Question 1

Suppose there are three economies with 3 different consumption functions: Country A: C = 100 + 0.8Y Country B: C = 200 + 0.75 Y
Country C: C = 75 + 0.9Y
In which of these countries is autonomous consumption the largest?

Accepted Answer

A)  Country C 
B)  Country B 
C)  Country A 
D)  All countries have the same autonomous consumption levels.

Question 2

In the long run, the aggregate supply curve is:

Accepted Answer

A)  downward sloping. 
B)  horizontal at the full employment level of GDP. 
C)  upward sloping. 
D)  vertical at the full employment level of GDP.

Question 3

Figure 9.3
-Refer to Figure 9.3. Which of the following causes the economy to move from Point A to Point E in the short run?

Accepted Answer

A)  an increase in the price level 
B)  technological progress 
C)  an influx of immigrants 
D)  an oil embargo that increases the price of oil sharply

Question 4

In the short run, the formal or informal contracts between firms mean that changes in demand will be reflected primarily in changes in _______ .

Accepted Answer

A)  future equilibrium price. 
B)  prices. 
C)  output. 
D)  future price.

Question 5

A large reduction in oil prices will cause:

Accepted Answer

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

Question 6

The aggregate demand curve shifts to the left if:

Accepted Answer

A)  the government decreases taxes. 
B)  household consumption falls. 
C)  the government increases spending. 
D)  the supply of money rises.

Question 7

Rank these three wage rates in the order of least sticky to most sticky: minimum wage workers, nurses, movie stars.

Accepted Answer

A)  minimum wage workers, movie stars, nurses 
B)  movie stars, minimum wage workers, nurses 
C)  minimum wage workers, nurses, movie stars 
D)  movie stars, nurses, minimum wage workers

Question 8

A lower U.S. net exports caused by a higher U.S. price level will cause:

Accepted Answer

A)  a movement downward along the AD curve. 
B)  a leftward shift in the AD curve. 
C)  a rightward shift in the AD curve. 
D)  a movement upward along the AD curve.

Question 9

According to the international effect explanation of the downward slope of the AD curve, a higher price level in the U.S. economy causes:

Accepted Answer

A)  U.S. imports and U.S. exports to increase. 
B)  U.S. imports to decrease and U.S. exports to increase. 
C)  U.S. imports and U.S. exports to decrease. 
D)  US imports to increase and U.S. exports to decrease.

Question 10

Auction prices are prices that adjust _______ while custom prices are prices that adjust _______ .

Accepted Answer

A)  quickly, quickly 
B)  quickly; slowly 
C)  slowly; slowly 
D)  slowly; quickly

Question 11

The aggregate demand curve is downward sloping because of the law of demand.

Accepted Answer

A) True 
 B)False

Question 12

The four components of the aggregate demand curve are the same as the:

Accepted Answer

A)  components of market demand. 
B)  components of investment. 
C)  components of aggregate supply. 
D)  components of real GDP.

Question 13

Explain the wealth effect on aggregate demand. Using the wealth effect, summarize how the GDP changes after an increase in the price level.

Accepted Answer

The answer of Explain the wealth effect on aggregate demand....

Question 14

If the economy is in equilibrium at full employment, a decrease in aggregate demand will:

Accepted Answer

A)  increase both the price level and the level of output in the long run. 
B)  decrease both the price level and the level of output in the long run. 
C)  decrease the price level and leave the level of output unchanged in the long run. 
D)  increase the price level and leave the level of output unchanged in the long run.

Question 15

If the marginal propensity to consume is 0.8, the value of the marginal propensity to save is:

Accepted Answer

A)  5. 
B)  0.8. 
C)  1.25. 
D)  0.2.

Question 16

Recall Application 1, "Measuring Price Stickiness in Consumer Markets," to answer the following questions:
-Based on what you learned from the application, coin- operated laundry prices behave as:

Accepted Answer

A)  auction prices. 
B)  flexible prices 
C)  custom prices. 
D)  custom auction prices.

Question 17

Steel rod prices are an example of:

Accepted Answer

A)  custom prices. 
B)  regulated prices. 
C)  auction prices. 
D)  personal prices.

Question 18

Why is the long- run aggregate supply curve vertical?

Accepted Answer

The answer of Why is the long- run aggregate supply...

Question 19

Figure 9.1
-Refer to Figure 9.1. When the price level rises and causes lower consumption expenditures, it is illustrated as:

Accepted Answer

A)  a move from Point A to Point B, but not a shift of the aggregate demand curve. 
B)  an aggregate demand curve shift from AD1 to AD2. 
C)  a move from Point B to Point A, but not a shift of the aggregate demand curve. 
D)  an aggregate demand curve shift from AD1 to AD0.

Question 20

Recall Application 3, "How the U.S. Economy has Coped with Oil Price Fluctuations," to answer the following questions:
-According to the application, the changes in the price of oil between 1997 and 1998 were examples of _______, while the changes in the price of oil in the early 1970s were examples of _______.

Accepted Answer

A)  negative supply shocks; positive supply shocks 
B)  positive supply shocks; negative supply shocks 
C)  positive demand shocks; negative demand shocks 
D)  negative demand shocks; positive demand shocks

Exam 9: Aggregate Demand and Aggregate Supply

Suppose there are three economies with 3 different consumption functions: Country A: C = 100 + 0.8Y Country B: C = 200 + 0.75 Y Country C: C = 75 + 0.9Y In which of these countries is autonomous consumption the largest?