Deck 13: Aggregate Demand and Aggregate Supply

Question 1

The real wealth effect is one reason for the negative slope of the aggregate demand curve.

Answer 1

True

Question 2

A disaster that destroys a large part of the agricultural output of a country will not change long-run aggregate supply, while a disaster that destroys the capital stock in a major city will reduce long-run aggregate supply.

Answer 2

True

Question 3

Stagflation could be caused solely by a shift in the aggregate demand curve.

Answer 3

False

Question 4

An unexpected increase in aggregate demand results in a decrease in real wages in the short run.

Question 5

If there is currently an inflationary gap, an increase in aggregate demand will make the inflationary gap smaller, but a decrease in aggregate demand would make the inflationary gap larger.

Question 6

According to the misperception effect, firms increase output as the price level rises because they mistake the increase in overall prices for an increase in the relative price of their own output.

Question 7

At a given price level, anything that changes the amount of total purchases in the economy will cause the aggregate demand curve to shift.

Question 8

The interest rate effect helps explain why a lower price level will reduce the quantity of real goods and services demanded as an economy moves down along its aggregate demand curve.

Question 9

Increases in government regulations can make the production of goods and services more costly for producers, and the increase in production costs results in a leftward shift of both the short-run and the long-run aggregate supply curves.

Question 10

The long-run level of real GDP changes whenever the aggregate demand curve shifts.

Question 11

Higher interest rates will tend to reduce aggregate demand, other things being equal.

Question 12

If there was no real wealth or interest rate effect, the aggregate demand curve would be upward sloping.

Question 13

An increase in disposable income would tend to shift the aggregate demand curve to the left.

Question 14

The long-run aggregate supply curve is the relationship between the price level and the quantity of real GDP that is supplied once input prices have had time to fully adjust to that price level.

Question 15

A fall in the price level will cause the aggregate demand curve to shift to the left.

Question 16

The short-run aggregate supply curve is vertical at the natural level of real output.

Question 17

The aggregate supply curves show how much a nation's consumers are willing and able to consume at each price level.

Question 18

When there is a recessionary gap, one is likely to see an increase in overtime work.

Question 19

If the overall price level decreases, then the aggregate demand curve will shift to the right.

Question 20

A change that shifted the long-run aggregate supply curve to the right would not necessarily shift the short-run aggregate supply curve to the right.

Question 21

In an open economy, as the price level decreases, a(n) _____ demand for domestic goods relative to foreign goods results in a(n) _____ in the quantity of real GDP demanded.

A)increase in the; decrease
B)increase in the; increase
C)decrease in the; decrease
D)decrease in the; increase
E)constant; decrease

Question 22

If some non-price level determinant causes total spending to decrease, there will be a(n):

A)upward movement along the aggregate demand curve.
B)downward movement along the aggregate demand curve.
C)leftward shift of the aggregate demand curve.
D)rightward shift of the aggregate demand curve.
E)increase in the slope of the aggregate demand curve.

Question 23

A decrease in the U.S. price level will:

A)decrease the purchasing power of the U.S. dollar.
B)make foreign goods costlier for U.S. consumers.
C)decrease the supply of funds to the loanable funds market.
D)increase the real rate of interest.
E)encourage people to hold more money.

Question 24

Holding all other things constant, when the price level rises, interest rates:

A)rise, firms want to borrow more for new plants and equipment, and households want to borrow less for homebuilding.
B)rise, firms want to borrow less for new plants and equipment, and households want to borrow less for homebuilding.
C)fall, firms want to borrow more for new plants and equipment, and households want to borrow more for homebuilding.
D)fall, firms want to borrow less for new plants and equipment, and households want to borrow more for homebuilding.
E)remain unaffected and firms borrow the same amount for new plants and equipment but households borrow less for homebuilding.

Question 25

The aggregate demand curve reflects:

A)the total amount of real goods and services that an individual wants to purchase in a given period.
B)the total amount of real goods and services that an individual will purchase in his or her lifetime.
C)the inverse relationship between the price level and nominal GDP demand in an economy.
D)the total amount of real goods and services that a firm wants to purchase in a given period.
E)the total amount of real goods and services that all the groups in an economy want to purchase in a given period.

Question 26

When the price level rises as a result of a decrease in aggregate supply, it is called cost-push inflation.

