Deck 12: Aggregate Demand and Aggregate Supply

Question 1

The aggregate demand curve is the relationship between the:

A) price level and the sales of producers.
B) price level and the purchasing of real domestic output.
C) price level and the distribution of real domestic output.
D) real domestic output bought and the real domestic output sold.

Answer 1

price level and the purchasing of real domestic output.

Question 2

The amount of real domestic output that will be purchased at each possible price level is best shown by the:

A) aggregate supply curve.
B) aggregate demand curve.
C) aggregate expenditures model.
D) difference between real and nominal GDP.

Answer 2

aggregate demand curve.

Question 3

When the price level falls:

A) the demand for money rises.
B) there is a decrease in spending that is sensitive to interest-rate changes.
C) there is a decrease in the quantity of goods demanded as net exports.
D) holders of financial assets with fixed money values increase their spending.

Answer 3

holders of financial assets with fixed money values increase their spending.

Question 4

- Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the price level is 200, the quantity of real GDP demanded is:

A) $500 billion.
B) $600 billion.
C) $700 billion.
D) $800 billion.

Question 5

- Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the price level is 150, the quantity of real GDP demanded is:

A) $500 billion.
B) $600 billion.
C) $700 billion.
D) $800 billion.

Question 6

An increase in government spending will cause a(n):

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

Question 7

A decrease in net exports will cause a(n):

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

Question 8

If the U.S. dollar appreciates in value relative to foreign currencies, then this will:

A) increase aggregate demand.
B) decrease aggregate demand.
C) cause a movement downward along the aggregate demand curve.
D) cause a movement upward along the aggregate demand curve.

Question 9

When national income in other nations decreases, aggregate:

A) demand increases.
B) demand decreases.
C) supply increases.
D) supply decreases.

Question 10

A decrease in aggregate demand is likely to result from:

A) a decrease in the price level.
B) an increase in the price level.
C) an appreciation in the value of the U.S. dollar.
D) a decrease in the excess capacity of factories.

Question 11

Which set of events would most likely increase aggregate demand?

A) An increase in incomes in foreign nations and a depreciation of the dollar.
B) An increase in incomes in foreign nations and an appreciation of the dollar.
C) A decrease in incomes in foreign nations and an appreciation of the dollar.
D) A decrease in incomes in foreign nations and a depreciation of the dollar.

Question 12

Refer to the above graph. Which factor will shift AD₁ to AD₂?

A) The real-balances effect.
B) An increase in productivity.
C) The foreign purchase effect.
D) An increase in investment spending.

Question 13

Which of the following will lead to an increase in aggregate demand?

A) A decrease in the price level.
B) An increase in the price level.
C) An increase in national incomes abroad.
D) An appreciation in the value of the U.S. dollar.

Question 14

Which would be one of the factors that increase aggregate demand?

A) An increase in personal income tax rates.
B) An increase in the productivity of labor.
C) An increase in consumer wealth.
D) An increase in real interest rates.

Question 15

Which event would most likely increase aggregate demand?

A) A depreciation of the dollar.
B) An appreciation of the dollar.
C) A decrease in the national incomes in foreign nations.
D) A decrease in the price level that results in a foreign purchases effect.

Question 16

The following list contains factors that are related to the aggregate demand curve.
1) Household expectations
2) Profit expectations
3) Degree of excess capacity
4) Personal income tax rates
5) Exchange rates
6) National income abroad
7) Government spending
8) Household wealth

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Changes in which three of the above factors would most likely cause a change in consumer spending?

A) 1, 2, and 6
B) 1, 4, and 8
C) 3, 5, and 7
D) 5, 6, and 7

Question 17

The following list contains factors that are related to the aggregate demand curve.
1) Household expectations
2) Profit expectations
3) Degree of excess capacity
4) Personal income tax rates
5) Exchange rates
6) National income abroad
7) Government spending
8) Household wealth

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Refer to the above information. Investment spending would most likely be influenced by changes in:

A) 1 and 4.
B) 5 and 6.
C) 2 and 3.
D) 1 and 8.

Question 18

The following list contains factors that are related to the aggregate demand curve.
1) Household expectations
2) Profit expectations
3) Degree of excess capacity
4) Personal income tax rates
5) Exchange rates
6) National income abroad
7) Government spending
8) Household wealth

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Refer to the above information. A change in net export spending would most likely be caused by changes in:

A) 2 and 3.
B) 4 and 7.
C) 1 and 8.
D) 5 and 6.

Question 19

An aggregate supply curve shows the:

A) level of real domestic output that will be produced at each possible price level.
B) level of real domestic output that will be purchased at each possible price level.
C) price level at which real domestic output will be purchased.
D) price level at which real domestic output will be in equilibrium.

