Deck 9: Aggregate Demand and Supply

Question 1

The full-employment level is greater than the natural rate of employment.

Answer 1

False

Question 2

If the money supply is fixed and prices rise, the cost of borrowing will _____ and business investment will _____. This is called the _____.

A) rise; rise; wealth effect
B) fall; rise; interest rate effect
C) rise; fall; wealth effect
D) rise; fall; interest rate effect

Answer 2

rise; fall; interest rate effect

Question 3

Which of these would NOT affect (shift) the short-run aggregate supply curve?

A) an increase in labor productivity
B) a decline in the price of imported oil
C) a decline in business taxes
D) an increase in the price level

Answer 3

an increase in the price level

Question 4

The aggregate demand curve shows the level of real GDP that firms will produce at different price levels.

Question 5

As the aggregate price level declines

A) there is a movement down along the aggregate demand curve.
B) the aggregate demand curve shifts to the left.
C) there is a movement up along the aggregate demand curve.
D) the aggregate demand curve shifts to the right.

Question 6

John Maynard Keynes's analysis was based on an economy whose resources were underutilized.

Question 7

If the U.S. aggregate price level rises

A) net exports will also rise.
B) interest rates will decline.
C) the aggregate demand curve will shift to the left.
D) the purchasing power of wealth will decrease.

Question 8

High family debt

A) reduces the tendency to consume.
B) encourages the tendency to spend.
C) is illegal.
D) is a prime predictor of impending inflation.

Question 9

Increased taxes will shift the aggregate demand curve to the _____ and _____ output demanded.

A) left; decrease
B) left; increase
C) right; increase
D) right; decrease

Question 10

If the economy shown in the figure begins on AD₁ and SRAS₁, what will happen in the short run and long run if the government begins a sustained period of increased spending?

A) The economy moves from point C to E to B.
B) The economy moves from point D to C to A.
C) The economy moves from point D to C to E.
D) The economy moves from point C to A to B.

Question 11

At high domestic price levels compared to other countries, Americans

A) sell more exported goods.
B) buy more imported goods.
C) buy the same amount of foreign goods.
D) buy more American-made goods.

Question 12

Which event will shift the aggregate demand curve to the right?

A) catastrophic hurricane hits the northeastern United States
B) increase in household debt
C) decrease in taxes
D) decrease in military spending

Question 13

The collapse of home values in 2008 led to a(n) _____ in Americans' consumption and a(n) _____ in their saving rates.

A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease

Question 14

The idea that new spending creates more new spending is known as the _____ effect.

A) crowding-out
B) multiplier
C) wealth
D) interest rate

Question 15

_____ inflation occurs when a supply shock reduces aggregate supply.

A) Cost-push
B) Demand-pull
C) Sticky
D) Demand-push

Question 16

Consumption would decrease, and the aggregate demand curve would shift to the

A) right if taxes increased.
B) right if taxes decreased.
C) left if taxes increased.
D) left if taxes decreased.

Question 17

The curve that shows how much GDP is demanded at various price levels is called

A) the aggregate expenditures schedule.
B) the consumption line.
C) aggregate demand.
D) aggregate supply.

Question 18

An increase in aggregate demand can be caused by

A) the depreciation of the dollar.
B) a cut in government spending.
C) an increase in interest rates.
D) a rise in consumer debt.

Question 19

(Figure: Aggregate Demand Shift) Which of these may be an explanation for the shift in aggregate demand from A to B?

A) Prices fall and increase real wealth.
B) Consumer confidence declines and consumption spending falls.
C) Goods and services become less competitive and exports fall.
D) Interest rates fall and boost investments.

Question 20

If the marginal propensity to consume is 0.9, then the spending multiplier is

A) 1.
B) 7.
C) 9.
D) 10.

Question 21

One reason the price level did not rise after the implementation of the 2008-2009 stimulus policy actions is that U.S. capacity was fully utilized.

Question 22

(Figure: Shifting SRAS and AD) What economic event is represented if full-employment GDP occurs at point a?

A) recession
B) demand-pull inflation
C) cost-push inflation
D) deflation

Question 23

Cost-push inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output.

Question 24

During the 1970s, some countries stopped oil sales to the United States. As petroleum prices rose

A) both aggregate supply and the aggregate price level fell.
B) both aggregate demand and the aggregate price level fell.
C) aggregate supply fell, and the aggregate price level rose.
D) both aggregate demand and the aggregate price level rose.

Question 25

_____ will MOST likely increase the economy's long-run aggregate supply.

A) A low rate of investment
B) Unfavorable weather in the Corn Belt
C) Advancements in technology
D) An increase in the expected inflation rate

Question 26

A product demand curve and the aggregate demand curve are negatively sloped for the same reasons.

Question 27

If a country's currency appreciates, what impact will it have on aggregate demand or aggregate supply?

