Deck 12: Aggregate Demand and Aggregate Supply

Question 1

In the macroeconomic model of aggregate supply and aggregate demand, price is:

A) the measure of the value of all goods and services produced by the economy.
B) represented by GDP.
C) calculated as a weighted average of the prices of all goods and services.
D) None of these is true.

Answer 1

calculated as a weighted average of the prices of all goods and services.

Question 2

Which of the following is a component of aggregate demand?

A) Consumption
B) Investment
C) Net exports
D) All of these are components of aggregate demand.

Answer 2

All of these are components of aggregate demand.

Question 3

The quantity measure in the aggregate demand relationship is the:

A) total quantity of goods and services demanded in the economy.
B) total quantity of goods and services supplied in the economy.
C) market value of the total quantity of goods and services demanded in the economy.
D) market value of the total quantity of goods and services supplied in the economy.

Answer 3

market value of the total quantity of goods and services demanded in the economy.

Question 4

The aggregate demand curve:

A) shows the relationship between the overall price level and the level of total demand.
B) shows the price level on the horizontal axis and output on the vertical axis.
C) is upward-sloping, which is counter to the individual demand curve.
D) shows the relationship between the price of goods and services and the level of totaldemand.

Question 5

In general, changes in the price level will change the:

A) real value of people's wealth and income.
B) nominal value of cash balances.
C) real value of consumption goods only.
D) nominal value of consumption goods and the real value of durable goods.

Question 6

The equilibrium of aggregate supply and aggregate demand represents the:

A) overall state of the national economy.
B) total of all goods and services produced in the major sectors of the economy.
C) general price level of the economy with respect to goods and services households purchase.
D) All of these are true.

Question 7

Some call the Great Recession the:

A) period when the economy does not grow for four consecutive quarters.
B) recession that began in 2007 due to the decline in consumer spending when the housing bubble burst.
C) period of high inflation that took place in the early 1970s.
D) period of economic stagnation that took place in the early 1990s.

Question 8

The aggregate supply and aggregate demand model is used to explain:

A) how individual markets affect other markets.
B) how entire markets operate, not just each individual seller within a market.
C) the market price determined by all buyers and all sellers interacting in a market.
D) how output, prices, and employment are tied together in a single economic equilibrium

Question 9

Which of the follow is not a property of the aggregate demand curve?

A) It shows the relationship between the overall price level and the level of total demand.
B) It shows the price level on the vertical axis and output on the horizontal axis.
C) The aggregate demand curve slopes downward.
D) It shows the relationship between the overall price level and level consumption.

Question 10

The aggregate supply and aggregate demand model describes the interaction of which macroeconomic variables?

A) Output and the price level
B) Employment and immigration
C) Prices and immigration
D) Output and number of sellers

Question 11

In the macroeconomic model of aggregate supply and aggregate demand, quantity is:

A) represented by GDP.
B) the measure of the value of all goods and services produced by the economy.
C) a measure of total output.
D) All of these are true.

Question 12

During the period that many call the Great Recession:

A) GDP fell.
B) unemployment rose.
C) there was a sharp decrease in consumer spending.
D) All of these are true.

Question 13

Which of the following is a component of aggregate demand?

A) Net exports
B) Income
C) Government revenues
D) Taxes

Question 14

When people buy assets simply because they believe the assets will appreciate and can be sold for a profit, it may cause:

A) a recession.
B) unemployment.
C) inflation.
D) an asset-price bubble.

Question 15

In the macroeconomic model of aggregate supply and aggregate demand:

A) price is the overall price level.
B) quantity represents GDP.
C) price is calculated as a weighted average of the prices of all goods and services.
D) All of these are true.

Question 16

Which of the following is a component of aggregate demand?

A) Consumption
B) Income
C) Taxes
D) Transfer payments

Question 17

Which three macroeconomic variables together best describe the health of the economy?

A) Output, GDP, and inflation
B) Output, inflation, and prices
C) GDP, unemployment, and employment
D) Output, prices, and employment

Question 18

The aggregate demand curve slopes:

A) downward, like individual supply curves.
B) downward, like individual demand curves.
C) upward, like individual supply curves.
D) upward, like individual demand curves.

