Deck 8: Aggregate Demand and Aggregate Supply

Question 1

If consumption changes because of a change in the price level,then the

A) economy moves from one point on an AD curve to another point on the same curve.
B) AD curve shifts.
C) economy moves from one point on a SRAS curve to another point on the same curve.
D) SRAS curve shifts.
E) none of the above

Answer 1

A

Question 2

Suppose consumption increases at each price level.As a result,aggregate demand __________,and the AD curve shifts __________.

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

Answer 2

C

Question 3

One of the reasons why the AD curve slopes downward is that as the

A) price level rises, purchasing power rises.
B) price level falls, purchasing power rises.
C) nation's income level rises, purchasing power rises.
D) nation's income level rises, purchasing power falls.
E) This is a trick question, because the AD curve is upward sloping.

Answer 3

B

Question 4

The change in the purchasing power of dollar-denominated assets (such as cash holdings)is the

A) money effect.
B) interest rate effect.
C) asset effect.
D) real balance effect.
E) none of the above

Question 5

An aggregate demand (AD)curve shows the

A) amount of a particular good people are willing and able to buy at a particular price, ceteris paribus.
B) real output (Real GDP) people are willing and able to sell at different price levels, ceteris paribus.
C) real output (Real (GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
D) real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.

Question 6

The interest rate effect is one of the

A) reasons why an AD curve is downward-sloping.
B) shifters of an AD curve.
C) reasons why a short-run aggregate supply curve can be derived.
D) shifters of a short-run aggregate supply curve.

Question 7

Suppose consumption decreases at each price level.As a result,aggregate demand __________,and the AD curve shifts __________.

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

Question 8

Which of the following factors can shift the AD curve?

A) net exports
B) government purchases
C) the money supply
D) b and c
E) a, b, and c

Question 9

The real balance effect helps to create "a change in

A) aggregate demand."
B) the quantity demanded of Real GDP."
C) aggregate supply."
D) the quantity supplied of Real GDP."

Question 10

Aggregate demand curves are

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

Question 11

The real balance effect is one of the

A) reasons why an AD curve is downward-sloping.
B) shifters of an AD curve.
C) reasons why a short-run aggregate supply curve can be derived.
D) shifters of a short-run aggregate supply curve.

Question 12

If some of a person's wealth is in cash,it follows that

A) this person's monetary wealth will change as the price level changes.
B) this person's monetary wealth will not change as the price level changes.
C) this person is wealthier than a person who holds all his wealth in nonmonetary form.
D) a and c
E) b and c

Question 13

Part of the story of the interest rate effect is that a lower price level causes __________ in the supply of credit,which then causes the interest rate to __________.

A) a decrease; fall
B) a decrease; rise
C) an increase; fall
D) an increase; rise

Question 14

If consumption changes because of a change in a factor other than the price level,then the

A) economy moves from one point on an AD curve to another point on the same curve.
B) AD curve shifts.
C) economy moves from one point on a short-run aggregate supply (SRAS) curve to another point on the same curve.
D) SRAS curve shifts.
E) none of the above

Question 15

As the price level falls,ceteris paribus,people holding some of their wealth in monetary form become

A) less wealthy and they buy less.
B) more wealthy and they buy more.
C) less wealthy and they buy more.
D) more wealthy and they buy less.

Question 16

As the price level rises,ceteris paribus,people holding some of their wealth in monetary form become

A) less wealthy and they buy less.
B) more wealthy and they buy more.
C) less wealthy and they buy more.
D) more wealthy and they buy less.

Question 17

As the price level falls,

A) the purchasing power of cash holdings rises.
B) the purchasing power of cash holdings falls.
C) the purchasing power of cash holdings remains constant.
D) cash holdings turn into dollar-denominated assets.
E) none of the above

Question 18

If investment changes because of a change in a factor other than the price level,then the

A) economy moves from one point on an AD curve to another point on the same curve.
B) AD curve shifts.
C) economy moves from one point on a short-run aggregate supply (SRAS) curve to another point on the same curve.
D) SRAS curve shifts.
E) none of the above

Question 19

The real balance effect describes the change in

A) checking account balances that occur when the money supply increases or decreases.
B) the value of physical assets (e.g., houses) that results from a change in the price level.
C) the output producers produce as they attempt to balance their production in response to changes in consumers' demand.
D) the value of cash holdings that results from a change in the price level.
E) the balance of cash holdings that results from a change in the amount of income earned.

Question 20

Which of the following will cause a movement from one point on an AD curve to another point on the same AD curve?

A) a change in consumption
B) a change in government expenditures
C) a change in net exports
D) a change in the price level
E) all of the above

Question 21

As the interest rate rises,the cost of a given investment project __________ and businesses invest __________.

