Deck 22: Aggregate Demand and Aggregate Supply

Question 1

If net exports are negative,then aggregate demand will be less than the sum of consumption,investment,and government purchases.

Answer 1

True

Question 2

The real wealth and the real interest rate effects are both causes of the downward slope of the aggregate demand curve.

Answer 2

True

Question 3

The SRAS curve is vertical at the natural level of real output.

Answer 3

False

Question 4

The interest rate effect helps explain why a lower price level will reduce the quantity of real goods and services demanded as an economy moves down along its aggregate demand curve.

Question 5

When the price level falls,households and firms reduce their holdings of money,leading to a lower interest rate and an increase in borrowing and an increase in RGDP demanded.

Question 6

Higher interest rates will tend to reduce aggregate demand,other things being equal.

Question 7

The real wealth effect is one reason for the negative slope of the aggregate demand curve.

Question 8

A reduction in the price level will cause the aggregate demand curve to shift to the left.

Question 9

If the overall price level decreases,then the aggregate demand curve will shift to the right.

Question 10

If the price level in the United States decreases,domestic goods will become relatively cheaper than foreign goods,the demand for U.S.-made goods will increase,and the U.S.aggregate demand curve will shift to the right.

Question 11

If input prices adjusted just as quickly as output prices,the profit effect leading to an increase in RGDP supplied would disappear.

Question 12

If the price level in the United States increases,domestic goods will become relatively more expensive than foreign goods.Consumers will import more and reduce the quantity of domestic goods and services they buy.

Question 13

The four major components of aggregate demand are consumption,investment,government purchases of goods and services,and net exports.

Question 14

A trade deficit means that net exports are positive.

Question 15

The aggregate supply curves show how much a nation's businesses are willing and able to produce at each price level.

Question 16

If there were no real wealth or interest rate effect,the aggregate demand curve would still be downward sloping.

Question 17

An increase in disposable income would tend to shift aggregate demand right.

Question 18

According to the "misperception effect" explanation of short-run aggregate supply,firms increase output as the price level rises because they mistake the increase in overall prices for an increase in the relative price of their own output.

Question 19

Imports are not included in GDP because they do not reflect output produced within the domestic economy.

Question 20

At a given price level,anything that changes the amount of total purchases in the economy will cause the aggregate demand curve to shift.

Question 21

The long-run aggregate supply curve is the relationship between the price level and the quantity of real GDP that is supplied once input prices have had time to fully adjust to that price level.

Question 22

Keynes and his followers argued that prices,wages,and interest rates adjusted relatively quickly.

Question 23

When the price level rises as a result of a decrease in aggregate supply,it is called cost-push inflation.

Question 24

Both short and long-run aggregate supply curves can shift to the right if entrepreneurial activities lower costs of production and expand what can be produced.

Question 25

An unexpected increase in aggregate demand results in a decrease in real wages in the short run.

Question 26

If there is currently a recessionary gap,a decrease in aggregate demand would make the recessionary gap larger.

Question 27

Increases in government regulations can make it more costly for producers,and the increase in production costs results in a leftward shift of both the short-run and long-run aggregate supply curves.

Question 28

Which of the following is not a component of aggregate demand?

A) Investment expenditures
B) Government expenditures
C) Net exports
D) All of the above are components of aggregate demand.

Question 29

If there is currently an inflationary gap,an increase in aggregate demand will make the inflationary gap smaller,but a decrease in aggregate demand would make the inflationary gap larger.

Question 30

The short-run equilibrium level of real output and the price level are determined by the intersection of the aggregate demand curve and the short-run aggregate supply curve.

Question 31

According to Say's law,prolonged unemployment is impossible in the long-term classical model.

Question 32

Which of the following is the most unstable category of GDP?

A) consumption
B) investment
C) government purchases
D) net exports

Question 33

When there is a recessionary gap,one is likely to see an increase in overtime work and more hours worked by part-time workers.

Question 34

A change that shifted the long-run aggregate supply curve to the right would also shift the short-run aggregate supply curve to the right.

Question 35

An increase in net exports would lead to an increase aggregate demand but would not lead to an increase in aggregate supply.

Question 36

The quantity of RGDP supplied will decrease in both the short run and long run when the price level falls.

Question 37

Any permanent change in the quantity of any factor of production available - capital,technology,land,or labor - can cause a shift in both the long-run and short-run aggregate supply curves.

Question 38

The long-run level of RGDP changes whenever the aggregate demand curve shifts.

Question 39

A disaster that destroys a large part of current agricultural output will not change LRAS,while a disaster that destroys the capital stock in a major city will reduce LRAS.

Question 40

Stagflation could be caused solely by a shift in the aggregate demand curve.

Question 41

In an open economy,as the price level increases,a(n)____ in demand in the quantity of domestic goods results in a(n)____ in the quantity of RGDP demanded.

