Question 1

The real-balance and interest-rate effects help explain why aggregate demand might shift to the right or to the left.

Accepted Answer

A) True 
 B)False

Question 2

The shape of the short-run aggregate supply curve indicates that as the general price level rises, output will expand but not by much when the economy reaches full employment.

Accepted Answer

A) True 
 B)False

Question 3

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 4

The real-balance effect pertains to the effect of:

Accepted Answer

A)  Consumer spending on the price level, while the wealth effect refers to the impact of changes in wealth on consumer spending 
B)  Wealth-changes on aggregate demand, while the wealth effect refers to the impact of changes in the price level on the real value of wealth 
C)  Changes in interest rate on aggregate demand, while the wealth effect refers to the impact of changes aggregate demand on people's wealth 
D)  Price-changes on aggregate demand, while the wealth effect refers to the impact of changes in wealth on aggregate demand 
A)  Consumer spending on the price level, while the wealth effect refers to the impact of changes in wealth on consumer spending 
B)  Wealth-changes on aggregate demand, while the wealth effect refers to the impact of changes in the price level on the real value of wealth 
C)  Changes in interest rate on aggregate demand, while the wealth effect refers to the impact of changes aggregate demand on people's wealth 
D)  Price-changes on aggregate demand, while the wealth effect refers to the impact of changes in wealth on aggregate demand

Question 5

The following factors explain the inverse relationship between the price level and the total demand for output, except:

Accepted Answer

A)  A substitution effect 
B)  A real-balances effect 
C)  An interest-rate effect 
D)  A foreign-purchases effect 
A)  A substitution effect 
B)  A real-balances effect 
C)  An interest-rate effect 
D)  A foreign-purchases effect

Question 6

When the general price level in our economy increases, the following effects occur except:

Accepted Answer

A)  The purchasing power of people's savings will increase 
B)  The interest rate will also tend to increase 
C)  Foreign buyers will buy less of our output, and we tend to import more 
D)  Our net exports will tend to decrease 
A)  The purchasing power of people's savings will increase 
B)  The interest rate will also tend to increase 
C)  Foreign buyers will buy less of our output, and we tend to import more 
D)  Our net exports will tend to decrease

Question 7

An increase in real interest rates will increase investment and aggregate demand.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Refer to the graph above. The long-run aggregate supply curve would be represented by which line?

Accepted Answer

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

Question 10

Aggregate demand decreases and real output falls but the price level remains the same. Which of the following factors most likely contributes to downward price inflexibility in the immediate short run?

Accepted Answer

A)  The multiplier effect 
B)  The wealth effect 
C)  Fear of price wars 
D)  Business taxes 
A)  The multiplier effect 
B)  The wealth effect 
C)  Fear of price wars 
D)  Business taxes

Question 11

In the aggregate demand-aggregate supply model, the economy's price level is assumed to be:

Accepted Answer

A)  Constant, just like in the aggregate expenditures model 
B)  Variable, just like in the aggregate expenditures model 
C)  Constant, unlike in the aggregate expenditures model 
D)  Variable, unlike in the aggregate expenditures model 
A)  Constant, just like in the aggregate expenditures model 
B)  Variable, just like in the aggregate expenditures model 
C)  Constant, unlike in the aggregate expenditures model 
D)  Variable, unlike in the aggregate expenditures model

Question 12

Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is:

Accepted Answer

A)  $1.42 
B)  $1.24 
C)  $0.70 
D)  $0.40 
A)  $1.42 
B)  $1.24 
C)  $0.70 
D)  $0.40

Question 13

Refer to the figure above. If aggregate demand curve shifts from AD2 to AD1, the full multiplier effect on real GDP will be a decrease from:

Accepted Answer

A)  Q3 to Q1 
B)  Q2 to Q4 
C)  Q2 to Q1 
D)  Q3 to Q4 
A)  Q3 to Q1 
B)  Q2 to Q4 
C)  Q2 to Q1 
D)  Q3 to Q4

Question 14

A decrease in expected returns on investment will most likely shift the AD curve to the:

Accepted Answer

A)  Right because C will increase 
B)  Left because C will decrease 
C)  Right because Ig will increase 
D)  Left because Ig will decrease 
A)  Right because C will increase 
B)  Left because C will decrease 
C)  Right because Ig will increase 
D)  Left because Ig will decrease

Question 15

The table below shows the aggregate demand and aggregate supply schedules for a hypothetical economy.   Refer to the table above. At the price level of 150, there will be a general:

