Question 1

Refer to the figure above. If AD1 shifts to AD2, then the equilibrium output:

Accepted Answer

A)  Increases from Q1 to Q3 while the price level falls from P2 to P1 
B)  Increases from Q1 to Q2 while the price level falls from P2 to P1 
C)  Increases from Q1 to Q3 while the price level rises from P1 to P2 
D)  Increases from Q1 to Q2 while the price level rises from P1 to P2 
A)  Increases from Q1 to Q3 while the price level falls from P2 to P1 
B)  Increases from Q1 to Q2 while the price level falls from P2 to P1 
C)  Increases from Q1 to Q3 while the price level rises from P1 to P2 
D)  Increases from Q1 to Q2 while the price level rises from P1 to P2

Question 2

A decrease in business taxes will tend to:

Accepted Answer

A)  Increase aggregate demand but not change aggregate supply 
B)  Increase aggregate supply but not change aggregate demand 
C)  Increase aggregate demand and increase aggregate supply 
D)  Decrease aggregate supply and decrease aggregate demand 
A)  Increase aggregate demand but not change aggregate supply 
B)  Increase aggregate supply but not change aggregate demand 
C)  Increase aggregate demand and increase aggregate supply 
D)  Decrease aggregate supply and decrease aggregate demand

Question 3

Which of the following effects best explains the downward slope of the aggregate demand curve?

Accepted Answer

A)  A multiplier effect 
B)  An expectations effect 
C)  A substitution effect 
D)  An interest-rate effect 
A)  A multiplier effect 
B)  An expectations effect 
C)  A substitution effect 
D)  An interest-rate effect

Question 4

The upward slope of the short-run aggregate supply curve is based on the assumption that:

Accepted Answer

A)  Wages and other resource prices do not respond to price level changes 
B)  Wages and other resource prices do respond to price level changes 
C)  Prices of output do not respond to price level changes 
D)  Prices of inputs flexible while prices of outputs are fixed 
A)  Wages and other resource prices do not respond to price level changes 
B)  Wages and other resource prices do respond to price level changes 
C)  Prices of output do not respond to price level changes 
D)  Prices of inputs flexible while prices of outputs are fixed

Question 5

Refer to the graph above, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will:

Accepted Answer

A)  Increase by $800 billion 
B)  Increase by $200 billion 
C)  Decrease by $600 billion 
D)  Decrease by $200 billion 
A)  Increase by $800 billion 
B)  Increase by $200 billion 
C)  Decrease by $600 billion 
D)  Decrease by $200 billion

Question 6

In an economy it costs $1,500 to produce 2,000 units of output. If the costs increase to $2,500, then the per unit cost of production will have increased from:

Accepted Answer

A)  $0.75 to $1.25 
B)  $0.75 to $1.00 
C)  $1.33 to $1.75 
D)  $0.80 to $1.33 
A)  $0.75 to $1.25 
B)  $0.75 to $1.00 
C)  $1.33 to $1.75 
D)  $0.80 to $1.33

Question 7

Which of the following events would most likely reduce aggregate demand?

Accepted Answer

A)  A reduction in the amount of existing capital stock 
B)  A reduction in business and personal tax rates 
C)  An increase in expected returns on investment 
D)  An increase in real interest rates 
A)  A reduction in the amount of existing capital stock 
B)  A reduction in business and personal tax rates 
C)  An increase in expected returns on investment 
D)  An increase in real interest rates

Question 8

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a:

Accepted Answer

A)  Movement down along the aggregate demand curve 
B)  Shift in aggregate demand to the right 
C)  Shift in aggregate demand to the left 
D)  Movement up along the aggregate demand curve 
A)  Movement down along the aggregate demand curve 
B)  Shift in aggregate demand to the right 
C)  Shift in aggregate demand to the left 
D)  Movement up along the aggregate demand curve

Question 9

An expected increase in the prices of consumer goods in the near future will:

Accepted Answer

A)  Decrease (or shift left) in aggregate demand now 
B)  Increase (or shift right) in aggregate demand now 
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 now 
B)  Increase (or shift right) in aggregate demand now 
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 10

The so-called ratchet effect refers to the characteristic in the economy where product prices, wages, and per-unit production cost are flexible when:

Accepted Answer

A)  AD decreases but not when AD increases 
B)  AD increases but not when AD decreases 
C)  AS increases but not when AS decreases 
D)  AD shifts but not when AS shifts 
A)  AD decreases but not when AD increases 
B)  AD increases but not when AD decreases 
C)  AS increases but not when AS decreases 
D)  AD shifts but not when AS shifts

Question 11

Disinflation refers to a situation where:

Accepted Answer

A)  Price level falls, but the rate inflation does not 
B)  Price level rises, but the rate of inflation does not 
C)  The rate of inflation falls, but the price level does not 
D)  The rate of inflation rises, but the price level does not 
A)  Price level falls, but the rate inflation does not 
B)  Price level rises, but the rate of inflation does not 
C)  The rate of inflation falls, but the price level does not 
D)  The rate of inflation rises, but the price level does not

Question 12

In the Great Recession of 2007-2009, the stock market values shrank, causing a reverse:

Accepted Answer

A)  Wealth effect 
B)  Real-balances effect 
C)  Interest-rate effect 
D)  Expectations effect 
A)  Wealth effect 
B)  Real-balances effect 
C)  Interest-rate effect 
D)  Expectations effect

Question 13

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

Accepted Answer

A)  Productivity has increased 
B)  Input prices have increased 
C)  There has been an increase in government spending 
D)  Government regulations have been reduced 
A)  Productivity has increased 
B)  Input prices have increased 
C)  There has been an increase in government spending 
D)  Government regulations have been reduced

Question 14

The real-balances effect on aggregate demand suggests that a:

Accepted Answer

A)  Lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending 
B)  Lower price level will decrease the real value of many financial assets and therefore cause an increase in spending 
C)  Lower price level will increase the real value of many financial assets and therefore cause an increase in spending 
D)  Higher price level will increase the real value of many financial assets and therefore cause an increase in spending 
A)  Lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending 
B)  Lower price level will decrease the real value of many financial assets and therefore cause an increase in spending 
C)  Lower price level will increase the real value of many financial assets and therefore cause an increase in spending 
D)  Higher price level will increase the real value of many financial assets and therefore cause an increase in spending

Question 15

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that:

Accepted Answer

A)  A decrease in the price level shifts the aggregate expenditures schedule downward and decreases equilibrium GDP 
B)  A decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP 
C)  An increase in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP 
D)  An increase in the price level shifts the aggregate expenditures schedule downward and increases equilibrium GDP 
A)  A decrease in the price level shifts the aggregate expenditures schedule downward and decreases equilibrium GDP 
B)  A decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP 
C)  An increase in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP 
D)  An increase in the price level shifts the aggregate expenditures schedule downward and increases equilibrium GDP

Question 16

An increase in aggregate demand is most likely to be caused by:

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 17

Refer to the graph above. Which of the following factors will shift AS1 to AS2?

Accepted Answer

A)  An increase in real interest rates 
B)  A decrease in business subsidies 
C)  An increase in input prices 
D)  A decrease in business taxes 
A)  An increase in real interest rates 
B)  A decrease in business subsidies 
C)  An increase in input prices 
D)  A decrease in business taxes

Question 18

Refer to the graph above. Which of the following changes will shift AD1 to AD2?

Accepted Answer

A)  A cut in personal and business taxes 
B)  An increase in the value of the dollar relative to other currencies 
C)  A shrinkage in the value of stocks and other financial assets 
D)  An increase in real interest rates 
A)  A cut in personal and business taxes 
B)  An increase in the value of the dollar relative to other currencies 
C)  A shrinkage in the value of stocks and other financial assets 
D)  An increase in real interest rates

Question 19

The expenditure multiplier concept of the aggregate-expenditures model:

Accepted Answer

A)  Is not at all relevant in the AD-AS model 
B)  Magnifies the shifts of the aggregate demand curve 
C)  Explains movement up or down the aggregate demand curve 
D)  Reverses the shift of the aggregate demand curve 
A)  Is not at all relevant in the AD-AS model 
B)  Magnifies the shifts of the aggregate demand curve 
C)  Explains movement up or down the aggregate demand curve 
D)  Reverses the shift of the aggregate demand curve

Question 20

Refer to the graph above. The ratchet effect would suggest that:

Accepted Answer

A)  If AD1 shifts to AD2, the economy would move to point b 
B)  If AD1 shifts to AD2, the economy would move to point c 
C)  If AD2 shifts to AD1, the economy would move to point c 
D)  If AD2 shifts to AD1, the economy would move to point b 
A)  If AD1 shifts to AD2, the economy would move to point b 
B)  If AD1 shifts to AD2, the economy would move to point c 
C)  If AD2 shifts to AD1, the economy would move to point c 
D)  If AD2 shifts to AD1, the economy would move to point b

Exam 12: Aggregate Demand and Aggregate Supply

Refer to the figure above. If AD1 shifts to AD2, then the equilibrium output:

A decrease in business taxes will tend to:

Which of the following effects best explains the downward slope of the aggregate demand curve?

The upward slope of the short-run aggregate supply curve is based on the assumption that:

Refer to the graph above, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will:

In an economy it costs $1,500 to produce 2,000 units of output. If the costs increase to $2,500, then the per unit cost of production will have increased from:

Which of the following events would most likely reduce aggregate demand?

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a:

An expected increase in the prices of consumer goods in the near future will:

The so-called ratchet effect refers to the characteristic in the economy where product prices, wages, and per-unit production cost are flexible when:

Disinflation refers to a situation where:

In the Great Recession of 2007-2009, the stock market values shrank, causing a reverse:

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

The real-balances effect on aggregate demand suggests that a:

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that:

An increase in aggregate demand is most likely to be caused by:

Refer to the graph above. Which of the following factors will shift AS1 to AS2?

Refer to the graph above. Which of the following changes will shift AD1 to AD2?

The expenditure multiplier concept of the aggregate-expenditures model:

Refer to the graph above. The ratchet effect would suggest that:

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 AD₁ shifts to AD₂, then the equilibrium output:

Refer to the graph above. Which of the following factors will shift AS₁ to AS₂?

Refer to the graph above. Which of the following changes will shift AD₁ to AD₂?