A) increase, decrease
B) increase, increase
C) decrease, decrease
D) decrease, increase

Question 42

Holding all other things constant,when the price level falls,interest rates:

A) rise and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.
B) rise and firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding.
C) falls and firms want to borrow less for new plants and equipment and households want to borrow more for homebuilding.
D) falls and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.

Question 43

Aggregate demand can be defined as:

A) the total spending by all consumers, business firms, government agencies, and foreigners in the United States.
B) the total amounts that all consumers, business firms, government agencies, and foreigners wish to spend on all final goods and services at various price levels.
C) the total spending by consumers, business firms, and government agencies in one year.
D) the total spending by consumers, business firms, and government agencies on final goods and services.

Question 44

Aggregate demand includes:

A) the demand for intermediate goods and final goods.
B) all monetary and nonmonetary transactions.
C) the demand for investment, including stocks, bonds, and gold.
D) the demand for final goods and services.

Question 45

If private consumption in the United States was 69 percent of GDP,investment was 18 percent,government purchases were 18 percent,exports were 9 percent,and imports were 14 percent,net exports were equal to ____ percent of GDP.

A) -5
B) 5
C) -23
D) 23

Question 46

If consumption in the United States was 68 percent of GDP,investment was 19 percent,government purchases were 13 percent,exports were 14 percent,and imports were 14 percent,net exports were equal to ____ percent of GDP.

A) -1
B) 0
C) -28
D) 28

Question 47

As the price level increases,the quantity of RGDP demanded ____,and when the price level decreases,the quantity of RGDP demanded in the economy ____.

A) decreases, decreases
B) increases, increases
C) increases, decreases
D) decreases, increases

Question 48

In an open economy as the price level decreases,a(n)____ in demand for domestic goods relative to foreign goods results in a(n)____ in the quantity of RGDP demanded.

A) increase, decrease
B) increase, increase
C) decrease, decrease
D) decrease, increase

Question 49

Holding all other things constant,when the price level rises,interest rates:

A) rise and firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding.
B) rise and firms will want to borrow less for new plants and equipment and households will want to borrow less for homebuilding.
C) fall and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.
D) all of the above

Question 50

During the 1970s,U.S.prices generally rose faster than prices in other parts of the world.Which of the following changes would the open economy effect predict took place in response to these price level changes?

A) Americans reduced the proportion of foreign goods bought since their foreign prices became relatively lower.
B) Americans reduced the amount of investment they undertook because interest rates increased.
C) Americans reduced the amount of goods and services they wanted to purchase for consumption because they felt less wealthy.
D) Americans reduced the fraction of purchases they made from domestic producers of goods and services since foreign prices became relatively lower.

Question 51

Which of the following expenditures would be counted as consumption in GDP accounts?

A) Mary buys a new computer to check her e-mail and play computer games.
B) Mark buys a new computer for his medical economic consulting business.
C) Leslie, an EPA scientist, buys a new computer for her lab at work.
D) Juan leases a new computer for his graphic design company.

Question 52

Jason has been holding his retirement savings in a safe in his house.Currently the economy is experiencing a falling price level.He can conclude that:

A) the real purchasing power of his money is remaining constant.
B) the real value of his savings is increasing as long as the price level is falling.
C) the real value of his savings is decreasing as long as the price level is falling.
D) none of the above are true.

Question 53

If some non-price level determinant causes total spending to increase,then the effect on aggregate demand will be a:

A) movement upward along the curve.
B) movement downward along the curve.
C) shift to the left.
D) shift to the right.

Question 54

According to the interest rate effect,as the price level increases,households and firms' holdings of money ____,interest rates ____,investments ____,and the quantity RGDP demanded ____.

A) increases, decrease, increase, decreases
B) increases, increase, increase, decreases
C) decreases, decrease, decrease, increases
D) increases, increase, decrease, decreases

Question 55

The interest rate effect suggests that the negative slope of the aggregate demand curve results at least in part because changes in the price level affect:

A) domestic purchases of foreign goods.
B) the holdings of money by households and firms.
C) the real purchasing power of assets.
D) the level of income.

Question 56

For individuals who are holding money or fixed dollar value assets,inflation has the effect of:

A) improving their ability to purchase goods and services with those dollars.
B) reducing their ability to purchase goods and services with those dollars.
C) increasing the purchasing power of those dollars.
D) demonstrating the interest rate effect.

Question 57

Ben N.Jerry prefers to keep his $10,000 retirement savings buried in the backyard.After an increase in the price level,Ben reduces the amount of goods and services he wants to purchase.Ben's rationalization,that now his retirement savings won't buy as much,is consistent with which explanation of the aggregate demand curve's negative slope?

A) the interest rate effect
B) the open economy effect
C) the inflation effect
D) the wealth effect

Question 58

Which of the following will decrease aggregate demand?

A) exports rising faster than imports
B) exports falling faster than imports.
C) exports rising the same amount as imports
D) exports rising and imports falling

Question 59

If you are living in a period of continued high inflation on a fixed income,the cost of the goods and services you buy ____ and your nominal income ____.

