Deck 13: Aggregate Demand and Aggregate Supply Analysis

Question 1

When the price level in the United States rises relative to the price level of other countries,________ will rise,________ will fall,and ________ will fall.

A) imports; exports; net exports
B) exports; imports; net exports
C) net exports; exports; imports
D) net exports; imports; exports

Answer 1

imports; exports; net exports

Question 2

When the economy enters a recession,your employer is unlikely to reduce your wages because ________ during a recession.

A) output and input prices generally fall
B) lower wages reduce productivity and morale
C) output prices always fall
D) output prices generally fall and input prices generally rise

Answer 2

output and input prices generally fall

Question 3

Lower personal income taxes

A) increase aggregate demand.
B) decrease disposable income.
C) decrease aggregate demand.
D) increase transfer payments.

Answer 3

increase aggregate demand.

Question 4

The aggregate demand curve shows the relationship between the ________ and ________.

A) inflation rate; quantity of real GDP demanded
B) real interest rate: quantity of real GDP supplied
C) nominal interest rate; quantity of real GDP demanded
D) price level; quantity of real GDP demanded

Question 5

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

A) Increases in the price level lower the interest rate and decrease consumption spending.
B) Increases in the price level lower the interest rate and decrease investment spending.
C) Increases in the U.S. price level relative to the price level in other countries lowers net exports.
D) Increases in the price level raise real wealth and lowers consumption spending.

Question 6

Which of the following best describes the "interest rate effect"?

A) An increase in the price level raises the interest rate and chokes off government spending.
B) An increase in the price level lowers the interest rate and chokes off government spending.
C) An increase in the price level raises the interest rate and chokes off investment and consumption spending.
D) An increase in the price level lowers the interest rate and chokes off investment and consumption spending.

Question 7

The international trade effect states that a(n)________ in the price level will ________ net exports.

A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; not affect

Question 8

Which of the following will shift the aggregate demand curve to the left,ceteris paribus?

A) an increase in interest rates
B) an increase in disposable income
C) an increase in expected profits for firms
D) an increase in net exports

Question 9

Inflation will

A) increase aggregate demand.
B) increase the quantity of real GDP demanded.
C) decrease aggregate demand.
D) decrease the quantity of real GDP demanded.

Question 10

Just before,during,and after the recession of 2007-2009,net exports in the United States

A) fell and remained negative
B) fell, but remained positive
C) rose and became positive.
D) rose, but remained negative.

Question 11

A decrease in the price level will

A) shift the aggregate demand curve to the left.
B) shift the aggregate demand curve to the right.
C) move the economy up along a stationary aggregate demand curve.
D) move the economy down along a stationary aggregate demand curve.

Question 12

The basic aggregate demand and aggregate supply curve model helps explain ________ fluctuations in real GDP and the price level.

A) short-term
B) long-term
C) both short-term and long-term
D) unrelated

Question 13

Because of the slope(s)of the ________,we can say that a decrease in the price level leads to a higher level of real GDP demanded.

A) aggregate demand curve
B) short-run aggregate supply curve
C) long-run aggregate supply curve
D) short-run and long-run aggregate supply curves

Question 14

Which of the following would not be considered a positive addition to household wealth?

A) the equity in one's home
B) 1,000 shares of Microsoft stock
C) a credit card balance
D) the balance in your checking account

Question 15

According to the "wealth effect",when the ________ falls,the ________ rises.

A) inflation rate; nominal value of household assets
B) unemployment rate; average level of household income
C) price level; the nominal value of household wealth
D) price level; the real value of household wealth

Question 16

The business cycle ________ on FedEx since the company's inception over 40 years ago.

A) has had virtually no effect
B) has always had a negative effect
C) has had a large effect
D) has always had a positive effect

Question 17

A decrease in the price level results in a(n)________ in the quantity of real GDP demanded because a lower price level ________ consumption,investment,and net exports.

A) decrease; increases
B) increase; increases
C) decrease; decreases
D) increase; decreases

Question 18

The impact of Hurricane Katrina on consumers in the economy was to make them very pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.
B) This will move the economy down along a stationary aggregate demand curve.
C) This will shift the aggregate demand curve to the left.
D) This will shift the aggregate demand curve to the right.