Accepted Answer

A)  Surplus in the economy, and output supplied will decrease as the price level falls 
B)  Shortage in the economy, and output demanded will decrease as the price level rises 
C)  Surplus in the economy, and output supplied will increase as the price level rises 
D)  Shortage in the economy, and output demanded will increase as the price level falls 
A)  Surplus in the economy, and output supplied will decrease as the price level falls 
B)  Shortage in the economy, and output demanded will decrease as the price level rises 
C)  Surplus in the economy, and output supplied will increase as the price level rises 
D)  Shortage in the economy, and output demanded will increase as the price level falls

Question 16

The aggregate demand curve shows the:

Accepted Answer

A)  Inverse relationship between the price level and the quantity of real GDP purchased 
B)  Direct relationship between the price level and the quantity of real GDP produced 
C)  Inverse relationship between interest rates and the quantity of real GDP produced 
D)  Direct relationship between real-balances and the quantity of real GDP purchased 
A)  Inverse relationship between the price level and the quantity of real GDP purchased 
B)  Direct relationship between the price level and the quantity of real GDP produced 
C)  Inverse relationship between interest rates and the quantity of real GDP produced 
D)  Direct relationship between real-balances and the quantity of real GDP purchased

Question 17

Refer to the graph above. A shift from AS1 to AS2 would be consistent with what economic event in U.S. history?

Accepted Answer

A)  Demand-pull inflation in the late 1960s 
B)  Cost-push inflation in the mid-1970s 
C)  Full-employment in the late 1990s 
D)  Great Recession in 2007-2009 
A)  Demand-pull inflation in the late 1960s 
B)  Cost-push inflation in the mid-1970s 
C)  Full-employment in the late 1990s 
D)  Great Recession in 2007-2009

Question 18

The long-run aggregate supply curve is upward-sloping.

Accepted Answer

A) True 
 B)False

Question 19

Deflation refers to a situation where:

Accepted Answer

A)  Price level falls, and could be caused by a shift of AD to the left 
B)  Price level falls, and could be caused by a decrease in aggregate supply 
C)  The rate of inflation falls, and could be caused by a shift of AS to the right 
D)  The rate of inflation rises, and could be caused by an decrease in aggregate demand 
A)  Price level falls, and could be caused by a shift of AD to the left 
B)  Price level falls, and could be caused by a decrease in aggregate supply 
C)  The rate of inflation falls, and could be caused by a shift of AS to the right 
D)  The rate of inflation rises, and could be caused by an decrease in aggregate demand

Question 20

When the stock market crashed in 2008, the so-called reverse wealth effect caused consumer spending to decrease.

Accepted Answer

A) True 
 B)False

Exam 12: Aggregate Demand and Aggregate Supply

The real-balance and interest-rate effects help explain why aggregate demand might shift to the right or to the left.

The shape of the short-run aggregate supply curve indicates that as the general price level rises, output will expand but not by much when the economy reaches full employment.

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

The real-balance effect pertains to the effect of:

The following factors explain the inverse relationship between the price level and the total demand for output, except:

When the general price level in our economy increases, the following effects occur except:

An increase in real interest rates will increase investment and aggregate demand.

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

Refer to the graph above. The long-run aggregate supply curve would be represented by which line?

Aggregate demand decreases and real output falls but the price level remains the same. Which of the following factors most likely contributes to downward price inflexibility in the immediate short run?

In the aggregate demand-aggregate supply model, the economy's price level is assumed to be:

Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is:

Refer to the figure above. If aggregate demand curve shifts from AD2 to AD1, the full multiplier effect on real GDP will be a decrease from:

A decrease in expected returns on investment will most likely shift the AD curve to the:

The table below shows the aggregate demand and aggregate supply schedules for a hypothetical economy. Refer to the table above. At the price level of 150, there will be a general:

The aggregate demand curve shows the:

Refer to the graph above. A shift from AS1 to AS2 would be consistent with what economic event in U.S. history?

The long-run aggregate supply curve is upward-sloping.

Deflation refers to a situation where:

When the stock market crashed in 2008, the so-called reverse wealth effect caused consumer spending to decrease.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role 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

Refer to the figure above. If aggregate demand curve shifts from AD₂ to AD₁, the full multiplier effect on real GDP will be a decrease from:

Refer to the graph above. A shift from AS₁ to AS₂ would be consistent with what economic event in U.S. history?