Deck 9: Aggregate Demand and Supply

Question 1

Which of the following is NOT a reason the aggregate demand curve is negatively sloped?

A) income effect
B) wealth effect
C) impact on exports
D) the interest rate effects

Answer 1

income effect

Question 2

According to Keynes,what determines the level of employment and income?

A) aggregate expenditures
B) aggregate savings
C) government spending
D) aggregate supply

Answer 2

aggregate expenditures

Question 3

The aggregate demand curve slopes _____ and has _____ on the vertical axis.

A) downward;output
B) downward;the price level
C) upward;output
D) upward;the price level

Answer 3

downward;the price level

Question 4

Increased taxes will shift the aggregate demand curve to the _____ and _____ output demanded.

A) left;decrease
B) left;increase
C) right;increase
D) right;decrease

Question 5

Who recognized the need to develop tools to analyze the macroeconomy as a whole?

A) Adam Smith
B) Karl Marx
C) John Maynard Keynes
D) Milton Friedman

Question 6

Because of the wealth effect,a rising aggregate price level ____ the purchasing power of wealth and therefore _____ output demanded.

A) increases;increases
B) increases;reduces
C) reduces;increases
D) reduces;reduces

Question 7

Decreased interest rates will shift the aggregate demand curve to the _____ and _____ output demanded.

A) left;decrease
B) left;increase
C) right;increase
D) right;decrease

Question 8

A falling aggregate price level ____ demand for a country's exports and therefore _____ output demanded.

A) increases;increases
B) increases;reduces
C) reduces;increases
D) reduces;reduces

Question 9

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

A) left;decrease
B) left;increase
C) right;increase
D) right;decrease

Question 10

A stronger dollar will shift the U.S.aggregate demand curve to the _____ and _____ output demanded.

A) left;decrease
B) left;increase
C) right;increase
D) right;decrease

Question 11

According to John Maynard Keynes,what determines employment and income?

A) aggregate supply
B) government spending alone
C) aggregate expenditures
D) wages,prices,and interest rates

Question 12

When home values collapsed in the period that began in 2008,it reduced many Americans':

A) bank balances.
B) household wealth.
C) household income.
D) retirement accounts.

Question 13

Which of the following items is NOT a determinant of aggregate demand?

A) consumption
B) investment
C) government saving
D) government spending

Question 14

A rising aggregate price level _______ an economy's interest rates and therefore _____ output demanded.

A) increases;increases
B) increases;reduces
C) reduces;increases
D) reduces;reduces

Question 15

The ______ effect is a reason for the negative slope of the aggregate demand curve.

A) income
B) substitution
C) interest rate
D) multiplier

Question 16

In the Keynesian model,the price level is ___________;in the aggregate demand and supply model,the price level is _______________.

A) fixed;fixed
B) flexible;flexible
C) flexible;fixed
D) fixed;flexible

Question 17

The collapse of home values that began in 2008 led to ____ in Americans' saving rates,shifting aggregate demand to the ____.

A) a decrease;left
B) a decrease;right
C) an increase;left
D) an increase;right

Question 18

The collapse of home values that began in 2008 led to ____ in Americans' consumption and _____ in their saving rates.

A) a decrease;a decrease
B) a decrease;an increase
C) an increase;a decrease
D) an increase;an increase

Question 19

A(n)__________ in government spending,a __________ domestic currency,and ________ interest rates will shift a country's aggregate demand to the left.

A) decrease;stronger;higher
B) increase;weaker;higher
C) increase;stronger;lower
D) decrease;weaker;lower

Question 20

Which of the following events causes an increase in aggregate demand?

A) decreasing wealth
B) falling interest rates
C) decrease in government spending
D) rising imports

Question 21

Which of the following would NOT cause a shift in the aggregate demand curve?

A) a change in consumption spending
B) a change in the price level
C) a change in investment
D) a change in net exports

Question 22

Which of the following would NOT cause a shift in the aggregate demand curve?

A) a stock market crash
B) a reduction in raw material prices
C) a decrease in real interest rates
D) an increase in the expected rate of inflation

Question 23

An increase in net export spending will result in a(n):

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

Question 24

_____ is the output of goods and services demanded at different price levels.

A) Aggregate expenditure
B) Aggregate demand
C) Aggregate spending
D) Aggregate supply

Question 25

The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS)model is that the:

A) Keynesian model assumes that prices are constant.
B) AD/AS model assumes that prices are constant.
C) Keynesian model assumes full employment.
D) AD/AS model assumes that equilibrium always occurs at less than full employment.