Question 19

German automobile exports were hurt in 2008 as a result of the recession. How would this decrease in exports have affected Germany's aggregate demand curve?

A) The aggregate demand curve would have shifted to the right.
B) The aggregate demand curve would not have shifted, but there would have been a movement up the aggregate demand curve.
C) The aggregate demand curve would not have shifted, but there would have been a movement down the aggregate demand curve.
D) The aggregate demand curve would have shifted to the left.

Question 20

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

A) They will move the economy down along a stationary aggregate demand curve.
B) They will move the economy up along a stationary aggregate demand curve.
C) They will shift the aggregate demand curve to the right.
D) They will shift the aggregate demand curve to the left.

Question 21

How do changes in income tax policies affect aggregate demand?

A) Higher taxes increase disposable income, consumption, and aggregate demand.
B) Higher taxes reduce disposable income, consumption, and aggregate demand.
C) Higher taxes increase corporate investment and aggregate demand.
D) Higher taxes increase aggregate supply and thus increase aggregate demand as well.

Question 22

If aggregate demand just decreased,which of the following may have caused the decrease?

A) a decrease in exports
B) a decrease in the interest rate
C) a decrease in the price level
D) a decrease in imports

Question 23

An increase in disposable income will shift the aggregate demand curve to the right.

Question 24

Figure 24-1

Refer to Figure 24-1.Ceteris paribus,an increase in the growth rate of domestic GDP relative to the growth rate of foreign GDP would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 25

President Bush lowered income taxes for individuals in 2001. Explain how lower income taxes affect the aggregate demand curve.

Question 26

An increase in the price level causes a movement down the aggregate demand curve.

Question 27

Figure 24-1

Refer to Figure 24-1.Ceteris paribus,a decrease in the value of the domestic currency relative to foreign currencies would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 28

Figure 24-1

Refer to Figure 24-1.Ceteris paribus,a decrease in households' expectations of their future income would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 29

An increase in exports decreases aggregate demand.

Question 30

Figure 24-1

Refer to Figure 24-1.Ceteris paribus,a decrease in the price level would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 31

Figure 24-1

Refer to Figure 24-1.Ceteris paribus,an increase in government spending would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 32

Figure 24-1

Refer to Figure 24-1.Ceteris paribus,a decrease in interest rates would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 33

Suppose the U.S.GDP growth rate is slower relative to other countries' GDP growth rates. This will

A) move the economy up along a stationary aggregate demand curve.
B) move the economy down along a stationary aggregate demand curve.
C) shift the aggregate demand curve to the left.
D) shift the aggregate demand curve to the right.

Question 34

Using an aggregate demand graph,illustrate the impact of an increase in the growth rate of U.S.GDP relative to the growth rate of foreign GDP.

Question 35

Explain the three reasons the aggregate demand curve slopes downward.

Question 36

Figure 24-1

Refer to Figure 24-1.Ceteris paribus,a decrease in personal income taxes would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 37

Last week,13 Mexican pesos could purchase one U.S.dollar. This week,it takes 11 Mexican pesos to purchase one U.S.dollar. This change in the value of the dollar will ________ exports from the United States to Mexico and ________ U.S.aggregate demand.

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

Question 38

Figure 24-1

Refer to Figure 24-1.Ceteris paribus,an increase in firms' expectations of the future profitability of investment spending would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 39

Explain how each of the following events would affect the aggregate demand curve.
a.Lower interest rates
b.A decrease in net exports
c.A decrease in the price level
d.Slower income growth in other countries
e.A decrease in imports

Question 40

If the U.S.dollar increases in value relative to other currencies,how does this affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.
B) This will move the economy down along a stationary aggregate demand curve.
C) This will shift the aggregate demand curve to the left.
D) This will shift the aggregate demand curve to the right.

Question 41

When the price level falls from 135 to 120,the aggregate level of GDP supplied falls from $140 billion to $125 billion. This ________ relationship represents the ________ relationship between GDP and the price level.

A) negative; short-run
B) positive; short-run
C) negative; long-run
D) positive; long-run

Question 42

If potential GDP is equal to $600 billion,what does the long-run aggregate supply curve look like?

A) It is a horizontal line at $600 billion of GDP.
B) It is a vertical line at a level of GDP below $600 billion.
C) It is a vertical line at $600 billion of GDP.
D) It is a vertical line at a level of GDP above $600 billion.