A) Aggregate demand will rise because the currency will buy more abroad.
B) Long-run aggregate supply will rise because investment returns will rise.
C) Short-run aggregate supply will rise due to lower prices on imported inputs.
D) Long-run aggregate supply will fall because imports will rise.

Question 28

The Great Depression was characterized by a lack of aggregate demand.

Question 29

Which event will NOT cause the aggregate demand curve to shift?

A) Businesses are optimistic about the economy, investing heavily in new equipment.
B) Consumers' wealth declines because of a drop in the stock market.
C) A rise in the aggregate price level causes a decline in exports.
D) The government increases spending on national security in the wake of terrorist attacks.

Question 30

The short-run aggregate supply curve

A) is downward sloping.
B) shows many input costs are quick to change to keep the economy at full employment.
C) exhibits a positive relationship between the aggregate price level and aggregate output.
D) shows input costs remaining constant, as firms have a lot of excess capacity.

Question 31

The long-run aggregate supply curve is vertical because of the assumption that all variables are fixed in the long run.

Question 32

Which factor will cause the aggregate demand curve to shift to the left?

A) a rise in consumer confidence
B) a fall in excess capacity of businesses
C) an increase in foreign income
D) an appreciation of the dollar

Question 33

Ceteris paribus, the multiplier effect would be largest in which situation?

A) when prices are fixed
B) when prices are flexible
C) when the government borrows from its citizens to cover increased deficit spending
D) when the government has a balanced budget

Question 34

The Great Depression showed that the short-run aggregate supply curve and the aggregate demand curve

A) must always intersect at full employment.
B) can intersect at output levels below full employment.
C) must intersect at output levels above full employment.
D) can never lead to deflation.

Question 35

What are the determinants of short-run aggregate supply?

A) changes in government spending, taxes, and business and inflationary expectations
B) changes in input prices, taxes, and business and inflationary expectations
C) changes in education, taxes, and business and inflationary expectations
D) changes in input prices, taxes, and technology

Question 36

If the marginal propensity to consume is 0.8, then $80 of every additional $100 of income will be spent on consumption.

Question 37

Which set of events would lead to an increase in a country's aggregate demand?

A) The country's CPI falls while its currency appreciates.
B) The country's inflation rate is lower than inflation rates abroad while debt levels in the country rise.
C) Interest rates fall in the country while there is a serious recession in the country's main trading partner.
D) Taxes are decreased in the country while expectations of job security rise in the workforce.

Question 38

Which is NOT consistent with the level of output in the long run?

A) the natural rate of output
B) full capacity output level
C) high inflation
D) the natural rate of unemployment

Question 39

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in

A) increased inflation.
B) increased output.
C) both increased output and increased inflation.
D) neither increased output nor increased inflation.

Question 40

(Figure: Predicting Aggregate Demand Shifts) Which of these would shift the aggregate demand curve from AD₁ to AD₂?

A) an increase in taxes
B) a decrease in interest rates
C) a decrease in government purchases
D) a worsening of consumer expectations about the future

Question 41

Which of these would NOT cause a shift in the aggregate demand curve?

A) change in consumption spending
B) change in the price level
C) change in investment
D) change in net exports

Question 42

Cost-push inflation occurs when aggregate supply shifts to the right, causing the price level to increase along with rising unemployment.

Question 43

An increase in taxes shifts the aggregate demand curve to the left.

Question 44

Demand-pull inflation scenarios took place in the

A) 1930s for the United States and from 1985 to 1995 for Japan.
B) 1960s for the United States and from 1985 to 1995 for Japan.
C) 1930s for both the United States and Japan.
D) 1960s for both the United States and Japan.

Question 45

If the U.S. aggregate price level rises

A) U.S. imports rise.
B) the aggregate demand curve shifts to the left.
C) the aggregate demand curve shifts to the right.
D) business investment increases.

Question 46

What would cause the price level to decrease and employment to increase?

A) a shift to the left of the aggregate demand curve
B) a shift to the right of the aggregate demand curve
C) a shift to the left of the short-run aggregate supply curve
D) a shift to the right of the short-run aggregate supply curve

Question 47

When the price of a given product declines, consumers' spendable income rises because it takes less income to purchase the same quantity. This is called the _____ effect.

A) net export
B) income
C) substitution
D) interest

Question 48

Rising confidence in the economy shifts the aggregate demand curve to the left.

Question 49

The 1973 oil price shock was an example of cost-push inflation.

Question 50

A change in _____ will cause a change in the quantity demanded of real GDP.

A) consumer spending
B) investment
C) the price level
D) imports

Question 51

Which of these would cause cost-push inflation?

A) Optimism leads consumers to spend more.
B) Firms cut back on investments to cut costs.
C) Strict new environmental regulations require that firms change their production methods.
D) Consumers face rising costs when purchasing food and using transportation.

