Question 1

Why does aggregate demand shift outward by a greater amount than the initial increase in
spending?

Accepted Answer

The reason is because of the multiplier.

Question 2

If aggregate demand increases and aggregate supply decreases, the price level

Accepted Answer

A)  will decrease, but real output may increase, decrease, or remain unchanged. 
B)  will increase, but real output may increase, decrease, or remain unchanged. 
C)  and real output will both increase. 
D)  and real output will both decrease. 
A)  will decrease, but real output may increase, decrease, or remain unchanged. 
B)  will increase, but real output may increase, decrease, or remain unchanged. 
C)  and real output will both increase. 
D)  and real output will both decrease.

Question 3

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 4

An increase in aggregate demand is most likely to be caused by which of the following?

Accepted Answer

A)  an increase in real interest rates 
B)  a decrease in government spending 
C)  a decrease in expected returns on investment 
D)  a decrease in the tax rates on household income 
A)  an increase in real interest rates 
B)  a decrease in government spending 
C)  a decrease in expected returns on investment 
D)  a decrease in the tax rates on household income

Question 5

The interest-rate effect suggests that

Accepted Answer

A)  a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. 
B)  an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. 
C)  an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. 
D)  an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending. 
A)  a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. 
B)  an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. 
C)  an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. 
D)  an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

Question 6

If personal income taxes and business taxes increase, then this will

Accepted Answer

A)  increase aggregate demand and aggregate supply. 
B)  decrease aggregate demand and aggregate supply. 
C)  decrease aggregate demand and increase aggregate supply. 
D)  increase aggregate demand and decrease aggregate supply. 
A)  increase aggregate demand and aggregate supply. 
B)  decrease aggregate demand and aggregate supply. 
C)  decrease aggregate demand and increase aggregate supply. 
D)  increase aggregate demand and decrease aggregate supply.

Question 7

An increase in input productivity will

Accepted Answer

A)  shift the aggregate supply curve leftward. 
B)  reduce the equilibrium price level, assuming downward ﬂexible prices. 
C)  reduce the equilibrium real output. 
D)  reduce aggregate demand. 
A)  shift the aggregate supply curve leftward. 
B)  reduce the equilibrium price level, assuming downward ﬂexible prices. 
C)  reduce the equilibrium real output. 
D)  reduce aggregate demand.

Question 8

With cost-push inﬂation, there will be

Accepted Answer

A)  an increase in real GDP. 
B)  a leftward shift in the aggregate demand curve. 
C)  a decrease in real GDP. 
D)  a decrease in unemployment. 
A)  an increase in real GDP. 
B)  a leftward shift in the aggregate demand curve. 
C)  a decrease in real GDP. 
D)  a decrease in unemployment.

Question 9

If the stock market crashes, the so-called reverse wealth effect will cause consumer spending to
decrease.

Accepted Answer

A) True 
 B)False

Question 10

In the accompanying graph, which line might represent an immediate-short-run aggregate supply curve?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 11

In which of the following sets of circumstances can we conﬁdently expect inﬂation?

Accepted Answer

A)  Aggregate supply and aggregate demand both increase. 
B)  Aggregate supply and aggregate demand both decrease. 
C)  Aggregate supply decreases and aggregate demand increases. 
D)  Aggregate supply increases and aggregate demand decreases. 
A)  Aggregate supply and aggregate demand both increase. 
B)  Aggregate supply and aggregate demand both decrease. 
C)  Aggregate supply decreases and aggregate demand increases. 
D)  Aggregate supply increases and aggregate demand decreases.

Question 12

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. If productivity increased such that 3,000 units are now produced
With the quantity of inputs still equal to 60, then per-unit production costs would

Accepted Answer

A)  decrease and aggregate supply would decrease. 
B)  decrease and aggregate supply would increase. 
C)  increase and aggregate supply would decrease. 
D)  remain unchanged and aggregate supply would remain unchanged. 
A)  decrease and aggregate supply would decrease. 
B)  decrease and aggregate supply would increase. 
C)  increase and aggregate supply would decrease. 
D)  remain unchanged and aggregate supply would remain unchanged.

Question 13

(Last Word) Discuss the explanations economists give for the slow recovery after the Great
Recession.

Accepted Answer

One explanation was that it was hard for

Question 14

Which of the following will not tend to happen if the U.S. dollar depreciates against the euro?