Question 43

The level of real GDP in the long run is called

A) potential GDP.
B) short-run GDP.
C) frictional GDP.
D) low-capacity GDP.

Question 44

Potential GDP is also referred to as

A) realized GDP.
B) full-employment GDP.
C) politico-economic GDP.
D) balanced-budget GDP.

Question 45

The level of real GDP in the long run is

A) potential GDP.
B) affected by changes in the price level.
C) determined solely by aggregate demand.
D) the same as the level of nominal GDP in the long run.

Question 46

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age.What did this technological change do the short-run supply curve?

A) It shifted the short-run aggregate supply curve to the left.
B) It shifted the short-run aggregate supply curve to the right.
C) It moved the economy up along a stationary short-run aggregate supply curve.
D) It moved the economy down along a stationary short-run aggregate supply curve.

Question 47

Changes in ________ do not affect the level of aggregate supply in the long run.

A) technology
B) the number of workers in the economy
C) the price level
D) the amount of accumulated capital equipment

Question 48

The ________ curve is vertical.

A) short-run aggregate supply
B) short-run aggregate demand
C) long-run aggregate supply
D) long-run aggregate demand

Question 49

A decrease in the price level will

A) shift the short-run aggregate supply curve to the left.
B) shift the short-run aggregate supply curve to the right.
C) move the economy up along a stationary short-run aggregate supply curve.
D) move the economy down along a stationary short-run aggregate supply curve.

Question 50

If technological change occurs in the economy,

A) the long-run aggregate supply curve will shift to the right.
B) the long-run aggregate supply curve will shift to the left.
C) we will move up along the long-run aggregate supply curve.
D) we will move down along the long-run aggregate supply curve.

Question 51

The level of long-run aggregate supply is affected by all of the following except

A) changes in the price level.
B) changes in the technology.
C) changes in the capital stock.
D) changes in the number of workers.

Question 52

Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico. This subsequently drove up natural gas,gasoline,and heating oil prices. As a result,this should

A) shift the short-run aggregate supply curve to the left.
B) shift the short-run aggregate supply curve to the right.
C) move the economy up along a stationary short-run aggregate supply curve.
D) move the economy down along a stationary short-run aggregate supply curve.

Question 53

Which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services?

A) Contracts make prices and wages "sticky."
B) Firms are often slow to adjust wages.
C) Menu costs make some prices sticky.
D) Unions are successful in pushing up wages.

Question 54

If the economy receives an influx of new workers from immigration,

A) the long-run aggregate supply curve will shift to the right.
B) the long-run aggregate supply curve will shift to the left.
C) we will move up along the long-run aggregate supply curve.
D) we will move down along the long-run aggregate supply curve.

Question 55

Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy. As a result,

A) the long-run aggregate supply curve will shift to the right.
B) the long-run aggregate supply curve will shift to the left.
C) the economy will move up along the long-run aggregate supply curve.
D) the economy will move down along the long-run aggregate supply curve.

Question 56

On the long-run aggregate supply curve,

A) an increase in the price level increases the aggregate quantity of GDP supplied.
B) an increase in the price level reduces the aggregate quantity of GDP supplied.
C) an increase in the price level has no effect on the aggregate quantity of GDP supplied.
D) an increase in the price level increases the level of potential GDP.

Question 57

The long-run aggregate supply curve shows the relationship between

A) short-run aggregate supply and short-run aggregate demand.
B) the price level and quantity of real GDP supplied.
C) the real interest rate and the nominal interest rate.
D) the quantity of real GDP supplied and the quantity of nominal GDP supplied.

Question 58

The ________ curve has a positive slope because as prices of final goods and services rise,prices of inputs rise more slowly.

A) short-run aggregate supply
B) long-run aggregate supply
C) short-run aggregate demand
D) long-run aggregate demand

Question 59

The short-run aggregate supply curve has a

A) negative slope.
B) positive slope.
C) slope equal to infinity.
D) slope equal to zero.

Question 60

If workers leave a country to seek out better opportunities in another country,then this will

A) shift the short-run aggregate supply curve of the original country to the left.
B) shift the short-run aggregate supply curve of the original country to the right.
C) move the original economy up along a stationary short-run aggregate supply curve.
D) move the original economy down along a stationary short-run aggregate supply curve.

