Question 1

Transfers are excluded from aggregate demand because they

Accepted Answer

A)  do not represent purchasing power.
B)  merely shift purchasing from one group to another.
C)  are not easy to register in accounting.
D)  only add to confusion.

Question 2

In the short run, if aggregate demand increases, what happens to output prices relative to input prices?

Accepted Answer

A)  They rise.
B)  They decline or stay the same.
C)  They may rise or decline.
D)  They do not change.

Question 3

Which of the following is most likely to cause an increase in aggregate demand?

Accepted Answer

A)  an increase in interest rates
B)  a decrease in national income
C)  an increase in imports
D)  an increase in defense spending by the federal government

Question 4

A curve showing an inverse relationship between the overall price level and the quantity of real output that will be demanded at various price levels, ceteris paribus, is called the

Accepted Answer

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

Question 5

Net exports are __________ related to the exchange rate.

Accepted Answer

A)  (positively)  directly
B)  weakly
C)  not
D)  inversely

Question 6

An increase in personal income tax rates

Accepted Answer

A)  decreases consumption expenditures.
B)  increases corporate tax rates.
C)  increases expected profitability of an investment.
D)  increases aggregate demand.

Question 7

Which of the following is likely to lead to a decrease in aggregate demand?

Accepted Answer

A)  a decrease in interest rates
B)  a decrease in national income
C)  an increase in national income
D)  an increase in government spending on goods and services.

Question 8

The change in the domestic price level that causes consumers to substitute into or out of relatively cheaper or relatively more expensive imported goods is called

Accepted Answer

A)  the substitution-of-foreign-goods effect.
B)  the wealth effect or real-balances effect.
C)  the constant nominal income effect.
D)  long-run equilibrium. A

Question 9

As a component of aggregate demand, government spending

Accepted Answer

A)  includes government purchases of goods and services, transfers, and interest on the national debt.
B)  is the largest component.
C)  is the most volatile component of aggregate demand.
D)  includes only government purchases of goods and services.

Question 10

Ceteris paribus, increases in government spending __________ aggregate demand.

Accepted Answer

A)  increase
B)  decrease
C)  have no affect on
D)  None of the above is correct.

Question 11

What is measured on the vertical axis of the aggregate supply curve?

Accepted Answer

A)  real output
B)  the overall price level as captured by a price index
C)  a goods relative price
D)  the quantity per time period of a particular good

Question 12

The major catalyst behind aggregate demand fluctuations is

Accepted Answer

A)  monetary and fiscal policy.
B)  changes in the labor force.
C)  overall liquidity of the financial system.
D)  changes in stock prices.

Question 13

Starting from long-run equilibrium, an increase in aggregate demand will cause

Accepted Answer

A)  a decrease in production in the short run.
B)  an increase in employment in the short run.
C)  a decrease in the price level.
D)  downward pressure on wage rate.

Question 14

The economy is in long-run equilibrium when

Accepted Answer

A)  an optimal mix is reached.
B)  input prices have fully adjusted to changes in output prices.
C)  few input and output prices have adjusted.
D)  change is the leading characteristic of the production factors. B

Question 15

In the AD/AS framework, an unexpected increase in the money supply and a resulting increase in aggregate demand, causes nominal wages

Accepted Answer

A)  to remain unchanged.
B)  to decrease.
C)  to start to rise, but at a slower rate than prices.
D)  to fluctuate wildly. C

Question 16

In the short run, the Phillips curve is

Accepted Answer

A)  upward sloping.
B)  downward sloping.
C)  horizontal.
D)  vertical.

Question 17

A short-run equilibrium of the economy

Accepted Answer

A)  stabilizes price levels.
B)  is a nonsustainable situation.
C)  is the natural level of real output.
D)  is always above full employment.

Question 18

In the short run, if aggregate demand decreases,

Accepted Answer

A)  output increases while prices fall.
B)  only prices fall.
C)  prices rise.
D)  both output and the price level fall.

Question 19

The vertical curve through the natural rate of output to which the economy will return in the long run, regardless of the price level, is called the

Accepted Answer

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

Question 20

Which of the following phrases best describes the wealth effect?

Accepted Answer

A)  When the overall price level increases, ceteris paribus, domestic goods and services become relatively more expensive and foreign goods become relatively cheaper.
B)  When income or wealth increase, consumption is likely to decrease.
C)  If the price level increases while the nominal money supply remains constant, the supply of real money balances decreases and spending units experience a loss of purchasing power.
D)  When the price level rises, the quantity demanded of real GDP must fall in accordance with the constant nominal income constraint. In short, less is demanded at higher prices because the funds run out sooner.

Exam 22: Aggregate Demand and Aggregate Supply

Transfers are excluded from aggregate demand because they

Correct AnswerverifiedShow Answer

In the short run, if aggregate demand increases, what happens to output prices relative to input prices?

Correct AnswerverifiedShow Answer

Which of the following is most likely to cause an increase in aggregate demand?

Correct AnswerverifiedShow Answer

A curve showing an inverse relationship between the overall price level and the quantity of real output that will be demanded at various price levels, ceteris paribus, is called the

Correct AnswerverifiedShow Answer

Net exports are __________ related to the exchange rate.

Correct AnswerverifiedShow Answer

An increase in personal income tax rates

Correct AnswerverifiedShow Answer

Which of the following is likely to lead to a decrease in aggregate demand?

Correct AnswerverifiedShow Answer

The change in the domestic price level that causes consumers to substitute into or out of relatively cheaper or relatively more expensive imported goods is called

Correct AnswerverifiedA

As a component of aggregate demand, government spending

Correct AnswerverifiedShow Answer

Ceteris paribus, increases in government spending __________ aggregate demand.

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What is measured on the vertical axis of the aggregate supply curve?

Correct AnswerverifiedShow Answer

The major catalyst behind aggregate demand fluctuations is

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Starting from long-run equilibrium, an increase in aggregate demand will cause

Correct AnswerverifiedShow Answer

The economy is in long-run equilibrium when

Correct AnswerverifiedB

In the AD/AS framework, an unexpected increase in the money supply and a resulting increase in aggregate demand, causes nominal wages

Correct AnswerverifiedC

In the short run, the Phillips curve is

Correct AnswerverifiedShow Answer

A short-run equilibrium of the economy

Correct AnswerverifiedShow Answer

In the short run, if aggregate demand decreases,

Correct AnswerverifiedShow Answer

The vertical curve through the natural rate of output to which the economy will return in the long run, regardless of the price level, is called the

Correct AnswerverifiedShow Answer

Which of the following phrases best describes the wealth effect?

Correct AnswerverifiedShow Answer

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