Question 1

If investment decreases by $20 billion and the economy's MPC is .5,the aggregate demand curve will shift:

Accepted Answer

A)   leftward by $40 billion at each price level.
B)   rightward by $20 billion at each price level.
C)   rightward by $40 billion at each price level.
D)   leftward by $20 billion at each price level.

Question 2

(Advanced analysis) Assume that the MPS is .33 in an economy that has an aggregate supply curve with a slope of 1.An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by:

Accepted Answer

A)   $30 billion and increase real GDP by $15 billion.
B)   $30 billion and increase real GDP by $30 billion.
C)   $10 billion and increase real GDP by $30 billion.
D)   $10 billion and increase real GDP by $10 billion.

Question 3

The aggregate supply curve:

Accepted Answer

A)   is explained by the interest rate,real-balances,and foreign purchases effects.
B)   gets steeper as the economy moves from the top of the curve to the bottom of the curve.
C)   shows the various amounts of real output that businesses will produce at each price level.
D)   is downsloping because real purchasing power increases as the price level falls. C

Question 4

When aggregate demand declines,wage rates may be inflexible downward,at least for a time,because of:

Accepted Answer

A)   the foreign purchases effect.
B)   inflexible product prices.
C)   wage contracts.
D)   the wealth effect.

Question 5

Other things equal,appreciation of the dollar:

Accepted Answer

A)   increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
B)   increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources.
C)   decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
D)   decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.

Question 6

In response to the Great Recession,the federal government engaged in significant deficit-funded spending,but it did not fully achieve the desired result.Which of the following best explains why the fiscal policy actions fell short of their objective?

Accepted Answer

A)   Monetary policy counteracted fiscal policy,keeping the unemployment rate from falling as much as intended.
B)   Consumers did not respond to the fiscal stimulus as well as hoped,as they put more income into saving and repaying debt.
C)   Although the fiscal stimulus increased consumer spending significantly,it mostly went to purchase foreign-produced goods and services.
D)   The fiscal stimulus caused massive inflation that further disrupted economic activity.

Question 7

Which of the following would not shift the aggregate supply curve?

Accepted Answer

A)   An increase in labor productivity.
B)   A decline in the price of imported oil.
C)   A decline in business taxes.
D)   An increase in the price level.

Question 8

A decrease in aggregate demand will cause a greater decline in real output the:

Accepted Answer

A)   less flexible is the economy's price level.
B)   more flexible is the economy's price level.
C)   steeper is the economy's AS curve.
D)   larger is the economy's marginal propensity to save.

Question 9

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

Accepted Answer

A)   A reduction in business taxes.
B)   Production bottlenecks occurring when producers near full plant capacity.
C)   An increase in the price of imported resources.
D)   Deregulation of industry.

Question 10

Graphically,cost-push inflation is shown as a:

Accepted Answer

A)   leftward shift of the AD curve.
B)   rightward shift of the AS curve.
C)   leftward shift of the AS curve.
D)   rightward shift of the AD curve.

Question 11

The interest-rate effect is one of the determinants of aggregate demand.

Accepted Answer

A) True 
 B)False  False

Question 12

Graphically,demand-pull inflation is shown as a:

Accepted Answer

A)   rightward shift of the AD curve along an upsloping AS curve.
B)   leftward shift of the AS curve along a downsloping AD curve.
C)   leftward shift of the AS curve along an upsloping AD curve.
D)   rightward shift of the AD curve along a downsloping AS curve.

Question 13

The aggregate demand curve is:

Accepted Answer

A)   vertical under conditions of full employment.
B)   horizontal when there is considerable unemployment in the economy.
C)   downsloping because of the interest-rate,real-balances,and foreign purchases effects.
D)   downsloping because production costs decrease as real output rises.

Question 14

The aggregate supply curve (short run) :

Accepted Answer

A)   slopes downward and to the right.
B)   graphs as a vertical line.
C)   slopes upward and to the right.
D)   graphs as a horizontal line.

