Deck 11: Aggregate Supply and Demand

Question 1

The Classical view of the economy is characterized by:

A) A laissez-faire approach.
B) The inherent instability of the economy.
C) The belief that demand creates its own supply.
D) Overt fiscal policy.

Answer 1

A

Question 2

All of the following are used to measure a country's economic welfare except:

A) A change in relative prices.
B) The unemployment rate.
C) The output produced.
D) A change in production capacity.

Answer 2

A

Question 3

Say's Law implies that:

A) The economy will not experience a long-term decrease in output.
B) Economic instability requires government intervention.
C) Flexible wages and prices require government intervention.
D) The economy is unlikely to attain full employment.

Answer 3

A

Question 4

Say's Law implies that:

A) Wages and prices are fixed.
B) Full employment equilibrium is unlikely.
C) Whatever is produced will be sold.
D) Unemployment causes inflation.

Question 5

Say's Law states that:

A) Increased prices lead to increased supply.
B) Opportunity costs will always increase.
C) Supply creates its own demand.
D) High prices cause unemployment.

Question 6

According to the text,which of the following is a macroeconomic outcome?

A) Internal market forces
B) Policy levers
C) International balance
D) Population growth

Question 7

Which of the following is a measure of overall economic well-being for the United States?

A) The U.S.unemployment rate
B) U.S.population growth
C) The behavior of U.S.monopolies
D) The price of fuel in Oregon

Question 8

Which of the following is a measure of overall economic well-being for the United States?

A) Population growth
B) GDP growth
C) Tax policy
D) Retirement benefits

Question 9

Which of the following concepts is not consistent with Classical theory?

A) Self-adjustment of the economy
B) Use of monetary policy
C) Flexible prices
D) A laissez faire approach

Question 10

According to the text,which of the following is a determinant of macroeconomic performance?

A) Prices
B) Policy levers
C) The unemployment rate
D) The international value of the dollar

Question 11

Which of the following is not included in the study of macroeconomics?

A) Business cycles
B) The unemployment rate
C) Inflation
D) Market structures

Question 12

Which of the following are policy levers?

A) Population growth,spending behavior,and invention
B) Wars,natural disasters,and trade disruptions
C) Government regulation,tax policy,and the availability of money
D) Jobs,prices,and growth

Question 13

External shocks to an economy include:

A) Innovation,population growth,and spending behavior.
B) Disruptions in trade,wars,and natural disasters.
C) Tax policy,government spending,and the availability of money.
D) Jobs,prices,and growth.

Question 14

According to the text,which of the following is not a determinant of macroeconomic outcomes?

A) Technological change
B) A major earthquake
C) Economic growth
D) An increase in the money supply

Question 15

The Classical approach dominated economic policy during:

A) The 1980s.
B) The Vietnam War.
C) World War II.
D) The period before the Great Depression.

Question 16

Which of the following is necessary for an economy to self-adjust fairly quickly,according to classical economists?

A) The use of monetary policy
B) Flexible wages and prices
C) The use of fiscal policy
D) A high unemployment rate

Question 17

Self-adjustment of markets is assumed in:

A) Classical economic theory.
B) Keynesian theory.
C) Supply-side economic theory.
D) The eclectic viewpoint.

Question 18

Which theories of the economy lead to the assertion that markets "self-adjust" to deviations from their long-term growth trend?

A) Keynesian theories
B) Monetarist theories
C) Classical theories
D) Supply-side theories

Question 19

Say's Law is consistent with the _______ view of the economy.

A) Classical
B) Keynesian
C) Monetarist
D) Supply-side

Question 20

According to Say's Law,all goods produced will be sold:

A) As long as the government establishes the correct price.
B) Because technology is constantly improving.
C) If prices are flexible and free to change.
D) If trade barriers protect domestic production.

Question 21

Which of the following is an example of the real balances effect,assuming the U.S.price level decreases?

A) The purchasing power of money increases and people buy more goods.
B) U.S.goods are less expensive for foreigners to buy and exports increase.
C) U.S.production costs stay constant and profits for businesses decrease.
D) The demand for loans decreases so interest rates decline and loan-financed purchases increase.

Question 22

A critical macroeconomic controversy is whether a market economy is inherently:

A) Stable or unstable.
B) Fair or unfair.
C) Corrupt or uncorrupt.
D) Equitable or inequitable.

