Question 1

A $1 million increase in investment spending will raise equilibrium output (real GDP)by:

Accepted Answer

A) less than $1 million. 
B) exactly $1 million. 
C) between $0.5 and $1.5 million. 
D) more than $1 million. 
A) less than $1 million. 
B) exactly $1 million. 
C) between $0.5 and $1.5 million. 
D) more than $1 million.

Question 2

Which of the following will shift the aggregate demand curve to the right?

Accepted Answer

A) Consumers becoming more pessimistic about the future. 
B) A decrease in government spending. 
C) An increase in business optimism. 
D) A decrease in business optimism. 
A) Consumers becoming more pessimistic about the future. 
B) A decrease in government spending. 
C) An increase in business optimism. 
D) A decrease in business optimism.

Question 3

Government spending is often used to:

Accepted Answer

A) change interest rates, which in turn alters consumption and investment. 
B) increase demand in a recession. 
C) decrease demand in a recession. 
D) target inflation. 
A) change interest rates, which in turn alters consumption and investment. 
B) increase demand in a recession. 
C) decrease demand in a recession. 
D) target inflation.

Question 4

In the aggregate demand-output model,if aggregate demand is less than GDP,then:

Accepted Answer

A) inventory is unchanged. 
B) inventory is depleted. 
C) employment increases. 
D) GDP decreases. 
A) inventory is unchanged. 
B) inventory is depleted. 
C) employment increases. 
D) GDP decreases.

Question 5

A lower interest rate makes more investment projects feasible,meaning that:

Accepted Answer

A) there is a direct relationship between the rate of interest and the quantity of investment spending. 
B) there is an inverse relationship between the rate of interest and the quantity of investment spending. 
C) there is no relationship between the rate of interest and the quantity of investment spending. 
D) the demand curve for investment spending is horizontal. 
E) the demand curve for investment spending is vertical. 
A) there is a direct relationship between the rate of interest and the quantity of investment spending. 
B) there is an inverse relationship between the rate of interest and the quantity of investment spending. 
C) there is no relationship between the rate of interest and the quantity of investment spending. 
D) the demand curve for investment spending is horizontal. 
E) the demand curve for investment spending is vertical.

Question 6

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.

Question 7

According to the interest-rate effect,as the price level:

Accepted Answer

A) rises, people feel poorer and buy less. 
B) rises, Australian products become more expensive and foreigners buy fewer Australian goods. 
C) rises, interest rates fall and people buy less. 
D) rises, interest rates rise and people buy less. 
E) falls, interest rates fall and people buy less. 
A) rises, people feel poorer and buy less. 
B) rises, Australian products become more expensive and foreigners buy fewer Australian goods. 
C) rises, interest rates fall and people buy less. 
D) rises, interest rates rise and people buy less. 
E) falls, interest rates fall and people buy less.

Question 8

The Keynesian range is:

Accepted Answer

A) the vertical part of the AS curve. 
B) the horizontal part of the AS curve. 
C) the downward sloping part of the AS curve. 
D) the upward sloping part of the AS curve. 
A) the vertical part of the AS curve. 
B) the horizontal part of the AS curve. 
C) the downward sloping part of the AS curve. 
D) the upward sloping part of the AS curve.

Question 9

Exhibit 14-2 Aggregate demand and supply
  
-In Exhibit 14-2,if aggregate demand shifts from AD₃ to AD₄,real GDP will:

Accepted Answer

A) rise from $7 to $8 and the price level will rise from 120 to 140. 
B) rise from $7 to $8 and the price level will rise from 120 to 170. 
C) rise from $7 to $8 and the price level will rise from 100 to 140. 
D) not change and the price level will rise from 120 to 140. 
E) rise from $4 to $8 and the price level will rise from 120 to 140. 
A) rise from $7 to $8 and the price level will rise from 120 to 140. 
B) rise from $7 to $8 and the price level will rise from 120 to 170. 
C) rise from $7 to $8 and the price level will rise from 100 to 140. 
D) not change and the price level will rise from 120 to 140. 
E) rise from $4 to $8 and the price level will rise from 120 to 140.

Question 10

In the aggregate demand and supply model:

Accepted Answer

A) the aggregate supply curve is horizontal at full-employment real GDP. 
B) the vertical axis measures real GDP. 
C) the horizontal axis measures the average price level. 
D) equilibrium occurs where the AD and AS intersect. 
A) the aggregate supply curve is horizontal at full-employment real GDP. 
B) the vertical axis measures real GDP. 
C) the horizontal axis measures the average price level. 
D) equilibrium occurs where the AD and AS intersect.

Question 11

Why is investment demand more unstable than personal consumption?

Accepted Answer

A) Because business decisions are often made based on the expectations, and moods of optimism and pessimism concerning future economic conditions. 
B) Because business decisions are often made based only on interest rates. 
C) Because business decisions are made more often than personal purchasing decisions. 
D) Because personal purchasing decisions are often made based on the forecasts of future sales. 
A) Because business decisions are often made based on the expectations, and moods of optimism and pessimism concerning future economic conditions. 
B) Because business decisions are often made based only on interest rates. 
C) Because business decisions are made more often than personal purchasing decisions. 
D) Because personal purchasing decisions are often made based on the forecasts of future sales.

Question 12

Other things being equal,an improvement in technology causes:

Accepted Answer

A) a decrease in the aggregate supply curve. 
B) an increase in the aggregate demand curve. 
C) a decrease in the aggregate demand curve. 
D) an increase in the aggregate supply curve. 
A) a decrease in the aggregate supply curve. 
B) an increase in the aggregate demand curve. 
C) a decrease in the aggregate demand curve. 
D) an increase in the aggregate supply curve.

Question 13

The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a/an:

Accepted Answer

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

Question 14

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

Accepted Answer

A) People's desire to maintain real wealth holdings, the interest rate and international trade. 
B) People's desire to increase the price level, the interest rate and the economic growth effect. 
C) The interest rate, the economic growth effect and international trade. 
D) Cost-pull inflation, demand-pull inflation and the need to maintain real wealth holdings. 
E) Recession phases of the business cycle, upturns and downturns. 
A) People's desire to maintain real wealth holdings, the interest rate and international trade. 
B) People's desire to increase the price level, the interest rate and the economic growth effect. 
C) The interest rate, the economic growth effect and international trade. 
D) Cost-pull inflation, demand-pull inflation and the need to maintain real wealth holdings. 
E) Recession phases of the business cycle, upturns and downturns.

Question 15

In the aggregate demand-output model,if an economy operates above equilibrium GDP,there will be:

Accepted Answer

A) unplanned inventory depletion. 
B) an increase in GDP. 
C) an increase in employment. 
D) a decrease in GDP. 
A) unplanned inventory depletion. 
B) an increase in GDP. 
C) an increase in employment. 
D) a decrease in GDP.

Question 16

Demand-pull inflation is caused by a leftward shift of the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 17

Keynes's macroeconomic theory explains that by shifting the aggregate demand the economy experiences less problems with unemployment but more problems with inflation.

Accepted Answer

A) True 
 B)False

Question 18

Other factors held constant,a decrease in resource prices will shift the aggregate:

Accepted Answer

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

Question 19

The founder of the classical school of economics was:

Accepted Answer

A) Jean Say. 
B) John Keynes. 
C) Adam Smith. 
D) John Howard. 
A) Jean Say. 
B) John Keynes. 
C) Adam Smith. 
D) John Howard.

Question 20

The only determinant of investment is the interest rate.

Accepted Answer

A) True 
 B)False

A $1 million increase in investment spending will raise equilibrium output (real GDP)by:

Which of the following will shift the aggregate demand curve to the right?

Government spending is often used to:

In the aggregate demand-output model,if aggregate demand is less than GDP,then:

A lower interest rate makes more investment projects feasible,meaning that:

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

According to the interest-rate effect,as the price level:

The Keynesian range is:

Exhibit 14-2 Aggregate demand and supply -In Exhibit 14-2,if aggregate demand shifts from AD₃ to AD₄,real GDP will:

In the aggregate demand and supply model:

Why is investment demand more unstable than personal consumption?

Other things being equal,an improvement in technology causes:

The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a/an:

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

In the aggregate demand-output model,if an economy operates above equilibrium GDP,there will be:

Demand-pull inflation is caused by a leftward shift of the aggregate demand curve.

Keynes's macroeconomic theory explains that by shifting the aggregate demand the economy experiences less problems with unemployment but more problems with inflation.

Other factors held constant,a decrease in resource prices will shift the aggregate:

The founder of the classical school of economics was:

The only determinant of investment is the interest rate.

Thinking like an economist

Production possibilities and opportunity cost

Market demand and supply

Markets in action

Elasticity of demand and supply

Production costs

Perfect competition

Monopoly

Monopolistic competition and oligopoly

Policy issues: resource taxes and climate change

Measuring the size of the economy

Business cycles and economic growth

Inflation and unemployment

The monetary and financial system

Macroeconomic policy I: monetary policy

Macroeconomic policy II: fiscal policy

International trade and finance

Applying graphs to economics

Filters

Exam 14: A simple model of the macro economy

A $1 million increase in investment spending will raise equilibrium output (real GDP)by:

Which of the following will shift the aggregate demand curve to the right?

Government spending is often used to:

In the aggregate demand-output model,if aggregate demand is less than GDP,then:

A lower interest rate makes more investment projects feasible,meaning that:

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

According to the interest-rate effect,as the price level:

The Keynesian range is:

Exhibit 14-2 Aggregate demand and supply -In Exhibit 14-2,if aggregate demand shifts from AD₃ to AD₄,real GDP will:

In the aggregate demand and supply model:

Why is investment demand more unstable than personal consumption?

Other things being equal,an improvement in technology causes:

The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a/an:

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

In the aggregate demand-output model,if an economy operates above equilibrium GDP,there will be:

Demand-pull inflation is caused by a leftward shift of the aggregate demand curve.

Keynes's macroeconomic theory explains that by shifting the aggregate demand the economy experiences less problems with unemployment but more problems with inflation.

Other factors held constant,a decrease in resource prices will shift the aggregate:

The founder of the classical school of economics was:

The only determinant of investment is the interest rate.

Thinking like an economist

Production possibilities and opportunity cost

Market demand and supply

Markets in action

Elasticity of demand and supply

Production costs

Perfect competition

Monopoly

Monopolistic competition and oligopoly

Policy issues: resource taxes and climate change

Measuring the size of the economy

Business cycles and economic growth

Inflation and unemployment

The monetary and financial system

Macroeconomic policy I: monetary policy

Macroeconomic policy II: fiscal policy

International trade and finance

Applying graphs to economics

Filters