Deck 33: Aggregate Demand and Aggregate Supply

Question 1

During recessions

A)workers are laid off.
B)factories are idle.
C)firms may find they are unable to sell all they produce.
D)All of the above are correct.

Answer 1

D

Question 2

In 2001,the United States was in recession.Which of the following things would you expect not to have happened?

A)increased layoffs and firings
B)a higher rate of bankruptcy
C)increased claims for unemployment insurance
D)increased investment spending

Answer 2

D

Question 3

Which of the following is correct?

A)Over the business cycle consumption fluctuates more than investment.
B)Economic fluctuations are easy to predict.
C)During recessions sales and profits tend to fall.
D)Because of government policy the U.S.has suffered no recessions in the last 25 years.

Answer 3

C

Question 4

Real GDP

A)moves in the same direction as unemployment.
B)is not adjusted for inflation.
C)also measures real income.
D)All of the above are correct.

Question 5

During recessions declines in investment account for about

A)1/6 of the decline in real GDP.
B)1/3 of the decline in real GDP.
C)1/2 of the decline in real GDP.
D)2/3 of the decline in real GDP.

Question 6

Most economists use the aggregate demand and aggregate supply model primarily to analyze

A)short-run fluctuations in the economy.
B)the effects of macroeconomic policy on the prices of individual goods.
C)the long-run effects of international trade policies.
D)productivity and economic growth.

Question 7

Which of the following is correct concerning recessions?

A)They come at fairly regular and predictable intervals.
B)They are associated with comparatively large declines in investment spending.
C)They are any period when real GDP growth is less than average.
D)They tend to be associated with falling unemployment rates.

Question 8

Historically,the change in real GDP during recessions has been

A)mostly a change in investment spending.
B)mostly a change in consumption spending.
C)about equally divided between consumption and investment spending.
D)sometimes mostly a change in consumption and sometimes mostly a change in investment.

Question 9

On average over the past 50 years,the U.S.economy has grown at the rate of about

A)1 percent per year.
B)3 percent per year.
C)4 percent per year.
D)6 percent per year.

Question 10

As recessions begin,production

A)and unemployment both rise.
B)rises and unemployment falls.
C)falls and unemployment rises.
D)and unemployment both fall.

Question 11

During a recession the economy experiences

A)rising employment and income.
B)rising employment and falling income.
C)rising income and falling employment.
D)falling employment and income.

Question 12

During recessions

A)sales and profits fall.
B)sales and profits rise.
C)sales rise, profits fall.
D)profits fall, sales rise.

Question 13

Which part of real GDP fluctuates most over the course of the business cycle?

A)consumption expenditures
B)government expenditures
C)investment expenditures
D)net exports

Question 14

Which of the following is correct?

A)Economic fluctuations are easily predicted by competent economists.
B)Recessions have never occurred very close together.
C)Other measures of spending, income, and production do not fluctuate closely with real GDP.
D)None of the above is correct.

Question 15

A short period of falling incomes and rising unemployment is called a

A)depression.
B)recession.
C)expansion.
D)business cycle.

Question 16

Investment is a

A)small part of real GDP, so it accounts for a small share of the fluctuation in real GDP.
B)small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
C)large part of real GDP, so it accounts for a large share of the fluctuation in real GDP.
D)large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP.

Question 17

Which of the following explains why production rises in most years?

A)increases in the labor force
B)increases in the capital stock
C)advances in technological knowledge
D)All of the above are correct.

Question 18

During recessions investment

A)falls by a larger percentage than GDP.
B)falls by about the same percentage as GDP.
C)falls by a smaller percentage than GDP.
D)falls but the percentage change is sometimes much larger and sometimes much smaller.

Question 19

Real GDP

A)is the current dollar value of all goods produced by the citizens of an economy within a given time.
B)measures economic activity and income.
C)is used primarily to measure long-run trends rather than short-run fluctuations.
D)All of the above are correct.

Question 20

Which of the following typically rises during a recession?

A)garbage collection
B)unemployment
C)corporate profits
D)automobile sales

Question 21

The model of short-run economic fluctuations focuses on the price level and

A)real GDP.
B)economic growth.
C)the neutrality of money.
D)None of the above is correct.

Question 22

To say that money is a veil means that

A)while nominal variables are the first thing we may observe about an economy, what's important are the real variables and the forces that determine them.
B)money is the principal medium of exchange in most economies.
C)the primary determinant of short-run economic fluctuations is not real variables, but rather changes in the money supply.
D)in the long run money is of no importance to the determination of either real or nominal variables.