Question 20

A fall in prices of imported resources will cause aggregate:

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

Question 21

If the prices of imported resources decrease, then this event would most likely:

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

Question 22

Refer to the above graph. Which factor will shift AS₁ to AS₂?

A) A rise in national income abroad.
B) An increase in government spending.
C) A reduction in business taxes.
D) A decline in consumer confidence.

Question 23

In an economy it costs $1500 to produce 2000 units of output. If the costs increase to $2500, then the per-unit cost of production will have increased from:

A) $0.75 to $1.25.
B) $0.75 to $1.00.
C) $1.33 to $1.75.
D) $0.80 to $1.33.

Question 24

If the prices of imported resources decrease, then this event would most likely:

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

Question 25

If Congress raised taxes on businesses, this action would:

A) increase per-unit production costs and thus increase aggregate demand.
B) increase per-unit production costs and thus increase aggregate supply.
C) increase per-unit production costs and thus decrease aggregate supply.
D) increase aggregate demand and increase aggregate supply.

Question 26

A rise in prices of imported resources will cause aggregate:

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

Question 27

The following list contains items that are related to aggregate demand and/or aggregate supply.
1) Government Spending
2) Consumer Expectations
3) Degree of Excess capacity
4) Personal Income Tax Rates
5) Productivity
6) National Income Abroad
7) Business Taxes
8) Domestic Resource Availability
9) Price of Imported Products
10) Profit Expectations on Investments

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Refer to the above list. Changes in which combination of factors best explain why the aggregate supply curve would shift?

A) 1 and 2
B) 2 and 10
C) 3 and 6
D) 7 and 8

Question 28

The following list contains items that are related to aggregate demand and/or aggregate supply.
1) Government Spending
2) Consumer Expectations
3) Degree of Excess capacity
4) Personal Income Tax Rates
5) Productivity
6) National Income Abroad
7) Business Taxes
8) Domestic Resource Availability
9) Price of Imported Products
10) Profit Expectations on Investments

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Refer to the above list. Changes in which of the above two factors would most likely cause a change in aggregate supply?

A) 1 and 5
B) 3 and 10
C) 5 and 7
D) 8 and 9

Question 29

The following list contains items that are related to aggregate demand and/or aggregate supply.
1) Government Spending
2) Consumer Expectations
3) Degree of Excess capacity
4) Personal Income Tax Rates
5) Productivity
6) National Income Abroad
7) Business Taxes
8) Domestic Resource Availability
9) Price of Imported Products
10) Profit Expectations on Investments

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Refer to the above list. A change in which factor is most likely to change both aggregate demand and aggregate supply?

A) 3
B) 5
C) 7
D) 9

Question 30

-Refer to the above graph. Which line shows the full-employment output for the economy?

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

Question 31

- Refer to the above graph. As the price level changes, real domestic output remains constant with which line?

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

Question 32

A graph of the long-run aggregate supply curve is:

A) horizontal, and a graph of the short-run aggregate supply is upsloping.
B) upsloping, and a graph of the short-run aggregate supply is vertical.
C) upsloping, and a graph of the short-run aggregate supply is horizontal.
D) vertical, and a graph of the short-run aggregate supply is upsloping.

Question 33

- Refer to the above graph. At price level P₂:

A) the quantity of output supplied is constant.
B) the quantity of output supplied is equal to the quantity of output demanded.
C) the quantity of output supplied is greater than the quantity of output demanded.
D) the quantity of output supplied is less than the quantity of output demanded.

Question 34

- Refer to the above graph. At price level P₁:

A) the quantity of output supplied is constant.
B) the quantity of output supplied is equal to the quantity of output demanded.
C) the quantity of output supplied is greater than the quantity of output demanded.
D) the quantity of output supplied is less than the quantity of output demanded.

Question 35

The table shows the aggregate demand and aggregate supply schedule for a hypothetical economy.
Refer to the above table. Using the original data from the table, if the quantity of real domestic output demanded increased by $3000 and the quantity of real domestic output supplied increased by $1000 at each price level, the new equilibrium price level and quantity of real domestic output would be:

A) 350 and $8000.
B) 300 and $9000.
C) 250 and $8000.
D) 200 and $7000.

Question 36

-Refer to the above diagram. If AD₁ shifts to AD₂, then the equilibrium output and price level will be:

A) P₁Q₃.
B) P₂Q₃.
C) P₁Q₂.
D) P₂Q₂.