Question 19

An asset-price bubble is caused by:

A) people buying assets because they believed prices would keep going up and they'd be able to sell for a profit.
B) fads that make owning a certain asset fashionable.
C) severe inflation within a short period of time.
D) the increase in the value of durable goods when the economy is experiencing low inflation.

Question 20

The aggregate supply and aggregate demand model is used to explain the:

A) overall health of the economy.
B) overall effect of large markets within the economy.
C) interaction of all sellers and all buyers within a particular market.
D) way that unemployment may affect output, but not how price level does.

Question 21

If prices increase only in the United States, then:

A) U.S. goods become relatively more expensive than goods from other countries.
B) U.S. goods become relatively less expensive than goods from other countries.
C) the prices of foreign goods must rise.
D) the income level of people in the US must rise.

Question 22

The relationship between government spending and the price level explains the:

A) upward-sloping aggregate demand curve.
B) downward-sloping aggregate demand curve.
C) perfect elasticity of the aggregate demand curve.
D) None of these is true.

Question 23

The wealth effect explains the:

A) negative relationship that exists between consumer spending and overall price level.
B) positive relationship that exists between consumer spending and overall price level.
C) negative relationship that exists between consumer spending and overall asset valuation.
D) positive relationship that exists between consumer spending and overall asset valuation.

Question 24

When the price level increases people:

A) demand a smaller quantity of goods and services in the aggregate.
B) feel more wealthy.
C) have the same real value of assets, regardless of the change in the price level.
D) want to spend more, but can't due to the prices of all goods and services going up.

Question 25

An increase in the price level causes government spending to:

A) increase.
B) decrease.
C) remain unaffected.
D) increase in social welfare spending only.

Question 26

Consumption:

A) is a major component of aggregate demand.
B) is negatively related to the national price level.
C) measures people's expenditures on real goods and services.
D) All of these are true.

Question 27

Higher interest rates motivate:

A) firms to invest less in new factories and working capital.
B) firms to invest more in new factories and working capital.
C) individuals to spend more on consumption goods.
D) individuals to spend more on capital goods.

Question 28

Increases in the overall price level:

A) result in an increase people's dollar-denominated wealth.
B) mean that a given number of dollars can buy as much in terms of real goods and services as before.
C) tends to cause people to increase their consumption.
D) reduce people's real wealth.

Question 29

Higher interest rates make it:

A) more expensive to borrow.
B) harder to get a loan typically.
C) easier to get a loan typically.
D) less expensive to borrow.

Question 30

When the price level increases people:

A) feel less wealthy.
B) feel more wealthy.
C) have the same real value of assets, regardless of the change in the price level.
D) experience a bubble forming in the economy overall.

Question 31

A rise in the overall price level means that:

A) a given number of dollars won't buy as much real goods and services.
B) dollar-denominated assets have lost their value.
C) the cost of living has gone down.
D) None of these is true.

Question 32

The wealth effect explains the:

A) downward-sloping aggregate demand curve.
B) upward-sloping aggregate demand curve.
C) downward-sloping aggregate supply curve.
D) upward-sloping aggregate supply curve.

Question 33

Increases in the overall price level:

A) increases people's dollar-denominated wealth.
B) generally has no effect on spending.
C) result in people increasing their consumption.
D) result in people reducing their consumption.

Question 34

Consumption spending is:

A) negatively related to the overall price level.
B) positively related to the overall price level.
C) equal to the overall price level.
D) not correlated with the overall price level.

Question 35

Higher interest rates caused by an increase in the price level creates:

A) an indirect negative relationship between the price level and investment spending.
B) an indirect positive relationship between the price level and investment spending.
C) the incentive for firms to invest more in new factories.
D) the incentive for individuals to spend more on consumption goods.

Question 36

When prices rise, the interest rate:

A) tends to rise.
B) tends to fall.
C) is usually not affected.
D) will rise if the wealth effect outweighs the price effect.

Question 37

Government spending:

A) tends to increase with increases in the price level.
B) tends to increase with decreases in the price level.
C) remains generally unaffected by changes in the price level.
D) is not a component of aggregate demand.

Question 38

The wealth effect says that if there is an increase in the price level, you will:

A) experience some reduction in your level of wealth as a result.
B) experience some increase in your level of wealth as a result.
C) typically spend more on all goods and services as a result.
D) typically shift your spending to assets from consumption goods.

