Deck 24: Aggregate Demand and Supply Analysis

Question 1

Everything else held constant,a decrease in net taxes ________ aggregate ________.

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

Answer 1

A

Question 2

The downward slope of the aggregate demand curve is due to ________ and ________.

A) planned investment spending; net exports
B) planned investment spending; financial frictions
C) net exports; financial frictions
D) financial frictions; net transfers

Answer 2

A

Question 3

Demand shocks are based on the ________ based factors that can shift the aggregate demand curve.

A) seven
B) six
C) five
D) eight

Answer 3

A

Question 4

The total quantity of an economy's final goods and services demanded at different inflation rates is ________.

A) the aggregate supply curve
B) the aggregate demand curve
C) the Phillips curve
D) the aggregate expenditure function

Question 5

Everything else held constant,an increase in net taxes ________ aggregate ________.

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

Question 6

Everything else held constant,an autonomous monetary policy easing ________ aggregate ________.

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

Question 7

Everything else held constant,an autonomous monetary policy tightening ________ aggregate ________.

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

Question 8

Everything else held constant,a decrease in government spending ________ aggregate ________.

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

Question 9

Everything else held constant,an increase in planned investment expenditure ________ aggregate ________.

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

Question 10

Everything else held constant,a decrease in net exports ________ aggregate ________.

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

Question 11

Everything else held constant,an increase in financial frictions ________ aggregate ________.

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

Question 12

Everything else held constant,a decrease in planned investment expenditure ________ aggregate ________.

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

Question 13

Everything else held constant,an increase in net exports ________ aggregate ________.

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

Question 14

The aggregate demand curve is the total quantity of an economy's ________.

A) intermediate goods demanded at different inflation rates
B) intermediate goods demanded at a particular inflation rate
C) final goods and services demanded at a particular inflation rate
D) final goods and services demanded at different inflation rates

Question 15

By looking at aggregate demand via its component parts,we can conclude that the aggregate demand curve is downward sloping because ________.

A) a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending
B) a lower inflation rate causes the real interest rate to rise, and stimulates planned investment spending
C) a higher inflation rate causes the real interest rate to fall, and stimulates planned investment spending
D) a higher inflation rate causes the real interest rate to rise, and stimulates planned investment spending

Question 16

One way to derive aggregate demand is by looking at its four component parts,which are ________.

A) consumer expenditures, planned investment spending, government spending, and net exports
B) consumer expenditures, actual investment spending, government spending, and net exports
C) consumer expenditures, planned investment spending, government spending, and gross exports
D) consumer expenditures, planned investment spending, government spending, and taxes

Question 17

Everything else held constant,a balanced budget increase in government spending (that is,an increase in government spending that is matched by an identical increase in net taxes)will ________.

A) increase aggregate demand, but not by as much as if just government spending increases
B) increase aggregate demand by more than if just government spending increases
C) not affect aggregate demand
D) decrease aggregate demand

Question 18

By analyzing aggregate demand through its component parts,we can conclude that,everything else held constant,a decline in the inflation rate causes ________.

A) an increase in real interest rates, an increase in investment spending, and a decline in aggregate output demand
B) a decline in real interest rates, a decrease in investment spending, and an increase in aggregate output demand
C) a decline in real interest rates, an increase in investment spending, and an increase in aggregate output demand
D) an increase in real interest rates, a decline in investment spending, and a decline in aggregate output demand

Question 19

Everything else held constant,when financial frictions increase,the real cost of borrowing ________ so that planned investment spending ________ at any given inflation rate.

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

Question 20

Everything else held constant,an increase in government spending ________ aggregate ________.

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

Question 21

Everything else held constant,when output is ________ the natural rate level,wages will begin to ________,increasing short-run aggregate supply.

A) above; fall
B) above; rise
C) below; fall
D) below; rise

Question 22

The total quantity of final goods and services offered for sale at different price levels is ________.

A) the aggregate supply curve
B) the aggregate demand curve
C) the 45° line
D) Both A and D of the above.

Question 23

What are the factors that can shift the aggregate demand curve to the right?

Question 24

The aggregate supply curve is ________.

A) the total quantity of raw materials offered for sale at different prices
B) the total quantity of final goods and services offered for sale at the current price level
C) the total quantity of final goods and services offered for sale at different price levels
D) the total quantity of intermediate and final goods and service offered for sale at different price levels

Question 25

The long-run aggregate supply curve is ________.

A) a vertical line through the non-inflationary rate of output
B) a vertical line through the current level of output
C) a vertical line through the natural rate level of output
D) a horizontal line through the current level of output

Question 26

The long-run aggregate supply curve is a vertical line passing through ________.

A) the natural rate of output
B) the natural-rate price level
C) the actual rate of unemployment
D) the expected rate of inflation

Question 27

The long-run rate of unemployment to which an economy always gravitates is the ________.

A) normal rate of unemployment
B) natural rate of unemployment
C) neutral rate of unemployment
D) inflationary rate of unemployment

Question 28

Economists believe the natural rate of unemployment is approximately ________ percent.