Question 23

According to Keynes:

A) Small disturbances in prices and output are always short term.
B) The economy is inherently stable.
C) Government intervention in the economy is necessary at times.
D) High unemployment is always a temporary situation.

Question 24

The aggregate demand curve is:

A) Vertical.
B) Horizontal.
C) Downward sloping to the right.
D) Upward sloping to the right.

Question 25

Unlike the Classical economists,Keynes asserted that:

A) Laissez-faire would lead to macro equilibrium.
B) The economy was inherently unstable.
C) Markets would naturally self-adjust.
D) Wages and prices were flexible.

Question 26

Ceteris paribus,based on the real balances effect,if the price level falls:

A) Wealth decreases.
B) Purchasing power increases.
C) Real income decreases.
D) Business profits increase.

Question 27

The value of output in constant prices is measured by:

A) Nominal GDP.
B) Real GDP.
C) The CPI.
D) GDP per capita.

Question 28

The aggregate demand curve shows the relationship between the volume of purchases and:

A) The amount producers supply.
B) Real GDP.
C) Which goods and services people will buy.
D) The price level.

Question 29

Ceteris paribus,if the average price level falls,then the _____ effect will result in _____ in the purchases of goods and services.

A) Real balances;an increase
B) Foreign trade;a decrease
C) Interest rate;a decrease
D) Cost;an increase

Question 30

During the Great Depression,classical theorists believed that:

A) Wages would rise and full employment would be restored.
B) Full employment was unlikely without government spending.
C) Monetary policy was necessary to decrease interest rates.
D) Decreases in production were temporary.

Question 31

Which of the following is not a reason for the downward slope of the aggregate demand curve?

A) The real balances effect
B) The foreign trade effect
C) The cost effect
D) The interest rate effect

Question 32

Keynes and classical economists disagree about whether:

A) Government intervention should be used to correct business cycles.
B) Unemployment occurs.
C) Supply-side policies should be used to correct business cycles.
D) Business cycles occur.

Question 33

According to the real balances effect,when the price level:

A) Falls,cash is worth less and therefore people buy less.
B) Falls,cash is worth more and therefore people buy more.
C) Rises,cash is worth less and therefore people buy more.
D) Rises,cash is worth more and therefore people buy less.

Question 34

The difference between market demand and aggregate demand is that:

A) Market demand applies to all individuals,and aggregate demand does not.
B) Aggregate demand applies to a specific good,and market demand does not.
C) Policy levers work through market demand but not aggregate demand.
D) Aggregate demand applies to all goods and market demand applies to a specific gooD.

Question 35

The foreign trade effect states that,ceteris paribus:

A) The quantity demanded of domestic goods falls when the domestic price level falls.
B) The quantity demanded of imported goods falls when the price of imported goods falls.
C) Foreign consumers have more incentive to buy American-made products when U.S.prices rise.
D) The quantity demanded of domestic goods rises when the domestic price level falls.

Question 36

Ceteris paribus,based on the aggregate demand curve,if the price level _______ the quantity of real output _______ increases.

A) Increases;produced
B) Decreases;produced
C) Increases;demanded
D) Decreases;demanded

Question 37

Keynesian theory became important when classical economic theory did not adequately explain a prolonged period of:

A) Inflation with low unemployment.
B) Inflation with high unemployment.
C) Deflation with low unemployment.
D) Deflation with high unemployment.

Question 38

The aggregate demand curve is downward sloping because,ceteris paribus:

A) People are willing and able to buy more goods and services at lower average prices.
B) People buy fewer goods and services at lower average incomes.
C) A higher average price level induces producers to offer more output.
D) A higher average price level causes incomes to increase.

Question 39

The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is:

A) Market demand.
B) Aggregate demand.
C) Market supply.
D) Aggregate supply.

Question 40

Aggregate demand:

A) Refers to the collective behavior of all buyers.
B) Reflects the total quantity of output produced.
C) Increases when the price level increases.
D) Is influenced directly by aggregate supply.

Question 41

According to the foreign trade effect,when the U.S.price level decreases,U.S.consumers are likely to buy:

A) More American-made products.
B) Different American-made products.
C) More foreign-made products.
D) Less of all products,both American made and foreign made.

Question 42

At macro equilibrium:

A) Exports equal imports.
B) Money supply equals money demand.
C) Population growth is stable.
D) Aggregate demand equals aggregate supply.