Question 39

The wealth effect:

A) explains the downward-sloping aggregate demand curve.
B) is the positive relationship between consumer spending and the overall price level.
C) is not present when wages keep pace with inflation.
D) explains how the aggregate demand curve shifts.

Question 40

Lower interest rates motivate:

A) firms to invest less in new factories and working capital.
B) firms to invest more in new factories and working capital.
C) individuals to spend less on consumption goods.
D) individuals to spend less on capital goods.

Question 41

The aggregate demand curve slopes downward in part due to the:

A) negative relationship between the price level and net exports.
B) positive relationship between the price level and exports.
C) negative relationship between the price level and imports.
D) All of these are true.

Question 42

The aggregate demand curve sloping downward can be explained in part through:

A) the wealth effect.
B) the negative relationship between the price level and government spending.
C) the positive relationship between the price level and net exports.
D) All of these are true.

Question 43

As the U.S. price level decreases, expenditures by which of the following will remain unaffected?

A) Consumers
B) Businesses
C) The rest of the world
D) Government

Question 44

We define net exports to be:

A) exports minus imports.
B) imports minus exports.
C) imports divided by exports.
D) imports plus exports.

Question 45

As the U.S. price level decreases, expenditures by which of the following will increase?

A) Consumers
B) Businesses
C) The rest of the world
D) All of these will increase their expenditures.

Question 46

When the U.S. price level decreases relative to the rest of the world:

A) exports and net exports will increase.
B) imports and net exports will increase.
C) exports will increase and net exports will decrease.
D) exports will decrease and net exports will increase.

Question 47

If U.S. prices increase relative to the rest of the world, we would expect imports:

A) to increase and exports to fall.
B) to decrease and exports to increase.
C) as well as exports to increase.
D) as well as exports to decrease.

Question 48

The relationship between the price level and net exports is:

A) negative.
B) positive.
C) perfectly correlated.
D) uncorrelated.

Question 49

Because the price level shares a negative relationship with aggregate expenditures on GDP, the aggregate demand curve is:

A) downward sloping.
B) upward sloping.
C) perfectly elastic.
D) perfectly inelastic.

Question 50

The downward sloping aggregate demand curve can be explained in part through the:

A) wealth effect.
B) negative relationship between the price level and net exports.
C) negative relationship between the price level and investment spending.
D) All of these are true.

Question 51

The downward-sloping aggregate demand curve is partly due to the:

A) positive relationship between the price level and net exports.
B) negative relationship between the price level and net exports.
C) positive relationship between the price level and government spending.
D) negative relationship between the price level and government spending.

Question 52

If U.S. prices increase relative to the rest of the world, we would expect:

A) imports to increase and net exports to increase.
B) exports to decrease and net exports to decrease.
C) imports to increase and net exports to increase
D) exports to decrease and net exports to increase.

Question 53

The downward sloping aggregate demand curve can be explained in part through the:

A) positive relationship between the price level and net exports.
B) positive relationship between the price level and consumption.
C) negative relationship between the price level and investment spending.
D) All of these are true.

Question 54

There is no relationship between the price level and which component of GDP?

A) C
B) I
C) G
D) NX

Question 55

U.S. goods will become relatively less expensive than goods from other countries if prices were to:

A) increase in the United States only.
B) decrease in the United States only.
C) increase in the United States and foreign countries at the same rate.
D) decrease in the United States and foreign countries at the same rate.

Question 56

There is a general overall __________ relationship between the price level and ____________.

A) negative; aggregate expenditures
B) positive; aggregate expenditures from the government
C) negative; nominal expenditures from the government
D) positive; nominal expenditures from households

Question 57

There is a negative relationship between the price level and which components of GDP?

A) C, I, and G
B) I, G, and NX
C) C, G, and NX
D) C, I, and NX

Question 58

If a change in the U.S. price level caused U.S. imports to increase, it must be true that the price level:

A) increased.
B) decreased.
C) became elastic.
D) became negative.

Question 59

As the U.S. price level increases, expenditures by which of the following will remain unaffected?

A) Consumers
B) Businesses
C) Government
D) The rest of the world

Question 60

If U.S. prices increase relative to the rest of the world, we would expect:

A) net exports to increase.
B) net exports to decrease.
C) net exports to be unaffected.
D) government spending to increase.