Question 26

The aggregate demand curve displays:

A) real GDP demanded at various price levels.
B) nominal GDP versus real GDP.
C) GDP demanded at various investment levels.
D) the business cycle.

Question 27

Which of the following events will NOT cause a rightward shift of the aggregate demand curve?

A) Consumers expect a contraction is on the way.
B) A decrease in interest rates leads to an increase in investment.
C) The dollar depreciates.
D) The government decides to spend more money on goods.

Question 28

The curve that shows how much GDP is demanded at various price levels is called:

A) the aggregate expenditures schedule.
B) the consumption line.
C) aggregate demand.
D) aggregate supply.

Question 29

One reason the amount of real output demanded declines when the aggregate price level rises is the resulting reduction in household wealth,called the:

A) income effect.
B) substitution effect.
C) wealth effect.
D) interest rate effect.

Question 30

A change in _____ will cause a change in the quantity demanded of real GDP.

A) consumer spending
B) investment
C) the price level
D) imports

Question 31

Which of the following best illustrates the wealth effect?

A) Jacob saved $25,000,which he put in the stock market.The market suddenly did very well,and though Jacob is not yet aware of it,his stock portfolio value rose to $36,000.
B) Simon felt he needed at least $800,000 to retire comfortably.He increased his saving to build up his wealth.
C) The Jones family has $50,000 in a bank.Price at the stores rose dramatically,so the purchasing power represented by that $50,000 diminished.
D) Margaret had her savings in Treasury bonds.She thought that stocks might offer her a better opportunity to increase her wealth,so she sold her bonds to buy stocks.

Question 32

The output of all the goods and services demanded in an economy at various price levels is called:

A) the quantity-price locus.
B) aggregate demand.
C) economic production.
D) the price-output curve.

Question 33

The Potbelly Pothole Company is undertaking some investment in its plant.Suppose interest rates fall and new technologies increase the return on its investment.What is likely to happen?

A) The company's demand for investment will fall.
B) There will be no change in the company's demand for investment.
C) The company's demand for investment will first fall as interest rates fall and then rise as technology improves.
D) The company's demand for investment will rise.

Question 34

When government spending rises:

A) aggregate demand rises.
B) aggregate demand falls.
C) the aggregate price level falls.
D) it crowds out net exports.

Question 35

Which of the following events causes a decrease in aggregate demand?

A) consumer confidence improves
B) taxes increase
C) interest rates fall
D) government spending increases

Question 36

______ are components of consumer spending that affect aggregate demand.

A) Expected rates of return on investment
B) Taxes
C) Exchange rate changes
D) Government spending programs

Question 37

In the aggregate demand/aggregate supply (AD/AS)model,the vertical axis is labeled:

A) aggregate price level.
B) consumption.
C) GDP.
D) consumption plus investment plus government spending.

Question 38

When the price of a product falls,causing consumers to purchase more of that product and less of other products,it is the:

A) income effect.
B) substitution effect.
C) wealth effect.
D) interest rate effect.

Question 39

The aggregate demand curve:

A) is upward sloping because a higher price level is necessary to make production profitable as production costs rise.
B) is downward sloping because production costs decline as real GDP increases.
C) shows the amount of expenditures required to induce the production of each possible level of real GDP.
D) shows the amount of real GDP that will be demanded at each possible price level.

Question 40

(Figure: Aggregate Demand Shift) Which of the following may be an explanation for the shift in aggregate demand from A to B?

A) Prices fall and increase real wealth.
B) Consumer confidence drops and consumption spending falls.
C) Goods and services become less competitive and exports fall.
D) Interest rates fall and boost investment.

Question 41

If the pound sterling appreciates against the U.S.dollar,England buys ______ U.S.goods,causing the U.S.aggregate demand curve to shift to the ______.

A) more;right
B) more;left
C) fewer;left
D) fewer;right

Question 42

Consumption would decrease and the aggregate demand curve would shift:

A) right if taxes increased.
B) right if taxes decreased.
C) left if taxes increased.
D) left if taxes decreased.