Question 43

One explanation for why production costs tend to rise as output increases is that producers:

A) May have to pay overtime wages to workers.
B) May decide to lay-off workers.
C) Will pay lower prices for necessary inputs.
D) Will lower base wages to workers.

Question 44

Which of the following will occur if the aggregate quantity supplied is less than the aggregate quantity demanded?

A) Aggregate demand will shift to the right
B) Aggregate supply will shift to the left
C) There will be a shortage
D) There will be a surplus

Question 45

Which of the following suggests that lower average prices stimulate more borrowing?

A) The cost effect
B) The interest rate effect
C) The real balances effect
D) The profit effect

Question 46

Which of the following is an explanation of why the aggregate supply curve slopes upward,assuming the price level increases?

A) The purchasing power of money decreases and businesses buy fewer goods
B) The costs of production increase in the short run and profits become smaller
C) Production costs increase and producers charge higher prices for their goods
D) The demand for loans decreases so interest rates decline and businesses borrow more money

Question 47

Which of the following is an example of the foreign trade effect,assuming the U.S.price level decreases?

A) The purchasing power of money decreases and people buy fewer goods.
B) U.S.goods are less expensive for Americans so they buy fewer imports and more domestic goods.
C) U.S.production costs stay constant and profits for businesses increase.
D) The demand for loans decreases so interest rates decline and loan-financed purchases increase.

Question 48

The short-run aggregate supply curve is:

A) Vertical at all levels of output.
B) Horizontal at all levels of output.
C) Downward sloping to the right.
D) Upward sloping to the right.

Question 49

Which of the following will occur if the price level is below the equilibrium level?

A) Consumers will bid the price level up by competing for goods
B) The quantity demanded will increase as the price level increases
C) The quantity supplied will decrease as the price level increases
D) Producers will bid the price level down by competing for buyers

Question 50

When the U.S.price level increases relative to the price level in foreign economies,U.S.consumers tend to buy:

A) Fewer imported goods and fewer domestically produced goods,ceteris paribus.
B) Fewer imported goods and more domestically produced goods,ceteris paribus.
C) More imported goods and fewer domestically produced goods,ceteris paribus.
D) More imported goods and more domestically produced goods,ceteris paribus.

Question 51

At the intersection of the aggregate supply and aggregate demand curves,the economy is experiencing:

A) Full employment.
B) Macro equilibrium.
C) Low levels of inflation.
D) Population growth.

Question 52

The intersection of the aggregate demand and supply curves definitely establishes:

A) Full-employment GDP.
B) Macro equilibrium.
C) An inflation rate of zero.
D) An unemployment rate of zero.

Question 53

Macro equilibrium always occurs:

A) When aggregate supply is greater than aggregate demand.
B) When the labor force is fully employed.
C) When aggregate demand equals aggregate supply at the average price level.
D) At a zero inflation rate.

Question 54

Which of the following results if the aggregate quantity supplied exceeds the aggregate quantity demanded?

A) Aggregate demand shifts to the right
B) Aggregate supply shifts to the right
C) A surplus pushes the average prices down to macro equilibrium
D) A shortage pushes the average prices up to macro equilibrium

Question 55

The total amount of output producers are willing and able to produce at alternative price levels in a given time period is known as:

A) Aggregate demand.
B) Aggregate supply.
C) Real GDP.
D) Macro equilibrium.

Question 56

The aggregate supply curve is positively sloped because as the price level increases:

A) Profit margins increase in the short run.
B) Costs of production decline in the short run.
C) The purchasing power of money increases.
D) The cost of borrowing declines.

Question 57

Ceteris paribus,based on the aggregate supply curve,if the price level _______ the quantity of real output _______ increases.

A) Increases;produced
B) Decreases;produced
C) Increases;demanded
D) Decreases;demanded

Question 58

If the price level is:

A) Above equilibrium,this results in excess supply.
B) Above equilibrium,this results in a shortage.
C) Below equilibrium,this results in an increase in the quantity of output offered for sale.
D) Below equilibrium,this results in a surplus.

Question 59

The aggregate demand curve is downward-sloping because,other things being equal:

A) People buy more goods and services at lower average incomes.
B) A lower average price level causes lower interest rates,which stimulate loan-financed purchases.
C) A higher average price level will induce producers to offer more output than otherwise.
D) People buy more goods and services at higher average prices.

Question 60

Which of the following is an example of the interest-rate effect,assuming the U.S.price level decreases?