Question 27

The interest rate effect suggests that the negative slope of the aggregate demand curve results, at least in part, because changes in the price level affect:

A)the level of taxes charged by the state.
B)the holdings of money by households and firms.
C)the real purchasing power of assets.
D)the level of income.
E)the quality of goods and services.

Question 28

In an open economy, as the price level increases, the quantity demanded of domestic goods _____, resulting in a(n) _____ in the quantity of real GDP demanded.

A)increases; decrease​
B)increases; increase
C)decreases; decrease
D)decreases; increase
E)remains constant; increase

Question 29

Which of the following does not explain why the aggregate demand curve is negatively sloped?

A)The misperception effect
B)The open economy effect
C)The real wealth effect
D)The interest rate effect
E)The substitution effect

Question 30

As the price level in an economy decreases, other things being equal, the:

A)aggregate supply in the economy increases.
B)quantity of real gross domestic product demanded increases.
C)quantity of real gross domestic product demanded decreases.
D)economy's real gross domestic product supplied increases.
E)purchasing power of its currency decreases.

Question 31

If some non-price level determinant causes total spending to increase, there will be a(n):

A)upward movement along the aggregate demand curve.
B)downward movement along the aggregate demand curve.
C)leftward shift of the aggregate demand curve.
D)rightward shift of the aggregate demand curve.
E)decrease in the slope of the aggregate demand curve.

Question 32

Which of the following will increase aggregate demand in an economy?

A)A recession forecasted by a group of economists
B)A decrease in the minimum taxable income by the government
C)An increase in consumer debt
D)A decrease in the import quota on a popular consumer good
E)An increase in the population in the economy

Question 33

Which of the following is likely to increase investment in an economy?

A)A decreased demand for investment goods
B)A fall in the real interest rate
C)A rise in the real interest rate
D)An increase in business tax
E)A surplus of goods and services

Question 34

Investment will increase if:

A)business taxes and real interest rates increase at the same time.
B)business taxes increase and real interest rates decrease at the same time.
C)business taxes decrease and real interest rates increase at the same time.
D)business taxes and real interest rates decrease at the same time.
E)business taxes remain the same and real interest rates increase.

Question 35

Sam prefers holding his savings as cash in his house. Currently, the economy is experiencing an increasing price level. He can conclude that:

A)the real purchasing power of his money has remained constant.
B)the real value of his savings has increased.
C)the real value of his savings has decreased.
D)he should not retain his savings any longer.
E)the nominal value of his savings has decreased.

Question 36

An increase in the U.S. price level will:

A)increase U.S. exports.
B)increase U.S. imports.
C)increase the quantity of real GDP demanded in the United States.
D)increase the real value of the U.S. dollar.
E)encourage people to hold less money.

Question 37

Which of the following will decrease aggregate demand in an economy?

A)Exports rising faster than imports
B)Exports falling faster than imports
C)Exports rising at the rate amount as imports
D)An appreciation in the country's currency
E)A decrease in the employment rate in the economy

Question 38

The figure below shows the relationship between the real GDP and the price level of an economy. In the figure, _____ represents aggregate demand.Figure 13-1

A)curve A
B)curve B
C)curve C
D)curve D
E)curve E

Question 39

Jason has been holding his retirement savings in a safe in his house. Currently, the economy is experiencing a falling price level. He can conclude that:

A)the real purchasing power of his money is constant.
B)the real value of his savings would increase as long as the price level falls.
C)the real value of his savings would decrease as long as the price level is falls.
D)he would have been worse off if he had deposited his savings at a bank.
E)he would have been better off if he had used a major percentage of his savings for consumption earlier.

Question 40

Which of the following will cause consumption and, as a result, aggregate demand to decrease?

A)A tax cut
B)A decrease in consumer confidence
C)An increase in population
D)An optimistic forecast of future income growth
E)A decrease in consumer debt

Question 41

The short-run aggregate supply curve:

A)has the same slope as the long-run aggregate supply curve.
B)shifts only when the long-run aggregate supply curve shifts in the same direction.
C)normally slopes upward to the right because the costs of labor and other inputs are relatively fixed in the short run.
D)normally has a slope of zero, meaning the curve is horizontal.
E)is normally perpendicular to the horizontal axis.

Question 42

Which of the following would be true if the exports of a country fell more than its imports?

A)The country's budget deficit would decrease.
B)The country's aggregate supply would increase.
C)The country's aggregate demand would decrease.
D)The country's aggregate demand would increase.
E)The country's aggregate demand would remain unaffected.