Question 43

Consumer spending is NOT affected by:

A) wealth.
B) consumer confidence.
C) taxes.
D) inventories.

Question 44

At high domestic price levels compared to other countries,Americans:

A) sell more exports.
B) buy more imported goods.
C) buy the same amount of foreign goods.
D) try to buy American.

Question 45

As the aggregate price level declines:

A) there is a movement down along the aggregate demand curve.
B) the aggregate demand curve shifts to the left.
C) there is a movement up along the aggregate demand curve.
D) the aggregate demand curve shifts to the right.

Question 46

Which of the following partly explains why the aggregate demand curve is negatively sloped?

A) When the price of cars manufactured in the United States increases,people buy more cars manufactured abroad.
B) When the price of cars manufactured abroad increases,people buy fewer cars manufactured in the United States.
C) When the interest rate increases,people borrow more money.
D) When the interest rate decreases,people borrow less money.

Question 47

If the U.S.aggregate price level rises:

A) net exports will also rise.
B) interest rates will go down.
C) the aggregate demand curve will shift to the left.
D) the purchasing power of wealth will decrease.

Question 48

Which of the following events will shift the aggregate demand curve to the right?

A) a catastrophic hurricane hitting the northeastern United States
B) an increase in household debt
C) decreased taxes
D) decrease in military spending

Question 49

Which of the following factors will cause the aggregate demand curve to shift to the right?

A) reduction in the aggregate price level
B) reduction in personal income taxes
C) increase in interest rates
D) drop in foreign income

Question 50

If the U.S.aggregate price level rises:

A) U.S.imports rise.
B) the aggregate demand curve shifts to the left.
C) the aggregate demand curve shifts to the right.
D) business investment increases.

Question 51

High family debt:

A) reduces the tendency to consume.
B) encourages the tendency to spend.
C) is illegal.
D) is a prime predictor of impending inflation.

Question 52

Which of the following events will NOT cause the aggregate demand curve to shift?

A) Businesses are optimistic about the economy,investing heavily in new equipment.
B) Consumers' wealth drops because of a drop in the stock market.
C) A rise in the aggregate price level causes a drop in exports.
D) Governments increase spending on national security in the wake of terrorist attacks.

Question 53

(Figure: Aggregate Demand Shift) The shift in aggregate demand depicted may be due to a(n):

A) increase in consumer confidence.
B) decrease in interest rates.
C) increase in income taxes.
D) increase in exports.

Question 54

When the price of a given product declines,the consumer's spendable income rises because it takes less income to purchase the same quantity.This is called the:

A) net export effect.
B) income effect.
C) substitution effect.
D) interest effect.

Question 55

Which of the following events will shift the aggregate demand curve to the right?

A) decreased exports
B) increased imports
C) a rise in the interest rate
D) a new government program to eliminate poverty

Question 56

If the U.S.aggregate price level falls:

A) the purchasing power of wealth declines.
B) net exports rise.
C) interest rates go up.
D) the aggregate demand curve shifts to the right.

Question 57

Use the following to answer questions
Figure: Predicting Aggregate Demand Shifts
(Figure: Predicting Aggregate Demand Shifts)Which of the following would shift the aggregate demand curve from AD₁ to AD₂?

A) a tax increase
B) a decrease in interest rates
C) a decrease in government purchases
D) a worsening of consumer expectations about the future

Question 58

Which of the following factors is NOT a component of aggregate demand?

A) consumption
B) investment
C) income
D) net exports

Question 59

Which of the following factors will cause the aggregate demand curve to shift to the left?

A) rise in consumer confidence
B) fall in excess capacity at businesses
C) increase in foreign income
D) appreciation of the dollar

Question 60

Other things equal,when the U.S.aggregate price level falls,U.S.exports _______ and U.S.imports ________.

A) fall;rise
B) fall;fall
C) rise;fall
D) rise;rise

Question 61

In the short run,the aggregate supply curve is:

A) horizontal.
B) negatively sloped.
C) positively sloped.
D) vertical.

Question 62

In the long run,attempts to expand beyond an economy's natural rate of unemployment tend to result in:

A) increased inflation.
B) increased output.
C) both increased output and increased inflation.
D) neither increased output nor increased inflation.