Accepted Answer

A)  Europeans will ﬁnd U.S. goods become less expensive in euro terms. 
B)  Americans will ﬁnd European goods become more expensive in dollar terms. 
C)  Many Americans will switch and buy domestic goods instead of imports from Europe. 
D)  Many Europeans will switch and buy their own products instead of imports from the U.S. 
A)  Europeans will ﬁnd U.S. goods become less expensive in euro terms. 
B)  Americans will ﬁnd European goods become more expensive in dollar terms. 
C)  Many Americans will switch and buy domestic goods instead of imports from Europe. 
D)  Many Europeans will switch and buy their own products instead of imports from the U.S.

Question 15

Identify the four factors that affect consumer spending. How does a change in consumer spending
affect aggregate demand?

Accepted Answer

The four factors that affect consumer sp

Question 16

Refer to the graph. The equilibrium for this economy is

Accepted Answer

A)  at point a. 
B)  at point b. 
C)  at price level P $P _ { 2 } \text { and output } Q _ { 2 } \text {. }$ 
D)  at price level P $P _ { 1 } \text { and output } Q _ { 1 } \text {. }$ 
A)  at point a. 
B)  at point b. 
C)  at price level P $P _ { 2 } \text { and output } Q _ { 2 } \text {. }$ 
D)  at price level P $P _ { 1 } \text { and output } Q _ { 1 } \text {. }$

Question 17

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. 
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 18

Accepted Answer

A)  a reduction in the price level. 
B)  the increase in productivity. 
C)  an increase in business taxes. 
D)  the real-balances, interest-rate, and foreign purchases effects. 
A)  a reduction in the price level. 
B)  the increase in productivity. 
C)  an increase in business taxes. 
D)  the real-balances, interest-rate, and foreign purchases effects.

Question 19

A decrease in interest rates caused by a change in the price level would cause a(n)

Accepted Answer

A)  decrease (or shift left) in aggregate demand. 
B)  increase (or shift right) in aggregate demand. 
C)  decrease in the quantity of real output demanded (or movement up along A
D) . 
D)  increase in the quantity of real output demanded (or movement down along A
D) . 
A)  decrease (or shift left) in aggregate demand. 
B)  increase (or shift right) in aggregate demand. 
C)  decrease in the quantity of real output demanded (or movement up along A
D) . 
D)  increase in the quantity of real output demanded (or movement down along A
D) .

Question 20

A change in business taxes and regulation can affect production costs and aggregate supply.

Accepted Answer

A) True 
 B)False

Why does aggregate demand shift outward by a greater amount than the initial increase in spending?

If aggregate demand increases and aggregate supply decreases, the price level

An increase in aggregate demand is most likely to be caused by which of the following?

The interest-rate effect suggests that

If personal income taxes and business taxes increase, then this will

An increase in input productivity will

With cost-push inﬂation, there will be

If the stock market crashes, the so-called reverse wealth effect will cause consumer spending to decrease.

In the accompanying graph, which line might represent an immediate-short-run aggregate supply curve?

In which of the following sets of circumstances can we conﬁdently expect inﬂation?

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. If productivity increased such that 3,000 units are now produced With the quantity of inputs still equal to 60, then per-unit production costs would

(Last Word) Discuss the explanations economists give for the slow recovery after the Great Recession.

Which of the following will not tend to happen if the U.S. dollar depreciates against the euro?

Identify the four factors that affect consumer spending. How does a change in consumer spending affect aggregate demand?

Refer to the graph. The equilibrium for this economy is

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

A decrease in interest rates caused by a change in the price level would cause a(n)

A change in business taxes and regulation can affect production costs and aggregate supply.

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Exam 12: Aggregate Demand and Aggregate Supply

Why does aggregate demand shift outward by a greater amount than the initial increase in spending?

If aggregate demand increases and aggregate supply decreases, the price level

An increase in aggregate demand is most likely to be caused by which of the following?

The interest-rate effect suggests that

If personal income taxes and business taxes increase, then this will

An increase in input productivity will

With cost-push inﬂation, there will be

If the stock market crashes, the so-called reverse wealth effect will cause consumer spending to decrease.

In the accompanying graph, which line might represent an immediate-short-run aggregate supply curve?

In which of the following sets of circumstances can we conﬁdently expect inﬂation?

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. If productivity increased such that 3,000 units are now produced With the quantity of inputs still equal to 60, then per-unit production costs would

(Last Word) Discuss the explanations economists give for the slow recovery after the Great Recession.

Which of the following will not tend to happen if the U.S. dollar depreciates against the euro?

Identify the four factors that affect consumer spending. How does a change in consumer spending affect aggregate demand?

Refer to the graph. The equilibrium for this economy is

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

A decrease in interest rates caused by a change in the price level would cause a(n)

A change in business taxes and regulation can affect production costs and aggregate supply.

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters