Deck 14: Monopolistic Competition and Product Differentiation

Question 1

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.

Answer 1

False

Question 2

An increase in real interest rates will increase saving and decrease aggregate demand, other things equal.

Answer 2

True

Question 3

The four major components of aggregate demand are consumption, investment, government purchases of goods and services, and net exports.

Answer 3

True

Question 4

If net exports are negative, then aggregate demand will be less than the sum of consumption, investment, and government purchases.

Question 5

Exports are not included in GDP because they do not reflect domestic consumption.

Question 6

Either an increase in wealth or an increase in population would increase consumption and aggregate demand, other things equal.

Question 7

An increase in disposable income would tend to shift aggregate demand right.

Question 8

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

Question 9

The real wealth and the real interest rate effects are both causes of the downward slope of the aggregate demand curve.

Question 10

If the price level in the United States decreases, domestic goods will become relatively cheaper than foreign goods, the demand for U.S.-made goods will increase, and the quantity of RGDP demanded will increase.

Question 11

If the overall price level increases, it will cause a decrease in the quantity of real goods and services demanded but not a change in aggregate demand curve.

Question 12

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

Question 13

Imports are not included in GDP because they do not reflect output produced within the domestic economy.

Question 14

Either a cut in business taxes or an increase in real interest rates would increase investment and aggregate demand, other things equal.

Question 15

If the price level in the United States decreases, domestic goods will become relatively cheaper than foreign goods, the demand for U.S.-made goods will increase, and the U.S. aggregate demand curve will shift to the right.

Question 16

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

Question 17

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 18

A trade deficit means that net exports are positive.

Question 19

If there were no real wealth or interest rate effect, the aggregate demand curve would still be downward sloping.

Question 20

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

Question 21

A disaster that destroys a large part of current agricultural output will not change LRAS, while a disaster that destroys the capital stock in a major city will reduce LRAS.

Question 22

An increase in net exports would lead to an increase aggregate demand but would not lead to an increase in aggregate supply.

Question 23

Any permanent change in the quantity of any factor of production available capital, technology, land, or labor can cause a shift in both the long-run and short-run aggregate supply curves.

Question 24

Sticky wages and input prices can explain why profits change along a short run aggregate supply curve.

Question 25

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 26

The economy is in long-run equilibrium only when the short run aggregate supply curve intersects the aggregate demand curve along the long run aggregate supply curve.

Question 27

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

Question 28

Long term contracts for inputs can lead to the slow adjustment of input prices in response to changes in aggregate demand.

Question 29

A temporary decrease in the price of oil will shift the short run aggregate supply curve right but not shift the long run aggregate supply curve.

Question 30

The SRAS curve is vertical at the natural level of real output.

Question 31

According to the "misperception effect" explanation of short-run aggregate supply, 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 32

Both short and long-run aggregate supply curves can shift to the right if entrepreneurial activities lower costs of production and expand what can be produced.

Question 33

Increases in the burdens of government regulations can make production more costly for producers, shifting the short run aggregate supply curve left; it can also reduce potential output, shifting the long-run aggregate supply curve left.

Question 34

A change that shifted the long-run aggregate supply curve to the right would also shift the short-run aggregate supply curve to the right.

Question 35

The quantity of RGDP supplied will decrease in both the short run and long run when the price level falls.

Question 36

If input prices adjusted just as quickly as output prices, the profit effect leading to an increase in RGDP supplied would disappear.

Question 37

The short run aggregate supply curve refers to a period in which input prices have not yet had time to adjust to changes in aggregate demand.

Question 38

If the price level in the United States increases, domestic goods will become relatively more expensive than foreign goods. Consumers will import more and reduce the quantity of domestic goods and services they buy.

Question 39

When the price level falls, households and firms reduce their holdings of money, leading to a lower interest rate and an increase in borrowing and an increase in RGDP demanded.

Question 40

An increase in investment combined with a decrease in education would have an indeterminate effect on both short run and long run aggregate supply.

Question 41

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 42

Which of the following is not a component of aggregate demand?

A)​Investment expenditures
B)​Government expenditures
C)​Net exports
D)​All of the above are components of aggregate demand.

Question 43

Aggregate demand can be defined as:

A)​the total spending by all consumers, business firms, government agencies, and foreigners in the United States.
B)​the total amounts that all consumers, business firms, government agencies, and foreigners wish to spend on all final goods and services at various price levels.
C)​the total spending by consumers, business firms, and government agencies in one year.
D)​the total spending by consumers, business firms, and government agencies on final goods and services.

Question 44

The long-run equilibrium level of RGDP only changes when the LRAS shifts.

Question 45

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

Question 46

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

Question 47

An increase in investment combined with a decrease in education would have an indeterminate effect on both short run and long run aggregate supply.

Question 48

The short-run equilibrium level of real output and the price level are determined by the intersection of the aggregate demand curve and the short-run aggregate supply curve.

Question 49

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

Question 50

Which of the following is the most unstable category of GDP?

A)​consumption
B)​investment
C)​government purchases
D)​net exports

Question 51

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

Question 52

In long-run equilibrium, employment is at full employment and unemployment is at the natural rate of unemployment.

Question 53

Aggregate demand includes:

A)​the demand for intermediate goods and final goods.
B)​all monetary and nonmonetary transactions.
C)​the demand for investment, including stocks, bonds, and gold.
D)​the demand for final goods and services.

Question 54

If workers and firms expect increases in future prices, it can lead the short run aggregate supply curve to shift left.

Question 55

When there is a recessionary gap, one is likely to see an increase in overtime work and more hours worked by part-time workers.

Question 56

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

Question 57

Aggregate demand does not include:

A)​Purchases of intermediate goods and final goods.
B)​Purchases of used goods and services.
C)​Purchases of stocks and bonds.
D)​Aggregate demand does not include any of the above.