A) seven
B) six
C) five
D) four

Question 29

Everything else held constant,an increase in the cost of production ________ aggregate ________.

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

Question 30

The positively sloped short-run aggregate supply curve reflects the assumption that labour prices are ________.

A) more flexible than output prices
B) less flexible than output prices
C) fixed in the long run
D) perfectly flexible in both the short run and the long run

Question 31

Some unemployment is always present due to the ________ and ________ components,which are greater than zero.

A) frictional; structural
B) frictional; cyclical
C) structural; cyclical
D) unvoluntary; frictional

Question 32

Everything else held constant,a decrease in the cost of production ________ aggregate ________.

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

Question 33

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the price level.Be sure to discuss two channels through which changes in prices affect demand.

Question 34

The short-run aggregate supply curve is upward sloping because in the short run,costs of many factors that go into producing goods and services are ________,meaning that the price for a unit of output will ________ relative to input prices and the profit per unit will rise.

A) fixed; rise
B) fixed; fall
C) flexible; rise
D) flexible; fall

Question 35

Why is the aggregate demand curve downward sloping?

Question 36

The aggregate supply curve shows the relationship between ________.

A) the level of inputs and aggregate output
B) the price level and the level of inputs
C) the wage rate and the level of employment
D) the price level and the level of aggregate output supplied

Question 37

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate.Be sure to discuss two channels through which changes in inflation rates affect demand.

Question 38

Everything else held constant,which of the following does not cause aggregate demand to increase?

A) An increase in net exports
B) An increase in government spending
C) An increase in taxes
D) An increase in consumer optimism

Question 39

Everything else held constant,aggregate demand increases when ________.

A) net exports decrease
B) taxes increase
C) planned investment spending increases
D) the money supply decreases

Question 40

Everything else held constant,aggregate demand increases when ________.

A) taxes are cut
B) government spending is reduced
C) animal spirits decrease
D) the money supply is reduced

Question 41

Everything else held constant,a change in workers' expectations about the inflation rate will cause ________ to change.

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

Question 42

The long-run aggregate supply curve shifts to the right when there is ________.

A) a decrease in the total amount of capital in the economy
B) a decrease in the total amount of labor supplied in the economy
C) a decrease in the available technology
D) a decline in the natural rate of unemployment

Question 43

Everything else held constant,when actual output exceeds the natural rate of output ________ aggregate supply ________.

A) short-run; decreases
B) short-run; increases
C) long-run; increases
D) long-run; decreases

Question 44

Everything else held constant,when output is ________ the natural rate level,wages will begin to ________,decreasing short-run aggregate supply.

A) above; fall
B) above; rise
C) below; fall
D) below; rise

Question 45

The short-run aggregate supply curve shifts to the right when ________.

A) output gap is higher
B) output gap is lower
C) expected inflation is higher
D) expected inflation is lower

Question 46

The aggregate demand-aggregate supply framework indicates that the long-run effect of a ________ in the money supply is an increase in ________,everything else held constant.

A) fall; aggregate output
B) fall; the inflation rate
C) rise; aggregate output
D) rise; the inflation rate

Question 47

A favourable supply shock causes ________ to ________.

A) aggregate demand; increase
B) aggregate demand; decrease
C) short-run aggregate supply; decrease
D) short-run aggregate supply; increase

Question 48

If workers demand and receive higher real wages,the cost of production ________ and the short-run aggregate supply curve shifts ________.

A) rises; leftward
B) rises; rightward
C) falls; leftward
D) falls; rightward

Question 49

The long-run aggregate supply curve shifts to the right when there is ________.

A) an increase in the total amount of capital in the economy
B) an increase in the available technology
C) a decrease in the natural rate of unemployment
D) all of the above

Question 50

Everything else held constant,if workers expect an increase in the price level,________ aggregate supply ________.

A) long-run; increases
B) long-run; decreases
C) short-run; decreases
D) short-run; increases

Question 51

Assuming the economy is starting at the natural rate of output and everything else held constant,the effect of ________ in aggregate ________ is a rise in both the inflation rate and output in the short-run,but in the long-run the only effect is a rise in the inflation rate.

A) a decrease; supply
B) a decrease; demand
C) an increase; supply
D) an increase; demand

Question 52

The fact that an economy always returns to the natural rate level of output is known as ________.

A) the excess demand hypothesis
B) the price-adjustment mechanism
C) the self-correcting mechanism
D) the natural rate of unemployment

Question 53

Which of the following increases aggregate supply in the short-run,everything else held constant?

A) An increase in the price of crude oil
B) A successful wage increase led by workers
C) Expectations of a higher inflation rate
D) A technological improvement that increases worker productivity

Question 54

Suppose the economy is producing at the natural rate of output.Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause ________ in the unemployment rate in the long run and ________ in the inflation rate in the short run.

A) an increase; an increase
B) a decrease; a decrease
C) no change; a decrease
D) no change; no change

Question 55

Explain why the short-run aggregate supply curve has a positive slope.