Question 23

The aggregate demand curve

A)has a slope that is explained in the same way as the slope of the demand curve for a particular product.
B)is vertical in the long run.
C)shows an inverse relation between the price level and the quantity of all goods and services demanded.
D)All of the above are correct.

Question 24

Which of the following adjusts to bring aggregate supply and demand into balance?

A)the price level and real output
B)the real rate of interest and the money supply
C)government expenditures and taxes
D)the saving rate and net exports

Question 25

The model of aggregate demand and aggregate supply explains the relationship between

A)the price and quantity of a particular good.
B)unemployment and output.
C)wages and employment.
D)real GDP and the price level.

Question 26

According to classical macroeconomic theory,changes in the money supply affect

A)nominal variables and real variables.
B)nominal variables, but not real variables.
C)real variables, but not nominal variables.
D)neither nominal nor real variables.

Question 27

Below are pairs of GDP growth rates and unemployment rates.Economists would be shocked to see most of these pairs.Which pair of GDP growth rates and unemployment rates is realistic?

A)6 percent, 0 percent
B)3 percent, 10 percent
C)-1 percent, 6 percent
D)-3 percent, 2 percent

Question 28

The average price level is measured by

A)any real variable.
B)the rate of inflation.
C)the level of the money supply.
D)the CPI or the GDP deflator.

Question 29

According to classical macroeconomic theory,changes in the money supply affect

A)real GDP and the price level.
B)real GDP but not the price level.
C)the price level, but not real GDP.
D)neither the price level nor real GDP.

Question 30

The quantity of money has no real impact on things people really care about like whether or not they have a job.Most economists would agree that this statement is appropriate concerning

A)both the short run and the long run.
B)the short run, but not the long run.
C)the long run, but not the short run.
D)neither the long run nor the short run.

Question 31

During the last half of 1980,the U.S.unemployment rate was about 7.5 percent.Historical experience suggests that this is

A)above the natural rate, so that real GDP growth was likely low.
B)above the natural rate, so that real GDP growth was likely high.
C)below the natural rate, so that real GDP growth was likely low.
D)below the natural rate, so that real GDP growth was likely high.

Question 32

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production.This is inconsistent with monetary neutrality because

A)monetary neutrality would mean that neither prices nor production should have risen.
B)monetary neutrality would mean that production should have risen, but prices should not have.
C)monetary neutrality would mean the prices should have risen, but production should not have changed.
D)monetary neutrality would mean that prices and production should both have fallen.

Question 33

Below are pairs of GDP growth rates and unemployment rates.Economists would be shocked to see most of these pairs.Which pair of GDP growth rates and unemployment rates is realistic?

A)5 percent, 1 percent
B)3 percent, 5 percent
C)-1 percent, 3 percent
D)-2 percent, 4 percent

Question 34

In the last half of 1999,the U.S.unemployment rate was about 4 percent.Historical experience suggests that this is

A)above the natural rate, so that real GDP growth was likely low.
B)above the natural rate, so that real GDP growth was likely high.
C)below the natural rate, so that real GDP growth was likely low.
D)below the natural rate, so that real GDP growth was likely high.

Question 35

Which of the sentences concerning the aggregate demand and aggregate supply model is correct?

A)The aggregate demand and supply model is nothing more than a large version of the model of market demand and supply.
B)The price level and quantity of output adjust to bring aggregate demand and supply into balance.
C)The aggregate supply curve shows the quantity of goods and services that households, firms, and the government want to buy at each price.
D)All of the above are correct.

Question 36

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are

A)the price level, real output.
B)real output, employment.
C)employment, the inflation rate.
D)the value of money, the price level.

Question 37

Real and nominal variables are highly intertwined,and changes in the money supply change real GDP.Most economists would agree that this statement accurately describes

A)both the short run and the long run.
B)the short run, but not the long run.
C)the long run, but not the short run.
D)neither the long run nor the short run.

Question 38

Most economists believe that after a few years,changes in the money supply change

A)only nominal variables, but not real variables.
B)only real variables, but not nominal variables.
C)neither nominal nor real variables.
D)both nominal and real variables.

Question 39

Most economists believe that classical macroeconomic theory is a good description of the world

A)in neither the short nor long run.
B)in the short run and in the long run.
C)in the short run, but not in the long run.
D)in the long run, but not in the short run.

Question 40

The classical dichotomy refers to the separation of

A)variables that move with the business cycle and variables that do not.
B)changes in money and changes in government expenditures.
C)decisions made by the public and decisions made by the government.
D)real and nominal variables.

Question 41

Other things the same,an increase in the price level makes the dollars people hold worth

A)more, so they spend more.
B)more, so they spend less.
C)less, so they spend more.
D)less, so they spend less.