Question 43

Figure 13-2 shows shifts in the aggregate demand curve. Which of the following combinations would be illustrated by a shift in aggregate demand from AD₀ to AD₁?Figure 13-2

A)A slow increase in government purchases combined with a large decrease in investment
B)An increase in consumption combined with an increase in exports
C)An increase in business tax rates combined with a decrease in consumer confidence
D)An increase in the growth rates of a major trading partner combined with a severe slowdown in stock market wealth
E)An increase in exports combined with an even larger increase in imports

Question 44

The short-run aggregate supply curve:

A)represents a fixed volume of output.
B)reflects how much real GDP suppliers are willing and able to produce at different price levels.
C)shifts only when the long-run aggregate supply shifts.
D)is not affected at all by the price level.
E)reflects the amount of real GDP supplied when all input prices are variable.

Question 45

Along the long-run aggregate supply curve, the level of real GDP supplied:

A)does not change with increases in the price level.
B)increases with increases in the price level.
C)decreases with decreases in the price level.
D)decreases with increases in the level of investment.
E)increases with decreases in the level of investment.

Question 46

Which of the following would be true of the aggregate demand curve of an economy if investment grew by a smaller magnitude than imports?

A)The aggregate demand curve would shift to the right.
B)The aggregate demand curve would shift to the left.
C)The aggregate demand curve would not shift at all.
D)The slope of the aggregate demand curve would increase.
E)The slope of the aggregate demand curve would decrease.

Question 47

Figure 13-3 shows the relationship between real GDP and the price level in an economy. In the figure, _____ represents long-run aggregate supply?Figure 13-3

A)curve A
B)curve B
C)curve C
D)curve D
E)curve E

Question 48

The short-run aggregate supply curve is:

A)typically vertical.
B)typically downward sloping.
C)relatively steep at low levels of output.
D)typically horizontal.
E)typically upward sloping.

Question 49

If the stock market of a country continues a steady climb upwards, consumer confidence increases, leading to:

A)increased consumption and lower aggregate demand.
B)decreased consumption and higher aggregate demand.
C)increased consumption and higher aggregate demand.
D)decreased investment and higher price level.
E)increased rates of interest and lower wage rates.

Question 50

Figure 13-3 shows the relationship between real GDP and the price level in an economy. In the figure, _____ represents short-run aggregate supply?Figure 13-3​

A)curve A
B)curve B
C)curve C
D)curve D
E)curve E

Question 51

Which of the following statements is true?

A)The short-run aggregate supply curve is generally upward sloping.
B)The short-run aggregate supply curve is generally downward sloping.
C)The short-run aggregate supply curve is vertical.
D)The long-run aggregate supply curve is horizontal.
E)The long-run aggregate supply curve is generally downward sloping.

Question 52

Which of the following increases U.S. aggregate demand?

A)An increase in the price level, which increases citizens' real wealth
B)A decrease in the price level, which reduces interest rates
C)A decrease in the price level, which increase exports and decreasing imports
D)An increase in Americans' expected future incomes
E)A decrease in the price level, which increase citizens' real income

Question 53

Figure 13-2 shows shifts in the aggregate demand curve. Which of the following combinations would be illustrated by a shift in aggregate demand from AD₀ to AD₂?Figure 13-2​

A)A decrease in the minimum wage level combined with an increase in imports
B)An increase in the price levels combined with an increase in the rates of interest
C)An increase in business tax rates combined with a decrease in consumer confidence
D)An increase in the demand for domestic goods combined with an increase in welfare activities of the government
E)An increase in imports combined with even higher increase in exports

Question 54

The short-run aggregate supply curve is drawn with:

A)the price level on the vertical axis and real GDP on the horizontal axis.
B)the price level on the vertical axis and nominal GDP on the horizontal axis.
C)nominal GDP on the vertical axis and real GDP on the horizontal axis.
D)real GDP on the horizontal axis and the rate of unemployment on the vertical axis.
E)real GDP on the vertical axis and nominal GDP on the horizontal axis.

Question 55

The long run refers to:

A)a time period long enough for the prices of both output and inputs to adjust to changes in the economy.
B)any time period of more than a year.
C)a time period in which input prices can change but output prices have not had time to adjust.
D)a time period in which output prices can change but input prices have not had time to adjust.
E)a time period in which a firm's output doubles.