Question 61

When the U.S. price level decreases, we would expect a:

A) movement down along the aggregate demand curve.
B) shift straight up of the aggregate demand curve.
C) shift to the right of the aggregate demand curve.
D) movement up along the aggregate supply curve.

Question 62

If consumption increases in general the aggregate demand curve will:

A) shift straight down.
B) shift to the right.
C) remain unchanged but the economy will move down along the curve to a higher quantity.
D) remain unchanged but the economy will move down along the curve to a lower quantity.

Question 63

When the U.S. price level increases, economists predict a:

A) movement down along the aggregate demand curve.
B) shift straight up of the aggregate demand curve.
C) shift to the right of the aggregate demand curve.
D) decrease in expenditure.

Question 64

If the government were to decrease corporate income tax, we would predict a:

A) downward movement along the aggregate demand curve.
B) shift in aggregate demand to the right.
C) shift in aggregate demand to the left.
D) shift straight down of aggregate demand.

Question 65

When a nonprice change affects any of the four components of GDP the:

A) aggregate demand curve will shift left or right.
B) economy will move up or down along the aggregate demand curve.
C) aggregate demand curve will remain unaffected.
D) aggregate supply with shift left or right.

Question 66

If you were told the MPC was = 0.75 and the government engaged in a tax decrease of $400B, then the initial change in GDP would be:

A) $400B.
B) $1600B.
C) $300B.
D) $1200B

Question 67

If government spending were to increase we expect that the aggregate demand curve will:

A) shift straight down.
B) shift to the right.
C) remain unchanged but the economy will move down along the curve to a higher quantity.
D) remain unchanged but the economy will move down along the curve to a lower quantity.

Question 68

When comparing tax and spending policy by the government, in general we note that the tax policy multiplier effect relative to the spending multiplier should be:

A) larger.
B) smaller.
C) equivalent.
D) not comparable.

Question 69

When the U.S. price level increases, we would expect a:

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

Question 70

A decrease in consumer confidence will cause a:

A) movement downward along the aggregate demand curve.
B) shift in aggregate demand to the right.
C) shift in aggregate demand to the left.
D) movement upward along the aggregate demand curve.

Question 71

Which of the following would cause aggregate demand to shift to the right?

A) Increased income taxes
B) Decreased corporate income taxes
C) Decreased consumer confidence
D) Decreased government spending

Question 72

Which of the following would likely cause aggregate demand to shift to the left?

A) Decreased income taxes
B) Decreased consumer confidence
C) Increased government spending
D) increase in investors' confidence.

Question 73

Which of the following would likely cause aggregate demand to shift to the right?

A) Increased income taxes
B) Increased firm confidence
C) Decreased government spending
D) Increase in the aggregate price level.

Question 74

Which of the following would likely cause aggregate demand to shift to the right?

A) Consumer confidence regarding future income increases
B) A tax credit for small businesses is issued
C) The government builds new highways
D) All of these are likely to cause aggregate demand to shift to the right.

Question 75

An example of stimulus spending by the government might be:

A) increase in government purchases of new cars.
B) the monthly payments a government agency makes to its employees.
C) a cut in the government budget aimed at spurring private consumption.
D) the FED engaging in open market sales of securities.

Question 76

If you were told the MPC was = 0.75 and the government engaged in a tax decrease of $400B, then the overall change in GDP would be:

A) $400B.
B) $1600B.
C) $300B.
D) $1200B

Question 77

Which of the following would likely cause aggregate demand to shift to the left?

A) Higher interest rates discouraging borrowing
B) Higher tariffs on all imports into the United States
C) Greater consumer confidence about the future
D) All of these would likely cause aggregate demand to shift to the left.

Question 78

If the government were to increase income taxes, we would predict:

A) a downward movement along the aggregate demand curve.
B) a shift in aggregate demand to the right.
C) a shift in aggregate demand to the left.
D) an upward movement along the aggregate demand.

Question 79

If you were told the MPC was = 0.75 and the government engaged in a spending increase of $400B, then the change in GDP would be:

A) $400B.
B) $1600B.
C) $300B
D) $1200B

Question 80

The reason for the different in tax policy and spending policy by the government is due to:

A) people not responding to tax policy as much as spending policy.
B) the fact that when the government engages in spending policy, they do it more aggressively.
C) firms drastically responding to tax changes that are implemented.
D) the difference in initial spending that results from engaging in tax policy.