Question 61

A decrease in aggregate demand results in a(n)________ in the ________.

A) recession; long run
B) expansion; long run
C) expansion; short run
D) recession; short run

Question 62

Figure 24-2

Refer to Figure 24-2.Ceteris paribus,an increase in workers and firms adjusting to having previously underestimated the price level would be represented by a movement from

A) SRAS₁ to SRAS₂.
B) SRAS₂ to SRAS₁.
C) point A to point B.
D) point B to point A.

Question 63

Figure 24-2

Refer to Figure 24-2.Ceteris paribus,a decrease in the expected price of an important natural resource would be represented by a movement from

A) SRAS₁ to SRAS₂.
B) SRAS₂ to SRAS₁.
C) point A to point B.
D) point B to point A.

Question 64

Why does the short-run aggregate supply curve slope upward?

Question 65

There has been a decrease in investment. As a result,real GDP will ________ in the short run,and ________ in the long run.

A) increase; increases further
B) increase; decrease to its initial value
C) decrease; decrease further
D) decrease; increase to its initial level

Question 66

Figure 24-2

Refer to Figure 24-2.Ceteris paribus,an increase in the capital stock would be represented by a movement from

A) SRAS₁ to SRAS₂.
B) SRAS₂ to SRAS₁.
C) point A to point B.
D) point B to point A.

Question 67

Long-run macroeconomic equilibrium occurs when aggregate demand ________ short-run aggregate supply and they ________ the long-run supply curve.

A) equals; intersect at a point to the right of
B) equals; intersect at a point on
C) is greater than; intersect at a point to the left of
D) is less than; intersect at a point to the right of

Question 68

Figure 24-2

Refer to Figure 24-2.Ceteris paribus,a decrease in the price level would be represented by a movement from

A) SRAS₁ to SRAS₂.
B) SRAS₂ to SRAS₁.
C) point A to point B.
D) point B to point A.

Question 69

An adverse supply shock causes the short-run aggregate supply curve to shift left,increasing the price level.

Question 70

Figure 24-2

Refer to Figure 24-2.Ceteris paribus,a decrease in productivity would be represented by a movement from

A) SRAS₁ to SRAS₂.
B) SRAS₂ to SRAS₁.
C) point A to point B.
D) point B to point A.

Question 71

Explain how each of the following events would affect the long-run aggregate supply curve.
a.A lower price level
b.A decrease in the labor force
c.A decrease in the quantity of capital goods
d.Technological change

Question 72

Figure 24-2

Refer to Figure 24-2.Ceteris paribus,a decrease in the expected future price level would be represented by a movement from

A) SRAS₁ to SRAS₂.
B) SRAS₂ to SRAS₁.
C) point A to point B.
D) point B to point A.

Question 73

Which of the following would cause the short-run aggregate supply curve to shift to the left?

A) an increase in the price level
B) an increase in inflation expectations
C) a technological advance
D) a decrease in interest rates

Question 74

Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result,

A) workers will be willing to take lower wages next year.
B) the purchasing power of wages will rise if wages increase by 3%.
C) the short-run aggregate supply curve will shift to the left as wages increase.
D) aggregate demand will increase by 3%

Question 75

Explain how each of the following events would affect the short-run aggregate supply curve.
a.A decrease in the price level
b.A decrease in what the price level is expected to be in the future
c.A price level that is currently lower than expected
d.An unexpected decrease in the price of an important raw material
e.A decrease in the labor force

Question 76

What are sticky prices,and how can contracts make them "sticky"?

Question 77

When potential GDP increases,short-run aggregate supply also increases,but long-run aggregate supply does not change.

Question 78

Workers expect inflation to fall from 4% to 1% next year. As a result,this should

A) shift the short-run aggregate supply curve to the left.
B) shift the short-run aggregate supply curve to the right.
C) move the economy up along a stationary short-run aggregate supply curve.
D) move the economy down along a stationary short-run aggregate supply curve.

Question 79

Figure 24-2

Refer to Figure 24-2.Ceteris paribus,a decrease in the labor force would be represented by a movement from

A) SRAS₁ to SRAS₂.
B) SRAS₂ to SRAS₁.
C) point A to point B.
D) point B to point A.

Question 80

The short-run aggregate supply curve is vertical.