Question 56

Which of the followings does not shift the short-run aggregate supply curve?

A) Supply shocks
B) Persistent positive output gap
C) Changes in expected inflation
D) An increase in output gap

Question 57

What is the shape of the long-run aggregate supply curve? Why?

Question 58

A decrease in the availability of raw materials that increases the price level is called a ________ shock.

A) unfavourable demand
B) favourable demand
C) unfavourable supply
D) favourable supply

Question 59

An unfavourable supply shock causes ________ to ________.

A) aggregate demand; increase
B) aggregate demand; decrease
C) short-run aggregate supply; decrease
D) short-run aggregate supply; increase

Question 60

Suppose the economy is producing at the natural rate of output.Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause ________ in the unemployment rate in the short run and ________ in the inflation rate in the short run.

A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change

Question 61

Everything else held constant,contractionary monetary policies will cause ________.

A) the quantity of aggregate demand to increase
B) the quantity of aggregate demand to decrease
C) aggregate demand to increase
D) aggregate demand to decrease

Question 62

Suppose the economy is producing at the natural rate of output.A decrease in consumer and business confidence will cause ________ in real GDP in the long run and ________ in the inflation rate in the long run,everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 63

In deriving the aggregate demand curve a ________ price level ________ the money supply in real terms,raises interest rates,and ________ the equilibrium level of aggregate output.

A) higher; reduces; raises
B) higher; reduces; lowers
C) lower; increases; raises
D) lower; increases; lowers

Question 64

Suppose the Canadian economy is producing at the natural rate of output.A depreciation of the Canadian dollar will cause ________ in real GDP in the short run and ________ in the inflation rate in the short run,everything else held constant.(Assume the depreciation causes no effects in the supply side of the economy.)

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 65

Suppose the economy is producing at the natural rate of output.A decrease in consumer and business confidence will cause ________ in real GDP in the short run and ________ in the inflation rate in the short run,everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 66

Suppose the economy is producing at the natural rate of output.An open market sale of bonds by the Bank of Canada will cause ________ in real GDP in the short run and ________ in the inflation rate in the short run,everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 67

Suppose the economy is producing at the natural rate of output.An open market purchase of bonds by the Bank of Canada will cause ________ in real GDP the short run and ________ in the inflation rate in the short run,everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 68

Everything else held constant,a purchase of government securities by the Bank of Canada will cause ________.

A) aggregate demand to increase
B) aggregate demand to decrease
C) the quantity of aggregate demand to increase
D) the quantity of aggregate demand to decrease

Question 69

Suppose the economy is producing at the natural rate of output.Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause ________ in the unemployment rate and ________ in the aggregate price level in the long run.

A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change

Question 70

Suppose the economy is producing at the natural rate of output.An increase in consumer and business confidence will cause ________ in real GDP in the long run and ________ in the inflation rate in the long run,everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 71

Suppose the economy is producing at the natural rate of output.An open market purchase of bonds by the Bank of Canada will cause ________ in real GDP in the long run and ________ in the inflation rate in the long run,everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 72

Suppose the economy is producing at the natural rate of output.An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in the inflation rate in the short run,everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 73

Everything else held constant,expansionary monetary policies will cause ________.

A) the quantity of aggregate demand to increase
B) the quantity of aggregate demand to decrease
C) aggregate demand to decrease
D) aggregate demand to increase

Question 74

The aggregate demand curve has the usual downward slope,since a higher price level reduces the real money supply,________ interest rates,and ________ the equilibrium level of aggregate output,everything else held constant.

A) raises; lowers
B) raises; raises
C) lowers; lowers
D) lowers; raises

Question 75

Suppose the economy is producing at the natural rate of output.An open market sale of bonds by the Bank of Canada will cause ________ in real GDP in the long run and ________ in the inflation rate in the long run,everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 76

Using the aggregate demand-aggregate supply model,explain and demonstrate graphically the short-run and long-run effects of an increase in the money supply.

Question 77

The aggregate demand curve is downward sloping because a decrease in the price level increases the ________ money supply which ________ interest rates and increases the equilibrium level of aggregate output,everything else held constant.

A) real; lowers
B) real; raises
C) nominal; lowers
D) nominal; raises

Question 78

The aggregate demand curve has the usual downward slope,since a ________ price level ________ the real money supply,raises interest rates,and lowers the equilibrium level of aggregate output,everything else held constant.

A) lower; reduces
B) lower; increases
C) higher; reduces
D) higher; increases

Question 79

In deriving the aggregate demand curve a ________ in the price level leads to ________ in the real money supply because the nominal quantity of dollars can purchase ________ goods and services.

A) decline; an increase; more
B) decline; a decrease; more
C) rise; an increase; fewer
D) rise; a decrease; more

Question 80

Everything else held constant,an increase in government spending will cause ________.

A) aggregate demand to increase
B) aggregate demand to decrease
C) the quantity of aggregate demand to increase
D) the quantity of aggregate demand to decrease