Question 1

Along the Keynesian range of the aggregate supply curve, an increase in the aggregate demand curve will increase:

Accepted Answer

A)  both the price level and real GDP. 
B)  only real GDP. 
C)  only the price level. 
D)  real GDP and reduce the price level. 
A)  both the price level and real GDP. 
B)  only real GDP. 
C)  only the price level. 
D)  real GDP and reduce the price level.

Question 2

Suppose an increase in government spending stimulates real GDP without affecting the price level. What is the relevant range of the aggregate supply curve in this case?

Accepted Answer

A)  the classical range 
B)  the intermediate range 
C)  the Keynesian range 
D)  the monetarist range 
A)  the classical range 
B)  the intermediate range 
C)  the Keynesian range 
D)  the monetarist range

Question 3

Exhibit 10-1 Aggregate supply curve
 
In Exhibit 10-1, there are plenty of idle resources and no upward pressure on prices in:

Accepted Answer

A)  the segment labeled ab. 
B)  the segment labeled bc. 
C)  the segment labeled cd. 
D)  both segment bc and segment cd. 
A)  the segment labeled ab. 
B)  the segment labeled bc. 
C)  the segment labeled cd. 
D)  both segment bc and segment cd.

Question 4

Which of the following will most likely increase aggregate demand?

Accepted Answer

A)  a decrease in stock market prices 
B)  an increase in business investment spending 
C)  a decrease in the expected inflation rate 
D)  a decrease in real GDP 
A)  a decrease in stock market prices 
B)  an increase in business investment spending 
C)  a decrease in the expected inflation rate 
D)  a decrease in real GDP

Question 5

If the overall price level rises from 100 to 150, the aggregate

Accepted Answer

A)  quantity demanded could increase from $5 trillion to $6 trillion. 
B)  quantity demanded could decrease from $5 trillion to $4 trillion. 
C)  demand curve could shift to the right. 
D)  demand curve could shift to the left. 
A)  quantity demanded could increase from $5 trillion to $6 trillion. 
B)  quantity demanded could decrease from $5 trillion to $4 trillion. 
C)  demand curve could shift to the right. 
D)  demand curve could shift to the left.

Question 6

A rightward shift in the aggregate demand curve can be caused by an increase in:

Accepted Answer

A)  the price level. 
B)  business investment spending. 
C)  taxes. 
D)  production costs. 
A)  the price level. 
B)  business investment spending. 
C)  taxes. 
D)  production costs.

Question 7

If aggregate demand increases in the intermediate range of the aggregate supply curve then the:

Accepted Answer

A)  price level rises and real GDP falls. 
B)  price level rises and real GDP rises. 
C)  price level falls and real GDP falls. 
D)  price level falls and real GDP rises. 
A)  price level rises and real GDP falls. 
B)  price level rises and real GDP rises. 
C)  price level falls and real GDP falls. 
D)  price level falls and real GDP rises.

Question 8

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then:

Accepted Answer

A)  both real GDP and the price level will fall. 
B)  real GDP will fall and the price level will rise. 
C)  real GDP will rise and the price level will fall. 
D)  both real GDP and the price level will rise. 
A)  both real GDP and the price level will fall. 
B)  real GDP will fall and the price level will rise. 
C)  real GDP will rise and the price level will fall. 
D)  both real GDP and the price level will rise.

Question 9

A reduction in regulation will shift the aggregate:

Accepted Answer

A)  supply curve leftward. 
B)  supply curve rightward. 
C)  demand curve leftward. 
D)  demand curve rightward. 
A)  supply curve leftward. 
B)  supply curve rightward. 
C)  demand curve leftward. 
D)  demand curve rightward.

Question 10

The interest rate effect predicts that higher prices:

Accepted Answer

A)  make it more expensive to borrow, leading to higher interest rates and less investment. 
B)  make people worse off by reducing the value of their wealth, leading them to save more and spend less. 
C)  increase borrowing, leading to lower interest rates and more investment. 
D)  increase borrowing, leading to higher interest rates and less investment. 
A)  make it more expensive to borrow, leading to higher interest rates and less investment. 
B)  make people worse off by reducing the value of their wealth, leading them to save more and spend less. 
C)  increase borrowing, leading to lower interest rates and more investment. 
D)  increase borrowing, leading to higher interest rates and less investment.

Question 11

Which one of the following factors will most likely cause an increase in aggregate demand?

Accepted Answer

A)  An increase in net exports. 
B)  An increase in the real interest rate. 
C)  A decrease in net exports due to falling incomes abroad. 
D)  A technological development that decreases the cost of producing computer chips. 
A)  An increase in net exports. 
B)  An increase in the real interest rate. 
C)  A decrease in net exports due to falling incomes abroad. 
D)  A technological development that decreases the cost of producing computer chips.

Question 12

Lower taxes on businesses will shift the aggregate:

Accepted Answer

A)  demand curve rightward. 
B)  demand curve leftward. 
C)  supply curve rightward. 
D)  supply curve leftward. 
A)  demand curve rightward. 
B)  demand curve leftward. 
C)  supply curve rightward. 
D)  supply curve leftward.