Question 42

People will spend more if real wealth

A)and interest rates rise.
B)rises and interest rates fall.
C)falls and interest rates rise.
D)and interest rates fall.

Question 43

Other things the same,a fall in the economy's overall level of prices tends to

A)raise both the quantity demanded and supplied of goods and services.
B)raise the quantity demanded of goods and services, but lower the quantity supplied.
C)lower the quantity demanded of goods and services, but raise the quantity supplied.
D)lower both the quantity demanded and the quantity supplied of goods and services.

Question 44

Which of the following is not included in aggregate demand?

A)purchases of stock and bonds
B)purchases of services such as visits to the doctor
C)purchases of capital goods such as equipment in a factory
D)purchases by foreigners of consumer goods produced in the United States

Question 45

Other things the same,a decrease in the price level makes the dollars people hold worth

A)more, so they are willing to spend more.
B)more, so they are willing to spend less.
C)less, so they are willing to spend more.
D)less, so they are willing to spend less.

Question 46

The wealth effect,interest rate effect,and exchange rate effect are all explanations for

A)the slope of short-run aggregate supply.
B)the slope of long-run aggregate supply.
C)the slope of the aggregate demand curve.
D)everything that makes the aggregate demand curve shift.

Question 47

Other things the same,as the price level falls,a country's exchange rate

A)and interest rates rise.
B)and interest rates fall.
C)falls and interest rates rise.
D)rises and interest rates fall.

Question 48

Other things the same,as the price level rises,the real value of money

A)and the exchange rate rise.
B)and the exchange rate fall.
C)rises and the exchange rate falls.
D)falls and the exchange rate rises.

Question 49

Other things the same,as the price level falls,

A)the money supply falls.
B)interest rates rise.
C)a dollar buys more domestic goods.
D)the aggregate demand curve shifts right.

Question 50

Which of the following is included in the aggregate demand for goods and services?

A)consumption demand
B)investment demand
C)net exports
D)All of the above are correct.

Question 51

Other things the same,an increase in the price level makes consumers feel

A)less wealthy, so the quantity of goods and services demanded falls.
B)less wealthy, so the quantity of goods and services demanded rises.
C)more wealthy, so the quantity of goods and services demanded rises.
D)more wealthy, so the quantity of goods and services demanded falls.

Question 52

People will spend more if the price level

A)rises because rising prices increase the real value of a dollar.
B)rises because rising prices decrease the real value of a dollar.
C)falls because falling prices increase the real value of a dollar.
D)falls because falling prices decrease the real value of a dollar.

Question 53

Other things the same,as the price level falls,the real value of a dollar

A)rises, and interest rates rise.
B)rises, and interest rates fall.
C)falls, and interest rates rise.
D)falls, and interest rates fall.

Question 54

As the price level rises

A)people will want to buy more bonds, so the interest rate rises.
B)people will want to buy fewer bonds, so the interest rate falls.
C)people will want to buy more bonds, so the interest rate falls.
D)people will want to buy fewer bonds, so the interest rate rises.

Question 55

Other things the same,the aggregate quantity of goods demanded in the U.S.increases if

A)real wealth falls.
B)the interest rate rises.
C)the dollar depreciates.
D)None of the above is correct.

Question 56

Other things the same,if the price level rises,households

A)increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.
B)increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.
C)decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.
D)decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.

Question 57

Other things the same,as the price level rises,exchange rates

A)and interest rates rise.
B)and interest rates fall.
C)fall and interest rates rise.
D)rise and interest rates fall.

Question 58

Other things the same,as the price level rises,the real value of a dollar

A)rises, and interest rates rise.
B)rises, and interest rates fall.
C)falls, and interest rates rise.
D)falls, and interest rates fall.

Question 59

Other things the same,if the price level falls,households

A)increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.
B)increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.
C)decrease foreign bond purchases, so the supply of dollars in market for foreign-currency exchange increases.
D)decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.

Question 60

The effect of an increase in the price level on aggregate demand is represented by a

A)shift to the right of the aggregate demand curve.
B)shift to the left of the aggregate demand curve.
C)movement to the left along a given aggregate demand curve.
D)movement to the right along a given aggregate demand curve.

Question 61

A decrease in U.S.interest rates leads to

A)a depreciation of the dollar that leads to greater net exports.
B)a depreciation of the dollar that leads to smaller net exports.
C)an appreciation of the dollar that leads to greater net exports.
D)an appreciation of the dollar that leads to smaller net exports.