A) rises; more
B) rises; less
C) falls; more
D) falls; less

Question 22

If investment changes because of a change in the price level,then the

A) economy moves from one point on an AD curve to another point on the same curve.
B) AD curve shifts.
C) economy moves from one point on a SRAS curve to another point on the same curve.
D) SRAS curve shifts.
E) none of the above

Question 23

An increase in the interest rate __________ purchases of consumer __________.

A) increases; durables
B) increases; nondurables
C) reduces; durables
D) reduces; nondurables

Question 24

Suppose the real exchange rate of 115 Japanese yen to the dollar moves to 105 yen to the dollar.The dollar has __________,making Japanese goods __________ expensive for Americans.

A) appreciated; less
B) appreciated; more
C) depreciated; less
D) depreciated; more

Question 25

Suppose the real exchange rate of 10 Mexican pesos to the dollar moves to 9 pesos to the dollar.The dollar has ________________,making Mexican goods __________ expensive for Americans.

A) appreciated; less
B) appreciated; more
C) depreciated; less
D) depreciated; more

Question 26

As the interest rate rises,businesses invest __________ and the AD curve shifts to the __________.

A) more; right
B) more; left
C) less; right
D) less; left

Question 27

A falling interest rate affects the demand for consumer __________ and shifts the AD curve to the __________.

A) nondurables; right
B) nondurables; left
C) durables; right
D) durables; left

Question 28

Business optimism about future sales tends to __________ investment expenditures,shifting the AD curve to the __________.

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

Question 29

Greater wealth makes people _____________ willing to spend,causing __________ the economy's AD curve.

A) more; movement down along
B) more; a rightward shift of
C) less; movement up along
D) less; a rightward shift of

Question 30

Suppose the real exchange rate of 10 Mexican pesos to the dollar moves to 9 pesos to the dollar.The dollar has __________________,making American goods __________ expensive for Mexicans.

A) appreciated; less
B) appreciated; more
C) depreciated; less
D) depreciated; more

Question 31

Suppose a drop in stock prices makes people feel less wealthy.This would cause __________ the economy's AD curve.

A) movement down along
B) movement up along
C) a rightward shift of
D) a leftward shift of

Question 32

A lower income tax rate __________ consumption,causing a __________ the AD curve.

A) stimulates; rightward shift of
B) stimulates; movement down along
C) depresses; leftward shift of
D) depresses; movement up along

Question 33

A decrease in business taxes,causes the expected profitability of investment projects to __________,which then shifts the AD curve to the __________.

A) rise; right
B) rise; left
C) decline; right
D) decline; left

Question 34

A rise in foreign real national income tends to raise U.S.__________,shifting the U.S.AD curve to the __________.

A) exports; left
B) exports; right
C) imports; left
D) imports; right

Question 35

The expectation of lower future prices is a

A) rightward shifter of the AD curve.
B) leftward shifter of the AD curve.
C) reason for moving up along a given AD curve.
D) reason for moving down along a given AD curve.

Question 36

The expectation of higher future income is a

A) rightward shifter of the AD curve.
B) leftward shifter of the AD curve.
C) reason for moving up along a given AD curve.
D) reason for moving down along a given AD curve.

Question 37

An economic policy initiative results in the AD curve shifting to the right.As a result,

A) the price level will rise.
B) the price level will stay constant.
C) the price level will fall.
D) Real GDP will rise in the short run.
E) a and d

Question 38

Suppose the price level is rising and it is widely forecast to rise even further.This forecast might cause __________ of some consumption plans,resulting in __________ the AD curve.

A) postponement; a rightward shift of
B) postponement; a leftward shift of
C) acceleration; a rightward shift of
D) acceleration; movement down along

Question 39

As income taxes rise,disposable income __________,causing __________ the AD curve.

A) increases; movement down along
B) increases; a rightward shift of
C) decreases; movement up along
D) decreases; a leftward shift of

Question 40

Suppose the real exchange rate of 105 Japanese yen to the dollar moves to 115 yen to the dollar.The dollar has _________________,making Japanese goods __________ expensive for Americans.

A) appreciated; less
B) appreciated; more
C) depreciated; less
D) depreciated; more

Question 41

A rise in aggregate demand and a fall in short-run aggregate supply will definitely

A) raise the price level, but there is not enough information to know how Real GDP will change.
B) lower Real GDP, but there is not enough information to know how the price level will change.
C) raise the price level and Real GDP.
D) raise Real GDP, but there is not enough information to know how the price level will change.
E) raise the price level and lower Real GDP.