A) decreases, decreases
B) increases, increases
C) decreases, remains the same
D) increases, remains the same

Question 60

As the price level decreases,other things being equal,

A) aggregate demand increases.
B) the quantity of real gross domestic product demanded increases.
C) the quantity of real gross domestic product demanded decreases.
D) real gross domestic product supplied increases.

Question 61

A decrease in the U.S.price level will:

A) decrease U.S. exports.
B) decrease U.S. imports.
C) decrease RGDP demanded in the United States.
D) both (a) and (c)

Question 62

Investment will decrease if business taxes ____,real interest rates ____,or if business confidence ____.

A) increase, increase, increases
B) decrease, decrease, decreases
C) increase, increase, decreases
D) decrease, decrease, increases

Question 63

Faster growth rates by a major trading partner,combined with an increase in stock market wealth,would have what effect on aggregate demand?

A) AD would increase.
B) AD would decrease.
C) AD would stay the same.
D) AD could either increase or decrease, depending on which change was of a greater magnitude.

Question 64

An increase in business tax rates,combined with a decrease in consumer confidence,would have what effect on aggregate demand?

A) AD would increase.
B) AD would decrease.
C) AD would stay the same.
D) AD could either increase or decrease, depending on which change was of a greater magnitude.

Question 65

Which of the following will cause consumption,and as a result,aggregate demand,to shift to the right?

A) an optimistic business forecast of future income growth
B) increased consumer wealth
C) an increase in consumer confidence
D) all of the above

Question 66

If the stock market continues a steady climb upwards,this ____ consumer confidence and wealth,leading to ____ consumption,and ____ aggregate demand.

A) increases, decreased, increased
B) decreases, decreased, decreased
C) increases, increased, increased
D) increases, increased, decreased

Question 67

Which of the following increases U.S.aggregate demand?

A) a lower price level, increasing citizen's real wealth
B) a lower price level, reducing interest rates
C) a lower price level, increasing exports and decreasing imports
D) an increase in Americans' expected future incomes

Question 68

'An increase in the U.S.price level will:

A) increase U.S. exports.
B) increase U.S. imports.
C) increase the quantity of RGDP demanded in the United States.
D) both (a) and (c)

Question 69

Investment will increase if business taxes ____,real interest rates ____,or if business confidence ____.

A) increase, increases, increases
B) decrease, decrease, decreases
C) increase, increases, decreases
D) decrease, decrease, increases

Question 70

Which of the following does not increase U.S.aggregate demand?

A) an increase in real wealth
B) lower interest rates
C) an increase in imports
D) a decrease in the exchange rate value of the dollar

Question 71

Which of the following would lead to an increase in aggregate demand?

A) an increase in consumer confidence
B) a decrease in the overall price level
C) an increase in input prices
D) all of the above

Question 72

Which of the following will not cause consumption,and as a result,aggregate demand,to increase?

A) an optimistic business forecast of future income growth
B) a tax cut
C) an increase in consumer confidence
D) a tax increase

Question 73

Pierre is French Canadian,and like many Canadians he is experiencing booming good economic times.His good fortune is likely to impact U.S.aggregate demand in what way?

A) Positively, because he prefers to make all his purchases in Canada from Canadian firms.
B) Negatively, because he prefers to make all his purchases in Canada from Canadian firms.
C) Negatively, since we are all members of North American Free Trade Zone.
D) Positively, since he will be in a better position to purchase U.S.-made goods.

Question 74

Which of the following decreases U.S.aggregate demand?

A) a lower price level, increasing citizen's real wealth
B) a lower price level, reducing interest rates
C) a lower price level, increasing exports and decreasing imports
D) None of the above decrease U.S. aggregate demand.

Question 75

Which of the following will cause consumption,and as a result,aggregate demand,to decrease?

A) a tax cut
B) a decrease in consumer confidence
C) increased population
D) an optimistic forecast of future income growth

Question 76

Which of the following are likely to increase investment and as a result,aggregate demand?

A) decreased demand for investment goods
B) falling real interest rates
C) rising real interest rates
D) increased business taxes

Question 77

An economic boom in China is likely to lead to a(n):

A) decrease in U.S. exports and U.S. aggregate demand.
B) increase in U.S. exports and U.S. aggregate demand.
C) decrease in U.S. imports and U.S. aggregate demand.
D) increase in U.S. imports and U.S. aggregate demand.

Question 78

If some nonprice level determinant causes total spending to decrease,then the effect on aggregate demand will be a:

A) movement upward along the curve.
B) movement downward along the curve.
C) shift to the left.
D) shift to the right.

Question 79

An increase in the U.S.price level will:

A) decrease U.S. exports.
B) decrease U.S. imports.
C) increase RGDP demanded in the United States.
D) both (a) and (c)

Question 80

An increase in investment,combined with an increase in imports,would have what effect on aggregate demand?

A) AD would increase.
B) AD would decrease.
C) AD would stay the same.
D) AD could either increase or decrease, depending on which change was of a greater magnitude.