A) The purchasing power of money decreases and people buy more goods
B) U.S.goods are more expensive for foreigners to buy and exports decrease
C) U.S.production costs increase and producers charge higher prices
D) The demand for loans decreases so interest rates decline and loan-financed purchases increase

Question 61

Ceteris paribus,a leftward shift of the aggregate demand curve will cause the equilibrium price level to _______ and equilibrium real output to _______.

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

Question 62

Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should:

A) Cut taxes and/or increase government spending.
B) Cut taxes and/or reduce government spending.
C) Raise taxes and/or increase government spending.
D) Raise taxes and/or reduce government spending.

Question 63

An increase in the average level of prices of goods and services is known as:

A) Price elevation.
B) Deflation.
C) Inflation.
D) The law of demanD.

Question 64

The aggregate demand curve is most likely to shift to the right when:

A) Consumer spending falls.
B) Taxes fall.
C) Government spending falls.
D) Technology improves.

Question 65

Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn,ceteris paribus?

A) Aggregate supply will decrease or shift to the left
B) Aggregate supply will increase or shift to the right
C) Aggregate demand will increase or shift to the right
D) Aggregate demand will decrease or shift to the left

Question 66

Which of the following would cause the aggregate demand curve to decrease,ceteris paribus?

A) Strong performance of foreign economies.
B) A decrease in interest rates.
C) An increase in income taxes.
D) An increase in the value of the stock market.

Question 67

Ceteris paribus,a leftward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to _______.

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

Question 68

The inability of labor-force participants to find jobs is known as:

A) Full employment.
B) Unemployment.
C) Cyclical employment.
D) Underemployment.

Question 69

Controversies between Keynesian,monetarist,supply-side,and eclectic theories focus on:

A) The shape and sensitivity of aggregate supply and aggregate demand curves.
B) The existence or nonexistence of the aggregate supply curve.
C) The importance of international balances to the economy.
D) The usefulness of aggregate demand and supply in analyzing macro equilibrium.

Question 70

Macro controversies focus primarily on the:

A) Level of interest rates.
B) Federal budget deficit.
C) Potential to shift aggregate demand and supply.
D) Potential to change imports and exports.

Question 71

Which of the following is definitely true if the economy is in macro equilibrium?

A) The price level is optimal,but the output level may not be
B) The output level is optimal,but the price level may not be
C) The price level and the output level are both optimal
D) The price level and the output level may or may not be optimal

Question 72

If the stock market plunged over the next week,consumers would:

A) Rush to buy more goods and services.
B) Buy more stocks to make up for their losses.
C) Demand fewer goods and services.
D) Cause the aggregate demand curve to shift to the right.

Question 73

According to Keynes,which of the following should occur because of a decrease in government expenditure,ceteris paribus?

A) A leftward shift of the aggregate supply curve.
B) A rightward shift of the aggregate supply curve.
C) A leftward shift of the aggregate demand curve.
D) A rightward shift of the aggregate demand curve.

Question 74

Which of the following is likely to cause a leftward shift in the aggregate supply curve,ceteris paribus?

A) An increase in consumer confidence
B) A decrease in taxes for businesses
C) An increase in the supply of skilled labor
D) An increase in the cost of natural gas

Question 75

Keynesian theory is referred to as a:

A) Supply-side theory.
B) Demand-side theory.
C) Full-employment theory.
D) GDP gap theory.

Question 76

Which of the following is likely to occur if a terrorist attack stops air travel in a country for some time,ceteris paribus?

A) Aggregate supply will decrease or shift to the left
B) Aggregate supply will increase or shift to the right
C) Aggregate demand will increase or shift to the right
D) Aggregate demand will decrease or shift to the left

Question 77

Which of the following is a mechanism Keynes advocated for dealing with a situation of depressed output?

A) Laissez-faire
B) Raising taxes
C) Increasing government expenditure
D) Increasing supply incentives

Question 78

If an economy is experiencing a recession,the Keynesian approach to achieving full employment is to:

A) Use various supply-side options,such as deregulation.
B) Decrease the growth of the money supply.
C) Do nothing.
D) Employ expansionary fiscal policy.

Question 79

Ceteris paribus,a rightward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to _______.

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

Question 80

Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall,ceteris paribus?

A) Aggregate supply will decrease or shift to the left.
B) Aggregate supply will increase or shift to the right.
C) Aggregate demand will increase or shift to the right.
D) Aggregate demand will decrease or shift to the left.