Question 63

An increase in the incomes of the countries that purchase U.S.-made products will cause a(n)_________ in the ____________ U.S.-made products.

A) decrease;aggregate demand for
B) increase;short-run aggregate supply of
C) increase;aggregate demand for
D) decrease;short-run aggregate supply of

Question 64

An increase in aggregate demand can be caused by:

A) the depreciation of the dollar.
B) a cut in government spending.
C) an increase in interest rates.
D) a rise in consumer debt.

Question 65

Suppose the government raises income taxes,so consumers have less take-home pay.This policy action will cause a(n):

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

Question 66

In the short run,the aggregate supply curve is ____ because input prices are _____.

A) positively sloped;not completely flexible
B) positively sloped;completely flexible
C) vertical;not completely flexible
D) vertical;completely flexible

Question 67

________ in wealth and ________ in government spending,along with a(n)_________ of the dollar,will shift the U.S.aggregate demand curve to the left.

A) Decreases;increases;appreciation
B) Increases;decreases;appreciation
C) Decreases;decreases;depreciation
D) Decreases;decreases;appreciation

Question 68

If the amount of regulation in an economy increases,the aggregate supply curve shifts _____ and output supplied will be _____.

A) left;increased
B) left;reduced
C) right;increased
D) right;reduced

Question 69

Which are determinants of short-run aggregate supply?

A) changes in government spending,taxes,and business and inflationary expectations
B) changes in input prices,taxes,and business and inflationary expectations
C) changes in education,taxes,and business and inflationary expectations
D) changes in input prices,taxes,and technology

Question 70

If the national incomes of foreign countries fall at the same time the dollar appreciates,then in the United States the aggregate demand curve:

A) shifts to the right.
B) shifts to the left.
C) remains unchanged.
D) does not shift,but there is movement up along it.

Question 71

If the money supply is fixed and prices rise,the cost of borrowing will _____ and business investment will _____.This is called the ______.

A) rise;rise;wealth effect
B) fall;rise;interest rate effect
C) rise;fall;wealth effect
D) rise;fall;interest rate effect

Question 72

________ taxes and ________ interest rates in the United States,along with ___________ incomes in other countries,will shift the U.S.aggregate demand curve to the right.

A) Decreasing;rising;rising
B) Increasing;falling,rising
C) Decreasing;falling,rising
D) Decreasing;falling,falling

Question 73

If businesses expect to start earning more profit,what will happen to the aggregate demand curve?

A) The aggregate demand curve will shift to the right.
B) The aggregate demand curve will shift to the left.
C) The aggregate demand curve will not change.
D) The aggregate demand curve will shift to the left in the short run and then to the right in the long run.

Question 74

If Europe has a large increase in income,what will happen in the United States?

A) The aggregate demand curve will shift to the right.
B) The aggregate demand curve will shift to the left.
C) The aggregate demand curve will not change.
D) The aggregate demand curve will shift to the left in the short run and then to the right in the long run.

Question 75

Use the following to answer question
Figure: Interpreting Aggregate Shifts
(Figure: Interpreting Aggregate Shifts)The graph shows:

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

Question 76

If oil prices decrease,the short-run aggregate supply curve shifts _____ and output supplied will be _____.

A) left;increased
B) left;reduced
C) right;increased
D) right;reduced

Question 77

Use the following to answer questions
Figure: Predicting Aggregate Demand Shifts
(Figure: Predicting Aggregate Demand Shifts)Which of the following would shift the aggregate demand curve from AD₂ to AD₁?

A) a tax cut
B) an increase in interest rates
C) an increase in government purchases
D) an improvement of consumer expectations about the future

Question 78

Government spending on Social Security:

A) has no impact on aggregate demand.
B) increases aggregate demand.
C) decreases aggregate demand.
D) hurts investment.

Question 79

Which of the following factors causes a shift in the aggregate demand curve to the left?

A) increase in consumption
B) increase in wealth
C) increase exports
D) decrease in government spending

Question 80

If both consumers and businesses are pessimistic about the future of the economy:

A) there is a movement up along the aggregate demand curve.
B) the aggregate demand curve shifts to the left.
C) there is a movement down along the aggregate demand curve.
D) the aggregate demand curve shifts to the right.