Question 37

- Refer to the above diagram. When AD₁ shifts to AD₂, real output:

A) increases from Q₁ to Q₂, while the price level stays the same.
B) increases from Q₁ to Q₃, while the price level declines.
C) increases from Q₁ to Q₂, while the price level rises.
D) stays the same, while the price level rises.

Question 38

The massive increase in government spending during World War II moved the economy in the span of a few short years from mass unemployment and price stability to "overfull" employment and severe demand-pull inflation. This situation can be best characterized by:

A) a decrease in aggregate supply.
B) an increase in aggregate supply.
C) an increase in aggregate demand.
D) a decrease in aggregate demand.

Question 39

One reason why the aggregate supply curve might shift to the left is that:

A) consumer incomes have increased.
B) per-unit production costs have increased.
C) government spending has increased.
D) businesses have become more optimistic.

Question 40

Other things being equal, a reorganization of the OPEC cartel to permit it to increase world oil prices by 70 percent would most likely have which effect?

A) It would shift the aggregate demand curve right.
B) It would shift the aggregate supply curve right.
C) It would shift the aggregate supply curve left.
D) It would shift the aggregate demand curve right and the aggregate supply curve left.

Question 41

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

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 42

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

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

Question 43

-Refer to the above diagram. Cost-push inflation can be illustrated by a:

A) shift in the aggregate supply curve from AS₁ to AS₂.
B) shift in the aggregate supply curve from AS₁ to AS₃.
C) shift in the aggregate supply curve from AS₂ to AS₃.
D) movement along the aggregate demand curve from e₁ to e₃.

Question 44

When aggregate demand decreases, product prices, wage rates, and per-unit production costs are inflexible downward because of a:

A) ratchet effect.
B) interest-rate effect.
C) real-balances effect.
D) foreign-purchases effect.

Question 45

The ratchet effect means that:

A) when aggregate supply increases, the price level decreases.
B) when aggregate supply decreases, the price level increases.
C) when aggregate demand decreases, the price level remains constant.
D) when aggregate demand increases, the price level remains constant.

Question 46

Refer to the above graph. The ratchet effect would suggest that:

A) if AD₁ moves to AD₂, the new equilibrium would be at b.
B) if AD₁ moves to AD₂, the new equilibrium would be at c.
C) if AD₂ moves to AD₁, the new equilibrium would be at a.
D) if AD₂ moves to AD₁, the new equilibrium would be at b.

Question 47

Major increases in oil prices in the mid-1970s and in the late 1970s created:

A) an increase in long-run aggregate supply.
B) a reduction in the unemployment rate.
C) adverse aggregate supply shocks.
D) beneficial aggregate demand shocks.

Question 48

The magnification of small changes in spending into larger changes in output and income is produced by:

A) the average propensity to consume.
B) the average propensity to save.
C) the multiplier effect.
D) saving.

Question 49

If a $100 billion increase in government spending results in a $500 billion increase in real GDP, then the value of the multiplier:

A) equals $400 billion.
B) equals 5.
C) equals 0.2.
D) cannot be determined.

Question 50

If the multiplier is 4 and the desired increase in real GDP is $200 billion, the initial change in spending required to achieve that goal:

A) is $50 billion.
B) is $800 billion.
C) is $200 billion.
D) cannot be determined.

Question 51

Which of the following statements about the multiplier is most accurate?

A) The multiplier applies to both increases and decreases in initial spending.
B) The multiplier only applies to increases in initial spending.
C) The multiplier only applies to decreases in initial spending.
D) The multiplier is rarely associated with changes in investment spending.

Question 52

Aggregate demand is a schedule that shows the various amounts of goods and services that only consumers and businesses desire to purchase at each possible price level.

Question 53

A change in household indebtedness will cause a movement along an existing aggregate demand curve.

Question 54

An increase in net exports reduces aggregate demand.

Question 55

The shape of a short-run aggregate supply curve basically depends on what happens to production costs and, therefore, to the prices that businesses must receive to cover costs and make a profit as real domestic output expands.

Question 56

Below the full-employment level of output, per-unit production costs rise and firms must receive higher product prices for them to be profitable.

Question 57

A rightward shift of the aggregate demand curve will increase real domestic output and the price level in the short run.

Question 58

When there is an increase in aggregate demand in the long run, there will be an increase in the price level but not in the level of output or employment.

Question 59

A decrease in aggregate demand will have no effect on the real equilibrium GDP of the economy and will lower its price level in the short run.

Question 60

A decrease in aggregate demand will have no effect on the real equilibrium GDP of the economy and will lower its price level in the long run.

Question 61

If the prices of imported resources increase, then aggregate supply will decrease.

Question 62

An increase in aggregate supply increases the real domestic output and reduces the price level effects from an increase in aggregate demand.