Question 62

Other things the same,an increase in the price level induces people to hold

A)less money, so they lend less, and the interest rate rises.
B)less money, so they lend more, and the interest rate falls.
C)more money, so they lend more, and the interest rate falls.
D)more money, so they lend less, and the interest rate rises.

Question 63

Other things the same,a decrease in the price level induces people to hold

A)less money, so they lend less, and the interest rate rises.
B)less money, so they lend more, and the interest rate falls.
C)more money, so they lend more, and the interest rate rises.
D)more money, so they lend less, and the interest rate falls.

Question 64

Investment spending decreases when the price level

A)rises and interest rates rise.
B)rises and interest rates fall.
C)falls and interest rates rise.
D)falls and interest rates fall.

Question 65

An increase in the price level causes the interest rate to

A)increase, the dollar to depreciate, and net exports to increase.
B)increase, the dollar to appreciate, and net exports to decrease.
C)decrease, the dollar to depreciate, and net exports to increase.
D)decrease, the dollar to appreciate, and net exports to decrease.

Question 66

Other things the same,as the price level falls,which of the following increases?

A)lending and investment spending
B)lending, but not investment spending
C)investment spending, but not lending
D)neither investment spending nor lending

Question 67

Other things the same,the aggregate quantity of goods demanded in the U.S.increases if

A)real wealth rises.
B)the interest rate rises.
C)the dollar appreciates.
D)All of the above are correct.

Question 68

When the dollar appreciates,U.S.

A)exports decrease, while imports increase.
B)exports and imports decrease.
C)exports and imports increase.
D)exports increase, while imports decrease.

Question 69

The change in the quantity of goods and services demanded in the U.S.is based on the logic that as the price level rises,

A)real wealth falls, interest rates rise, and the dollar appreciates.
B)real wealth falls, interest rates rise, and the dollar depreciates.
C)real wealth rises, interest rates fall, and the dollar appreciates.
D)real wealth rises, interest rates fall, and the dollar depreciates.

Question 70

The slope of the U.S.aggregate demand curve is based partly on the conclusion that as the price level rises,

A)the dollar depreciates.
B)the interest rate falls.
C)people feel less wealthy.
D)All of the above are correct.

Question 71

An increase in the interest rate causes investment to

A)rise and the exchange rate to appreciate.
B)fall and the exchange rate to depreciate.
C)rise and the exchange rate to depreciate.
D)fall and the exchange rate to appreciate.

Question 72

When the dollar depreciates,each dollar buys

A)more foreign currency, and so buys more foreign goods.
B)more foreign currency, and so buys fewer foreign goods.
C)less foreign currency, and so buys more foreign goods.
D)less foreign currency, and so buys fewer foreign goods.

Question 73

Other things the same,a decrease in the price level causes real wealth to

A)fall, interest rates to fall, and the dollar to appreciate.
B)fall, interest rates to rise, and the dollar to depreciate.
C)rise, interest rates to rise, and the dollar to appreciate.
D)rise, interest rates to fall, and the dollar to depreciate.

Question 74

Other things the same,when the price level rises,

A)interest rates rise, so firms increase investment.
B)interest rates rise, so firms decrease investment.
C)interest rates fall, so firms increase investment.
D)interest rates fall, so firms decrease investment.

Question 75

Other things the same,a decrease in the price level causes the interest rate to

A)increase, the dollar to appreciate, and net exports to increase.
B)increase, the dollar to depreciate, and net exports to decrease.
C)decrease, the dollar to depreciate, and net exports to increase.
D)decrease, the dollar to appreciate, and net exports to decrease.

Question 76

When the dollar depreciates,U.S.

A)exports and imports increase.
B)exports increase, while imports decrease.
C)exports decrease, while imports increase.
D)exports and imports decrease.

Question 77

Other things the same,as the price level decreases it induces greater spending on

A)both net exports and investment.
B)net exports but not investment.
C)investment but not net exports.
D)neither net exports nor investment.

Question 78

Other things the same,a decrease in the U.S.price level leads to

A)a rise in U.S.interest rates and increased demand for foreign bonds.
B)a rise in U.S.interest rates and decreased demand for foreign bonds.
C)a fall in U.S.interest rates and increased demand for foreign bonds.
D)a fall in U.S.interest rates and decreased demand for foreign bonds.

Question 79

Other things the same,the aggregate quantity of goods demanded decreases if

A)real wealth falls.
B)the interest rate rises.
C)the dollar appreciates.
D)All of the above are correct.

Question 80

Other things the same,when the price level falls,interest rates

A)rise, so firms increase investment.
B)rise, so firms decrease investment.
C)fall, so firms increase investment.
D)fall, so firms decrease investment.