Question 58

If there is currently a recessionary gap, a decrease in aggregate demand would make the recessionary gap larger.

Question 59

An unexpected decrease in aggregate demand results in an increase in real interest rates in the short run.

Question 60

In the long-run, the price level in the economy will change the same direction as aggregate demand.

Question 61

Ben N. Jerry prefers to keep his $10,000 retirement savings buried in the backyard. After an increase in the price level, Ben reduces the amount of goods and services he wants to purchase. Ben's rationalization, that now his retirement savings won't buy as much, is consistent with which explanation of the aggregate demand curve's negative slope?

A)​the interest rate effect
B)​the open economy effect
C)​the inflation effect
D)​the wealth effect

Question 62

For individuals who are holding money or fixed dollar value assets, inflation has the effect of:

A)​improving their ability to purchase goods and services with those dollars.
B)​reducing their ability to purchase goods and services with those dollars.
C)​increasing the purchasing power of those dollars.
D)​demonstrating the interest rate effect.

Question 63

Which of the following will decrease aggregate demand?

A)​exports rising faster than imports
B)​exports falling faster than imports
C)​exports rising the same amount as imports
D)​exports rising and imports falling

Question 64

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

A)​rise and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.
B)​rise and firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding.
C)​falls and firms want to borrow less for new plants and equipment and households want to borrow more for homebuilding.
D)​falls and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.

Question 65

As the price level decreases, other things being equal,

A)​aggregate demand increases.
B)​the quantity of real gross domestic product demanded increases.
C)​the quantity of real gross domestic product demanded decreases.
D)​real gross domestic product supplied increases.

Question 66

According to the interest rate effect, as the price level increases, households and firms' holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____.

A)​increases, decrease, increase, decreases
B)​increases, increase, increase, decreases
C)​decreases, decrease, decrease, increases
D)​increases, increase, decrease, decreases

Question 67

If your wages are indexed so that they automatically adjust for inflation, in a period of continued high inflation, the cost of the goods and services you buy ____ and your nominal income ____.

A)​decreases, decreases
B)​increases, increases
C)​decreases, remains the same
D)​increases, remains the same

Question 68

As the price level increases, the quantity of RGDP demanded in the economy ____, and when the price level decreases, the quantity of RGDP demanded in the economy ____.

A)​decreases, decreases
B)​increases, increases
C)​increases, decreases
D)​decreases, increases

Question 69

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)​domestic purchases of foreign goods.
B)​the holdings of money by households and firms.
C)​the real purchasing power of assets.
D)​the level of income.

Question 70

Which of the following expenditures would be counted as consumption in GDP accounts?

A)​Mary buys a new home computer to check her e-mail and play computer games.
B)​Mark buys a new computer for his medical economic consulting business.
C)​Leslie, an EPA scientist, buys a new computer for her lab at work.
D)​Juan leases a new computer for his graphic design company.

Question 71

During the 1970s, U.S. prices generally rose faster than prices in other parts of the world. Which of the following changes would the open economy effect predict took place in response to these price level changes?

A)​Americans reduced the proportion of foreign goods bought since their foreign prices became relatively lower.
B)​Americans reduced the amount of investment they undertook because interest rates increased.
C)​Americans reduced the amount of goods and services they wanted to purchase for consumption because they felt less wealthy.
D)​Americans reduced the fraction of purchases they made from domestic producers of goods and services, since foreign prices became relatively lower.

Question 72

If consumption in the United States was 68 percent of GDP, investment was 19 percent, government purchases were 13 percent, exports were 14 percent, and imports were 14 percent, net exports were equal to ____ percent of GDP.

A)​-1
B)​0
C)​-28
D)​28

Question 73

In the analysis of the interest rate effect, when the price level changes, the quantity of money households and firms' want to hold changes in the ______ direction as interest rates, while investment changes in the _____ as the quantity RGDP demanded.

A)​Same, same
B)​Same, opposite
C)​Opposite, same
D)​opposite, opposite

Question 74

In an open economy, as the price level increases, a(n) ____ in demand in the quantity of domestic goods results in a(n) ____ in the quantity of RGDP demanded.

A)​increase, decrease
B)​increase, increase
C)​decrease, decrease
D)​decrease, increase

Question 75

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

A)​rise and firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding.
B)​rise and firms will want to borrow less for new plants and equipment and households will want to borrow less for homebuilding.
C)​fall and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.
D)​all of the above

Question 76

In the analysis of the interest rate effect, when the price level changes, the quantity of money households and firms' want to hold and interest rates move in the ____ direction as the change in the price level, while investment and the quantity RGDP demanded move in the ____ direction as the change in the price level.

A)​Same, same
B)​Same, opposite
C)​Opposite, same
D)​opposite, opposite

Question 77

If you are living in a period of continued high inflation on a fixed income, the cost of the goods and services you buy ____ and your nominal income ____.

A)​decreases, decreases
B)​increases, increases
C)​decreases, remains the same
D)​increases, remains the same

Question 78

According to the interest rate effect, as the price level decreases, households and firms' holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____.

A)​increases, decrease, increase, decreases
B)​increases, increase, increase, decreases
C)​decreases, decrease, increase, increases
D)​increases, increase, decrease, decreases

Question 79

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 remaining constant.
B)​the real value of his savings is increasing as long as the price level is falling.
C)​the real value of his savings is decreasing as long as the price level is falling.
D)​none of the above are true.

Question 80

If private consumption in the United States was 69 percent of GDP, investment was 18 percent, government purchases were 18 percent, exports were 9 percent, and imports were 14 percent, net exports were equal to ____ percent of GDP.

A)​-5
B)​5
C)​-23
D)​23