Question 42

If aggregate quantity demanded is greater than aggregate quantity supplied at a particular price level,then

A) consumers will bid prices upward, and a greater quantity of output will be supplied.
B) the shortage will likely be eliminated.
C) a and b
D) none of the above

Question 43

A rise in wage rates

A) causes the AD curve to shift leftward.
B) causes the short-run aggregate supply (SRAS) curve to shift rightward.
C) does not affect the present position of the SRAS curve.
D) causes the AD curve to shift rightward.
E) causes the SRAS curve to shift leftward.

Question 44

A decrease in the price of electricity will cause

A) a movement down the SRAS curve.
B) a movement up the SRAS curve.
C) a leftward shift in the SRAS curve.
D) a rightward shift in the SRAS curve.
E) no change regarding the SRAS curve.

Question 45

An increase in the price of nonlabor inputs

A) shifts the AD curve leftward.
B) shifts the SRAS curve leftward.
C) is the same thing as a beneficial supply shock.
D) shifts the AD curve rightward.
E) shifts the SRAS curve rightward.

Question 46

Which of the following statements is false?

A) An increase in wage rates causes producers to move up the SRAS curve.
B) An increase in the price level causes producers to move up the SRAS curve.
C) The SRAS curve is upward sloping.
D) The long-run aggregate supply curve is vertical.

Question 47

A depreciation of the U.S.dollar tends to __________ U.S.net exports and shift the U.S.AD curve to the __________.

A) raise; right
B) raise; left
C) lower; right
D) lower; left

Question 48

An appreciation of the U.S.dollar tends to __________ U.S.net exports and shift the U.S.AD curve to the __________.

A) raise; right
B) raise; left
C) lower; right
D) lower; left

Question 49

An increase in the money supply may __________ total expenditures,leading to a __________ shift of the AD curve.

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

Question 50

The short-run aggregate supply curve is

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

Question 51

An increase in labor productivity shifts the

A) AD curve rightward.
B) AD curve leftward.
C) short-run aggregate supply (SRAS) curve leftward.
D) SRAS curve rightward.
E) none of the above

Question 52

An increase in the price of oil will cause

A) a movement down the SRAS curve.
B) a movement up the SRAS curve.
C) a leftward shift in the SRAS curve.
D) a rightward shift in the SRAS curve.
E) no change regarding the SRAS curve.

Question 53

If consumption increases,

A) the SRAS curve will shift rightward, which will push the price level up.
B) the SRAS curve will shift leftward, which will push the price level up.
C) the AD curve will shift leftward, which will push the price level down.
D) the AD curve will shift rightward, which will push the price level up.

Question 54

Changes in which of the following will not cause the SRAS curve to shift?

A) the wage rate
B) prices of nonlabor inputs
C) the price level
D) productivity
E) All of the above will cause the SRAS curve to shift.

Question 55

An increase in labor's productivity will cause the SRAS curve to shift __________ and the price level to __________.

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

Question 56

A short-run aggregate supply curve shows the

A) amount of a particular good producers are willing and able to buy at a particular price, ceteris paribus.
B) real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.
C) real output (Real GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
D) real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.

Question 57

Which of the following is an example of an adverse supply shock?

A) a nationwide drought lasting for many months
B) an outbreak of war among several of the Middle Eastern oil-producing countries
C) an influenza virus that affects 50 percent of the labor force for two weeks
D) a, b, and c
E) a and c

Question 58

If the price level remains constant but the wage rate increases,then there will be __________ in production and the SRAS curve will shift __________.

A) an increase; rightward
B) a decrease; rightward
C) an increase; leftward
D) a decrease; leftward

Question 59

A decrease in the money supply may __________ total expenditures and thus __________ aggregate demand.

A) raise; raise
B) raise; lower
C) lower; raise
D) lower; lower

Question 60

If aggregate quantity supplied is greater than aggregate quantity demanded at a particular price level,then a

A) shortage exists and consumers will bid the price level up.
B) surplus exists and consumers will bid the price level up.
C) surplus exists and the price level will decline.
D) shortage exists and the price level will decline.
E) c and d

Question 61

If foreign input prices increase and the United States purchases those inputs,then the U.S.

A) AD curve will shift leftward and U.S. prices will fall.
B) AD curve will shift rightward and U.S. prices will rise.
C) SRAS curve will shift leftward and U.S. prices will rise.
D) SRAS curve will shift rightward and U.S. prices will fall

Question 62

A rise in aggregate demand and a rise in short-run aggregate supply will definitely

A) raise the price level, but there is not enough information to know how Real GDP will change.
B) lower Real GDP, but there is not enough information to know how the price level will change.
C) raise the price level and Real GDP.
D) raise Real GDP, but there is not enough information to know how the price level will change.
E) raise the price level and lower Real GDP.