Question 56

One explanation for an upward-sloping short-run aggregate supply curve is the misperception effect, which is based on:

A)producers' tendency of increasing supply when they observe falling profit margins with increasing price level.
B)producers' tendency of increasing supply when they observe rising costs of production with decreasing price level.
C)producers' tendency of increasing supply when they observe fixed wage labor contracts.
D)producers' tendency of increasing supply when they observe a rise in prices.
E)producers' tendency of increasing supply when they observe a fall in prices.

Question 57

Faster growth rates of a nation's major trading partner combined with an increase in the nation's stock market wealth would:

A)shift its aggregate demand curve to the right.
B)shift its aggregate demand curve to the left.
C)cause its aggregate price level to fall.
D)increase the slope of its aggregate demand curve
E)decrease the slope of its aggregate demand curve.

Question 58

Which of the following would be true if the federal government increased military purchases and state and local governments decreased their road building budgets at the same time?

A)Aggregate demand would increase because only federal government purchases affect aggregate demand.
B)Aggregate demand would decrease because only state and local government purchases affect aggregate demand.
C)Aggregate demand would increase if the change in federal purchases were smaller than the change in state and local purchases.
D)Aggregate demand would decrease because military purchases are usually larger than state and local governments' road building budgets.
E)Aggregate demand would remain the same because federal purchases do not affect it.

Question 59

Which of the following variables changes along the long-run aggregate supply curve?

A)Real GDP
B)Investment
C)Consumption
D)Government purchases
E)Price level

Question 60

Ceteris paribus, which of the following would cause the aggregate demand curve to shift to the left?

A)A decrease in personal taxes
B)A rise in consumer confidence
C)An increase in stock market wealth
D)A decrease in transfer payments
E)A cut in corporate taxes

Question 61

Figure 13-3 shows the short-run macroeconomic equilibrium of an economy at Point A. In the figure, Point A suggests that:Figure 13-3

A)the economy is operating with an inflationary gap.
B)the economy is operating with a recessionary gap.
C)the economy is operating at long-run equilibrium.
D)tax rates are falling in the economy.
E)the government should increase its spending in the economy.

Question 62

Which of the following would shift the short-run aggregate supply curve of an industry rightward but not change its short-run aggregate supply curve?

A)An increase in money supply
B)A positive supply shock
C)A decrease in the price level
D)An increase in the price level
E)An increase in the interest rate

Question 63

In the short run, an increase in the price level:

A)decreases output prices relative to input prices.
B)decreases the profit margins of many producers.
C)decreases real GDP supplied.
D)increases aggregate supply.
E)increases output prices relative to input prices.

Question 64

A supply shock is:

A)an expected event that can either increase or decrease long-run aggregate supply permanently.
B)an unexpected temporary event that can either increase or decrease the supply of an individual firm.
C)an unexpected temporary event that can either increase or decrease the short-run aggregate supply.
D)a state of confusion that occurs during a period of hyperinflation which can lead to an increase in supply in an industry.
E)an artificially created scarcity of a particular commodity that aims at increasing the price of the commodity.

Question 65

Which of the following statements is true?

A)Any permanent change in the quantity of any factor of production available can cause a movement along the short-run aggregate supply curve.
B)Any permanent change in the quantity of any factor of production available can cause a movement along the long-run aggregate supply curve.
C)Increases in costly government regulations can cause a leftward shift of both the short-run and long-run aggregate supply curves.
D)Decreases in costly government regulations can shift the short-run aggregate supply curve upward because they increase productivity.
E)Nonlabor input prices do not affect the long-run aggregate supply curve.

Question 66

If there was no profit effect, but there was a misperception effect in the short run, then:

A)both the short-run and the long-run aggregate supply curve would be upward sloping.
B)the short-run aggregate supply curve would be upward sloping and the long-run aggregate supply curve would be vertical.
C)the short-run aggregate supply curve would be vertical and the long-run aggregate supply curve would be upward sloping.
D)both the short-run and the long-run aggregate supply curve would be vertical.
E)the short-run aggregate supply curve would be horizontal and the long-run aggregate supply curve would be vertical.

Question 67

A recession with the price level falling is generally caused by:

A)an increase in aggregate demand.
B)a decrease in aggregate demand.
C)an increase in aggregate supply.
D)a decrease in aggregate supply.
E)an increase in the government expenditure.