Question 15

The foreign purchases effect suggests that a decrease in the U.S.price level relative to other countries will:

Accepted Answer

A)   shift the aggregate demand curve leftward.
B)   shift the aggregate supply curve leftward.
C)   decrease U.S.exports and increase U.S.imports.
D)   increase U.S.exports and decrease U.S.imports.

Question 16

The price level in the United States is more flexible downward than upward.

Accepted Answer

A) True 
 B)False

Question 17

An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a:

Accepted Answer

A)   rightward shift of the aggregate demand curve.
B)   leftward shift of the aggregate demand curve.
C)   movement downward along a fixed aggregate demand curve.
D)   decrease in aggregate supply.

Question 18

The aggregate expenditures model and the aggregate demand curve can be reconciled because,other things equal,in the aggregate expenditures model:

Accepted Answer

A)   changes in the price level have no effect on the equilibrium level of GDP.
B)   an increase in the price level increases the real value of wealth.
C)   the level of aggregate expenditures and therefore the level of real GDP vary inversely with the price level.
D)   the level of aggregate expenditures and therefore the level of real GDP vary directly with the price level.

Question 19

(Advanced analysis) Assume that the MPC is .8 in an economy that has an aggregate supply curve with a slope of 1.Also,suppose that the price level is flexible downward.A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by:

Accepted Answer

A)   $50 billion and decrease real GDP by $50 billion.
B)   $50 billion and decrease real GDP by $25 billion.
C)   $10 billion and decrease real GDP by $10 billion.
D)   $10 billion and decrease real GDP by $25 billion.

Question 20

A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will:

Accepted Answer

A)   increase real output by more than the price level.
B)   increase the price level by more than real output.
C)   reduce real output by more than the price level.
D)   reduce the price level by more than real output. B

Exam 31: Aggregate Demand and Aggregate Supply

If investment decreases by $20 billion and the economy's MPC is .5,the aggregate demand curve will shift:

Correct AnswerverifiedShow Answer

(Advanced analysis) Assume that the MPS is .33 in an economy that has an aggregate supply curve with a slope of 1.An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by:

Correct AnswerverifiedShow Answer

The aggregate supply curve:

Correct AnswerverifiedC

When aggregate demand declines,wage rates may be inflexible downward,at least for a time,because of:

Correct AnswerverifiedShow Answer

Other things equal,appreciation of the dollar:

Correct AnswerverifiedShow Answer

In response to the Great Recession,the federal government engaged in significant deficit-funded spending,but it did not fully achieve the desired result.Which of the following best explains why the fiscal policy actions fell short of their objective?

Correct AnswerverifiedShow Answer

Which of the following would not shift the aggregate supply curve?

Correct AnswerverifiedShow Answer

A decrease in aggregate demand will cause a greater decline in real output the:

Correct AnswerverifiedShow Answer

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

Correct AnswerverifiedShow Answer

Graphically,cost-push inflation is shown as a:

Correct AnswerverifiedShow Answer

The interest-rate effect is one of the determinants of aggregate demand.

Correct AnswerverifiedFalse

Graphically,demand-pull inflation is shown as a:

Correct AnswerverifiedShow Answer

The aggregate demand curve is:

Correct AnswerverifiedShow Answer

The aggregate supply curve (short run) :

Correct AnswerverifiedShow Answer

The foreign purchases effect suggests that a decrease in the U.S.price level relative to other countries will:

Correct AnswerverifiedShow Answer

The price level in the United States is more flexible downward than upward.

Correct AnswerverifiedShow Answer

An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a:

Correct AnswerverifiedShow Answer

The aggregate expenditures model and the aggregate demand curve can be reconciled because,other things equal,in the aggregate expenditures model:

Correct AnswerverifiedShow Answer

(Advanced analysis) Assume that the MPC is .8 in an economy that has an aggregate supply curve with a slope of 1.Also,suppose that the price level is flexible downward.A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by:

Correct AnswerverifiedShow Answer

A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will:

Correct AnswerverifiedB

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False

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B