Question 63

In a two-country world,an increase in foreign input prices,ceteris paribus,

A) shifts the SRAS curve leftward, causing the price level to increase.
B) shifts the SRAS curve leftward, causing the price level to decrease.
C) shifts the SRAS curve rightward, causing the price level to increase.
D) shifts the SRAS curve rightward, causing the price level to decrease.
E) does not affect the SRAS curve or the price level.

Question 64

In the short run,an increase in investment,ceteris paribus,shifts the

A) AD curve to the right, causing equilibrium price level to rise and equilibrium Real GDP to increase.
B) AD curve to the left, causing equilibrium price level to fall and equilibrium Real GDP to decrease.
C) SRAS curve to the right, causing equilibrium price level to fall and equilibrium Real GDP to increase.
D) SRAS curve to the left, causing equilibrium price level to rise and equilibrium Real GDP to decrease.

Question 65

A decrease in the price of machinery

A) shifts the SRAS curve to the right.
B) shifts the SRAS curve to the left.
C) causes an upward movement along the existing SRAS curve.
D) causes a downward movement along the existing SRAS curve.
E) none of the above

Question 66

The AD curve shows the various amounts of real output that people are willing and able to

A) buy at different income levels.
B) buy at different price levels.
C) sell at different profit levels.
D) sell at different price levels.
E) none of the above

Question 67

Short-run equilibrium exists

A) where the AD curve intersects the short-run aggregate supply (SRAS) curve.
B) where the AD curve intersects the long-run aggregate supply (LRAS) curve.
C) on the AD curve only.
D) on the SRAS curve only.

Question 68

Which of the following will not lead to a leftward shift in the SRAS curve?

A) an increase in wage rates
B) an increase in the prices of nonlabor inputs
C) an increase in productivity
D) an adverse supply shock

Question 69

Which of the following would cause a rightward shift in the AD curve?

A) an increase in the price level
B) a decrease in the price level
C) an increase in imports
D) a decrease in the quantity of money available in the economy
E) an increase in government purchases of goods and services

Question 70

A decrease in the price level

A) shifts the SRAS curve to the right.
B) shifts the SRAS curve to the left.
C) causes an upward movement along the existing SRAS curve.
D) causes a downward movement along the existing SRAS curve.
E) none of the above

Question 71

A decrease in the price level

A) shifts the AD curve to the right.
B) shifts the AD curve to the left.
C) causes an upward movement along the existing AD curve.
D) causes a downward movement along the existing AD curve.
E) none of the above

Question 72

Generally,an increase in aggregate supply is

A) the result of an increase in the price level.
B) represented by a movement up along the SRAS curve.
C) represented by a rightward shift in the SRAS curve.
D) both a and b
E) both a and C

Question 73

The real balance effect is the change in

A) purchasing power that results from a change in income.
B) the amount of money one has that results from a change in income.
C) purchasing power that results from a change in the price level.
D) the amount of money one has that results from a change in the price level.
E) none of the above

Question 74

The AD curve shows that,as the price level falls,the quantity of

A) GDP demanded increases.
B) GDP demand decreases.
C) Real GDP demanded increases.
D) Real GDP demanded decreases.
E) none of the above

Question 75

An increase in investment at a given price level

A) shifts the AD curve to the right.
B) shifts the AD curve to the left.
C) causes an upward movement along the existing AD curve.
D) causes a downward movement along the existing AD curve.
E) none of the above

Question 76

Suppose Americans buy inputs from foreigners.When the price of foreign inputs falls,the U.S.SRAS curve __________,which tends to __________the U.S.price level.

A) shifts rightward; reduce
B) shifts leftward; increase
C) shifts leftward; reduce
D) remains constant; increase

Question 77

In the short run,a decrease in wage rates,ceteris paribus,shifts the

A) AD curve to the right, causing equilibrium price level to rise and equilibrium Real GDP to increase.
B) AD curve to the left, causing equilibrium price level to fall and equilibrium Real GDP to decrease.
C) SRAS curve to the right, causing equilibrium price level to fall and equilibrium Real GDP to increase.
D) SRAS curve to the left, causing equilibrium price level to rise and equilibrium Real GDP to decrease.

Question 78

The short-run aggregate supply curve shows the various amounts of real output that producers are willing to

A) sell at different profit levels.
B) sell at different price levels.
C) buy at different income levels.
D) buy at different price levels.

Question 79

A decrease in consumption at a given price level

A) shifts the AD curve to the right.
B) shifts the AD curve to the left.
C) causes an upward movement along the existing AD curve.
D) causes a downward movement along the existing AD curve.
E) none of the above.

Question 80

An increase in the price level

A) shifts the AD curve to the right.
B) shifts the AD curve to the left.
C) causes an upward movement along the existing AD curve.
D) causes a downward movement along the existing AD curve.
E) a and c