Question 52

Technological advancements increase aggregate supply.

Question 53

If the marginal propensity to save is 0.25, the multiplier is

A) 1.33.
B) 3.
C) 3.33.
D) 4.

Question 54

If income increases across Europe, what will happen to the aggregate demand curve for the United States?

A) The aggregate demand curve will shift to the right.
B) The aggregate demand curve will shift to the left.
C) The aggregate demand curve will shift to the left in the short run and then to the right in the long run.
D) The aggregate demand curve will not change.

Question 55

The _____ curve is positively sloped because some input costs are slow to change.

A) short-run aggregate supply
B) long-run aggregate supply
C) short-run aggregate demand
D) long-run aggregate demand

Question 56

____ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises.

A) Cost-push
B) Unnecessary
C) Overextended
D) Demand-pull

Question 57

The long-run economic growth model assumes that

A) the economy always moves toward equilibrium at full employment.
B) it takes a long time to arrive at the long run.
C) macroeconomic equilibrium at full employment is only a theory and has little to do with reality.
D) the economy is at full employment at all times.

Question 58

The aggregate demand curve slopes _____ and has _____ on the vertical axis.

A) downward; output
B) downward; the price level
C) upward; output
D) upward; the price level

Question 59

Which of these would cause a movement along a country's aggregate demand curve, but not a shift in its aggregate demand curve?

A) rise in the value of stocks in a country's stock market
B) fall in real interest rates
C) increase in a country's CPI, meaning that household income does not buy as much
D) expectation among business owners for profits to increase so that they make more investments

Question 60

Which of these will NOT cause a shift in the short-run aggregate supply curve?

A) changes in the aggregate price level
B) changes in input prices
C) changes in productivity
D) changes in inflationary expectations

Question 61

The Great Depression was primarily the result of

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

Question 62

Output increases if aggregate demand _____ and aggregate supply _____.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question 63

The long-run aggregate supply curve is vertical because

A) many inputs are fixed.
B) it incorporates the assumptions of Keynesian theory.
C) the economy will gravitate to the position of full employment when all variables are flexible.
D) wages, prices, and interest rates are not flexible in the long run.

Question 64

(Figure: Determining Aggregate Equilibrium Levels) Equilibrium output is _____ units, and the equilibrium price level is _____.

A) 100; $3,000
B) 2,000; $130
C) 3,000; $100
D) 5,000; $160

Question 65

_____ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output.

A) Demand-pull
B) Demand-push
C) Cost-push
D) Cost-pull

Question 66

The real GDP that firms will produce at varying price levels is

A) aggregate demand.
B) individual product demand.
C) individual product supply.
D) aggregate supply.

Question 67

A solution to the simultaneous emergence of deflation and unemployment is to use policies that shift the aggregate

A) supply curve to the right.
B) demand curve to the right.
C) supply curve to the left.
D) demand curve to the left.

Question 68

Which of these would NOT cause a shift in the short-run aggregate supply curve?

A) an increase in resource prices
B) a decrease in the expected rate of inflation
C) a major technological advancement
D) a decrease in real interest rates

Question 69

In the short run, a decrease in market power (or monopolization) will

A) increase the price level.
B) decrease the price level.
C) not affect the price level.
D) not affect output.

Question 70

Which factor causes a leftward shift of the aggregate demand curve?

A) an increase in consumption
B) an increase in wealth
C) an increase in exports
D) a decrease in government spending

Question 71

The output of all the goods and services demanded in an economy at various price levels is called

A) the quantity-price locus.
B) aggregate demand.
C) economic production.
D) the price-output curve.

Question 72

The _____ effect is a reason for the negative slope of the aggregate demand curve.

A) income
B) substitution
C) interest rate
D) multiplier

Question 73

Demand-pull inflation is caused by

A) increases in wages, pushing prices higher.
B) increases in aggregate demand.
C) decreases in aggregate supply.
D) consumers demanding better quality, which increases costs.

Question 74

_____ in wealth and _____ in government spending, along with a(n) _____ of the dollar, will shift the U.S. aggregate demand curve to the left.

A) Decreases; increases; appreciation
B) Increases; decreases; appreciation
C) Decreases; decreases; depreciation
D) Decreases; decreases; appreciation

Question 75

Rising input prices increase short-run aggregate supply.

Question 76

When government spending rises

A) aggregate demand rises.
B) aggregate demand falls.
C) the aggregate price level falls.
D) it crowds out net exports.

Question 77

The aggregate demand curve is positively sloped.

Question 78

Which event will shift the aggregate demand curve to the right?

A) a decrease in exports
B) an increase in imports
C) a rise in the interest rate
D) a new government program implemented to eliminate poverty

Question 79

The aggregate demand curve shows the relationship between nominal GDP and the price level.

Question 80

The U.S. price level rose more than expected after the 2008-2009 stimulus policy actions.