)

D)

Question 57

The U.S. dollar appreciates. Ceteris paribus, which of the graphs shows the correct effect on aggregate demand?

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

Question 58

The U.S. dollar depreciates. Ceteris paribus, which of the graphs shows the correct effect on aggregate demand?

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

Question 59

The U.S. dollar appreciates. Ceteris paribus, which of the graphs shows the correct effect on aggregate supply?

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

Question 60

In 2019, South Africa's consumer confidence index dipped sharply. Ceteris paribus, which of the graphs shows the correct effect on aggregate demand?

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

Question 61

In 2016, worries about the stock market caused consumer confidence in Asia to fall. Ceteris paribus, which of the graphs shows the correct effect on aggregate demand?

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

Question 62

In May 2019, worries about U.S. tariffs on China caused the Chinese stock market to fall by 5.5%. Ceteris paribus, which of the graphs shows the correct effect on aggregate demand?

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

Question 63

A rise in prices leads to a:

A)movement up and to the right along the same aggregate supply curve.
B)movement down and to the left along the same aggregate supply curve.
C)right shift of the aggregate supply curve.
D)left shift of the aggregate supply curve.

Question 64

A fall in prices leads to a:

A)movement up and to the right along the same aggregate supply curve.
B)movement down and to the left along the same aggregate supply curve.
C)right shift of the aggregate supply curve.
D)left shift of the aggregate supply curve.

Question 65

The Federal Reserve cuts interest rates when inflation is too low in the economy. This is known as:

A)an inflation-induced response.
B)an output-induced response.
C)a market-induced response.
D)contractionary monetary policy.

Question 66

When the Federal Reserve reduces interest rates lower than would be expected given its standard response to inflation, then this is evidence of:

A)an inflation-induced response.
B)an output-induced response.
C)a market-induced response.
D)contractionary monetary policy.

Question 67

An inflation-induced monetary policy response to lower interest rates causes a:

A)right shift of the aggregate supply curve.
B)right shift of the aggregate demand curve.
C)left shift of the aggregate demand curve.
D)movement along the same aggregate demand curve.

Question 68

An output-induced monetary policy response to lower interest rates causes a:

A)right shift of the aggregate supply curve.
B)left shift of the aggregate demand curve.
C)right shift of the aggregate demand curve.
D)movement along the same aggregate demand curve.

Question 69

Expansionary monetary policy causes a:

A)right shift of the aggregate supply curve.
B)left shift of the aggregate demand curve.
C)right shift of the aggregate demand curve.
D)movement along the same aggregate demand curve.

Question 70

Expansionary monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand.

A)increases; boosts; raises
B)decreases; boosts; raises
C)increases; lowers; lowers
D)decreases; lowers; lowers

Question 71

Contractionary monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand.

A)increases; boosts; raises
B)decreases; boosts; raises
C)increases; lowers; lowers
D)decreases; lowers; lowers

Question 72

Suppose that the Central Bank of Kenya engages in expansionary monetary policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

A)

B)

C)

D)

Question 73

Suppose that the Federal Reserve engages in contractionary monetary policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

A)

B)

C)

D)

Question 74

Expansionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and ____ aggregate demand.

A)lowers; raises; boosts; raises
B)raises; lowers; boosts; raises
C)lowers; raises; decreases; lowers
D)raises; lowers; decreases; lowers

Question 75

Contractionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and _____ aggregate demand.

A)lowers; raises; boosts; raises
B)raises; lowers; boosts; raises
C)lowers; raises; decreases; lowers
D)raises; lowers; decreases; lowers

Question 76

Suppose that the Kenyan government engages in expansionary fiscal policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

A)

B)

C)

D)

Question 77

Suppose that Mongolian government engages in contractionary fiscal policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

A)

B)

C)

D)

Question 78

In 2009, during the financial crisis, the government of Thailand introduced a stimulus package, including such measures as free education, irrigation projects, government sponsored training, and revamping of roads. Ceteris paribus, which of the graphs shows the correct effect of this stimulus package on the AD-AS framework in Thailand?

A)

B)

C)

D)

Question 79

When the government increases spending, a multiplier effect will:

A)cause a movement to the left along the same AD curve.
B)cause a movement to the right along the same AD curve.
C)shift the AD curve further to the left than the effect of the spending.
D)shift the AD curve further to the right than the effect of the spending.

Question 80

When government expenditure rises by $250 million and the multiplier is 2, then ceteris paribus, GDP will eventually rise by:

A)$500 million.
B)$250 million.
C)$125 million.
D)$750 million.