Question 68

The short-run aggregate supply curve of an industry would be vertical if:

A)input prices were fixed in the short run.
B)the demand for final goods was fixed in the short run.
C)there was no profit effect or misperception effect.
D)an increase in output price decreased the output of the industry.
E)output price was fixed in the short run.

Question 69

Demand-pull inflation is caused by:

A)an increase in aggregate demand.
B)a decrease in aggregate demand.
C)an increase in short-run aggregate supply.
D)a decrease in short-run aggregate supply.
E)pessimism among the consumers.

Question 70

Which of the following would shift both the short-run aggregate supply curve and the long-run aggregate supply curve leftward?

A)Decreases in the prices of the factors of production that reflect permanent changes in their supplies
B)Increases in the prices of the factors of production that do not reflect permanent changes in their supplies
C)Decreases in the prices of the factors of production that do not reflect permanent changes in their supplies
D)Increases in the prices of the factors of production that reflect permanent changes in their supplies
E)Decreases in the aggregate price level

Question 71

Which of the following would shift the short-run aggregate supply curve of an industry upward but not change its long-run aggregate supply curve?

A)A negative supply shock​
B)A positive supply shock
C)A decrease in the price level
D)An increase in the price level
E)A fall in the transport cost of a raw material required for production

Question 72

Which of the following would shift both the short-run aggregate supply curve and the long-run aggregate supply curve of iron and steel industry rightward?

A)A decrease in wage rates due to immigration​
B)A decrease in the price of oil due to the discovery of new oil fields
C)A decrease in the size of the labor force due to migration to other countries
D)An increase in corporate taxes by the government
E)An increase in the aggregate price level

Question 73

Which of the following is a difference between the short-run aggregate supply curve and the long-run aggregate supply curve?

A)The short-run aggregate supply curve is vertical, while the long-run aggregate supply curve is downward sloping.
B)The short-run aggregate supply curve is upward sloping, while the long-run aggregate supply curve is vertical.
C)The short-run aggregate supply curve is vertical, while the long-run aggregate supply curve is upward sloping.
D)The short-run aggregate supply curve is horizontal, while the long-run aggregate supply curve is vertical.
E)The short-run aggregate supply curve is downward sloping, while the long-run aggregate supply curve is vertical.

Question 74

If an individual is living in a period of continued high inflation on a fixed income, then:

A)the cost of the goods and services he or she buys decreases and his or her real income increases.
B)the cost of the goods and services he or she buys increases and his or her real income increases.
C)the cost of the goods and services he or she buys increases, but his or her real income remains the same.
D)the cost of the goods and services he or she buys increases and his or her real income decreases.
E)the cost of the goods and services he or she buys decreases and his or her real income remains the same.

Question 75

Cost-push inflation is caused by:

A)an increase in aggregate demand.
B)a decrease in aggregate demand.
C)an increase in aggregate supply.
D)a decrease in aggregate supply.
E)optimism among the consumers.

Question 76

A technological advancement that increases the productivity of an input will lead to:​

A)a leftward shift in the short-run aggregate supply curve and a rightward shift in the long-run aggregate supply curve.
B)a rightward shift in the short-run aggregate supply curve and a leftward shift in the long-run aggregate supply curve.
C)a leftward shift in the short-run aggregate supply curve, but no shift in the long-run aggregate supply curve.
D)a change in the slope of the short-run aggregate supply curve and a rightward shift in the long-run aggregate supply curve.
E)a rightward shift in both the short-run aggregate supply curve and the long-run aggregate supply curve.

Question 77

Stagflation is generally caused by:

A)an increase in aggregate demand.
B)a decrease in aggregate demand.
C)an increase in aggregate supply.
D)a decrease in aggregate supply.
E)a low rate of interest.

Question 78

In the long run, the real output level _____.

A)varies positively with the price level
B)varies negatively with the price level.
C)is equal to the natural level of real output at all price levels
D)can be either greater than or less than the natural level of real output
E)is equal to the natural level of real output at all price levels.

Question 79

Which of the following would lead to stagflation?

A)A positive supply shock
B)A negative supply shock
C)A sudden decrease in the price level
D)A sudden decrease in the unemployment rate
E)A decrease in input prices

Question 80

Which of the following will lead to a shift in the long-run aggregate supply curve of an economy?

A)The discovery of a new mineral ore in the country
B)A change in wage rates
C)A change in oil prices
D)An advancement in technology
E)An earthquake in the country