Question 13

Exhibit 10-8 Aggregate demand and supply
 
In Exhibit 10-8, if aggregate demand shifts from AD1 to AD2,

Accepted Answer

A)  real GDP will increase from $3.0 to $7.0, and the price level will remain the same. 
B)  real GDP will increase from $3.0 to $4.0, and the price level will remain the same. 
C)  real GDP and the price level will both remain the same. 
D)  real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140. 
A)  real GDP will increase from $3.0 to $7.0, and the price level will remain the same. 
B)  real GDP will increase from $3.0 to $4.0, and the price level will remain the same. 
C)  real GDP and the price level will both remain the same. 
D)  real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140.

Question 14

Which of the following is not a reason for the downward slope of the aggregate demand curve?

Accepted Answer

A)  Real balances effect 
B)  Interest-rate effect 
C)  Net exports effect 
D)  Government spending effect 
A)  Real balances effect 
B)  Interest-rate effect 
C)  Net exports effect 
D)  Government spending effect

Question 15

Exhibit 10-6 Aggregate supply curve
 
In Exhibit 10-6, the aggregate supply curve becomes vertical at GDP = $1,200 because:

Accepted Answer

A)  there are no more workers available at any wage rate to increase real GDP. 
B)  the price level remains constant. 
C)  the only workers available would demand higher wage rates. 
D)  the economy is experiencing low employment and low production. 
A)  there are no more workers available at any wage rate to increase real GDP. 
B)  the price level remains constant. 
C)  the only workers available would demand higher wage rates. 
D)  the economy is experiencing low employment and low production.

Question 16

When prices rise, consumers and businesses hold larger money balances. This reduces the supply of loanable funds, increases the interest rate, and discourages both consumption and investment. This process is called the:

Accepted Answer

A)  interest-rate effect. 
B)  real balance effect. 
C)  investment effect. 
D)  disinvestment effect. 
A)  interest-rate effect. 
B)  real balance effect. 
C)  investment effect. 
D)  disinvestment effect.

Question 17

The aggregate demand curve will shift rightward when there is:

Accepted Answer

A)  a decrease in government spending. 
B)  a decrease in incomes abroad. 
C)  a tax increase. 
D)  the expectation that future consumer income will rise. 
A)  a decrease in government spending. 
B)  a decrease in incomes abroad. 
C)  a tax increase. 
D)  the expectation that future consumer income will rise.

Question 18

In the horizontal segment of the aggregate supply curve, when GDP:

Accepted Answer

A)  increases, the price level rises. 
B)  decreases, the price level falls. 
C)  increases, the price level does not change. 
D)  increases, the price level falls. 
A)  increases, the price level rises. 
B)  decreases, the price level falls. 
C)  increases, the price level does not change. 
D)  increases, the price level falls.

Question 19

Exhibit 10-6 Aggregate supply curve
 
In Exhibit 10-6, where the GDP = $1,200 billion,

Accepted Answer

A)  everyone willing to work at the current wage is employed. 
B)  the economy has reached full employment. 
C)  GDP can increase to $1,100 billion without triggering an increase in the price level. 
D)  no further increases in the price level can generate more real GDP. 
A)  everyone willing to work at the current wage is employed. 
B)  the economy has reached full employment. 
C)  GDP can increase to $1,100 billion without triggering an increase in the price level. 
D)  no further increases in the price level can generate more real GDP.

Question 20

To illustrate the classical argument that "supply creates its own demand," the aggregate supply curve should be drawn:

Accepted Answer

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

Exam 20: Aggregate Demand and Supply

Along the Keynesian range of the aggregate supply curve, an increase in the aggregate demand curve will increase:

Suppose an increase in government spending stimulates real GDP without affecting the price level. What is the relevant range of the aggregate supply curve in this case?

Exhibit 10-1 Aggregate supply curve In Exhibit 10-1, there are plenty of idle resources and no upward pressure on prices in:

Which of the following will most likely increase aggregate demand?

If the overall price level rises from 100 to 150, the aggregate

A rightward shift in the aggregate demand curve can be caused by an increase in:

If aggregate demand increases in the intermediate range of the aggregate supply curve then the:

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then:

A reduction in regulation will shift the aggregate:

The interest rate effect predicts that higher prices:

Which one of the following factors will most likely cause an increase in aggregate demand?

Lower taxes on businesses will shift the aggregate:

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD1 to AD2,

Which of the following is not a reason for the downward slope of the aggregate demand curve?

Exhibit 10-6 Aggregate supply curve In Exhibit 10-6, the aggregate supply curve becomes vertical at GDP = $1,200 because:

When prices rise, consumers and businesses hold larger money balances. This reduces the supply of loanable funds, increases the interest rate, and discourages both consumption and investment. This process is called the:

The aggregate demand curve will shift rightward when there is:

In the horizontal segment of the aggregate supply curve, when GDP:

Exhibit 10-6 Aggregate supply curve In Exhibit 10-6, where the GDP = $1,200 billion,

To illustrate the classical argument that "supply creates its own demand," the aggregate supply curve should be drawn:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, if aggregate demand shifts from AD₁ to AD₂,