Deck 22: Aggregate Demand and Supply Analysis

Question 1

According to the quantity theory of money,a decrease in the money supply,________ aggregate ________,everything else held constant.

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

Answer 1

decreases; demand

Question 2

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

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

Answer 2

decreases; demand

Question 3

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

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

Answer 3

increases; demand

Question 4

The aggregate demand curve slopes downward because a decrease in the price level means ________ in the real money supply and therefore a ________ level of real spending.

A)an increase; higher
B)an increase; lower
C)a decrease; lower
D)a decrease; higher

Question 5

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

A)a lower price level,holding the nominal quantity of money constant,leads to a larger quantity of money in real terms,causes the interest rate to fall,and stimulates planned investment spending.
B)a lower price level,holding the nominal quantity of money constant,leads to a larger quantity of money in nominal terms,causes the interest rate to rise,and stimulates planned investment spending.
C)a higher price level,holding the nominal quantity of money constant,leads to a larger quantity of money in real terms,causes the interest rate to fall,and stimulates planned investment spending.
D)a higher price level,holding the nominal quantity of money constant,leads to a smaller quantity of money in real terms,causes the interest rate to fall,and stimulates planned investment spending.

Question 6

As approached through the quantity theory of money,aggregate demand is derived from

A)the equation of exchange.
B)its three component parts: consumer expenditure,investment spending,and government spending.
C)its four component parts: consumer expenditure,investment spending,government spending,and net exports.
D)the spending multiplier.

Question 7

According to the quantity theory of money,an increase in the money supply ________ aggregate ________,everything else held constant.

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

Question 8

By analyzing aggregate demand via its component parts,we can conclude that changes in the money supply

A)have no effect on aggregate demand.
B)affect aggregate demand in the opposite direction of the change in government spending.
C)affect aggregate demand in the same direction as the change in government spending.
D)affect the quantity of aggregate output demand.

Question 9

By analyzing aggregate demand through its component parts,we can conclude that,everything else held constant,a decline in the price level causes

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

Question 10

The quantity theory of money is derived from

A)the concept of velocity.
B)the Keynesian monetary transmission mechanism.
C)the equation of exchange.
D)the money supply.

Question 11

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

A)intermediate goods demanded at all price levels.
B)intermediate goods demanded at a particular price level.
C)final goods and services demanded at a particular price level.
D)final goods and services demanded at different price levels.

Question 12

Everything else held constant,a decrease in net taxes ________ 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

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 15

By looking at aggregate demand through its component parts,we can conclude that a ________ price level ________ the real quantity of money,________ higher spending.

A)lower; expands; encouraging
B)higher; contracts; encouraging
C)lower; contracts; discouraging
D)higher; expands; encouraging

Question 16

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

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

Question 17

The total quantity of an economy's final goods and services demanded at different price levels is

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

Question 18

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

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

Question 19

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 20

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

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

Question 21

The aggregate supply curve is the total quantity of

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

Question 22

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 23

Everything else held constant,a change in workers' expectations about the aggregate price level will cause ________ to change.

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

Question 24

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

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

Question 25

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 26

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 27

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 28

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 29

If workers demand and receive higher real wages (a successful wage push),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 30

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 31

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 32

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 33

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 34

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 35

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 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 price level.Be sure to discuss two channels through which changes in prices affect demand.

Question 38

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 39

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 40

The positively sloped short-run aggregate supply curve reflects the assumption that factor 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 41

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 price level and output in the short-run,but in the long-run the only effect is a rise in the price level.

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

Question 42

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

A)negative demand
B)positive demand
C)negative supply
D)positive supply

Question 43

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 44

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 aggregate price level 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 45

Suppose the economy is producing at the natural rate of output.An open market sale of bonds by the Fed will cause ________ in real GDP in the long run and ________ in the aggregate price level 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 46

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 aggregate price level 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 47

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 aggregate price level 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 48

Suppose the economy is producing at the natural rate of output.An open market purchase of bonds by the Fed will cause ________ in real GDP the the short run and ________ in the aggregate price level 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 49

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 push by workers.
C)Expectations of a higher aggregate price level.
D)A technological improvement that increases worker productivity.

Question 50

A negative 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 51

Suppose the economy is producing at the natural rate of output.An open market sale of bonds by the Fed will cause ________ in real GDP in the short run and ________ in the aggregate price level 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 52

Suppose the U.S.economy is producing at the natural rate of output.A depreciation of the U.S.dollar will cause ________ in real GDP in the short run and ________ in the aggregate price level 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 53

Suppose the economy is producing at the natural rate of output.An open market purchase of bonds by the Fed will cause ________ in real GDP in the long run and ________ in the aggregate price level 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 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 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 55

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 aggregate price level 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 56

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 aggregate price level 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 57

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 aggregate price level 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 58

Suppose the U.S.economy is producing at the natural rate of output.A depreciation of the U.S.dollar will cause ________ in real GDP in the short run and ________ in the aggregate price level in the long 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 59

A positive 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

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 price level
C)rise; aggregate output
D)rise; the price level

Question 61

Suppose the economy is producing at the natural rate of output and the government passes legislation that severely restricts a company's ability to reduce production costs via outsourcing.Everything else held constant,this policy action will cause ________ in the unemployment rate in the short run and ________ in the aggregate price level 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 62

A theory of aggregate economic fluctuations called real business cycle theory holds that

A)changes in the real money supply are the only demand shocks that affect the natural rate of output.
B)aggregate demand shocks do affect the natural rate of output.
C)aggregate supply shocks do affect the natural rate of output.
D)changes in net exports are the only demand shocks that affect the natural rate of output.

Question 63

Because shifts in aggregate demand are not viewed as being particularly important to aggregate output fluctuations,they do not see much need for activist policy to eliminate high unemployment."They" refers to proponents of

A)the natural rate hypothesis.
B)monetarism.
C)the Phillips curve model.
D)real business cycle theory.

Question 64

A group of economists believe that the natural rate of output is affected by aggregate ________ shocks.They contend that the natural rate level of unemployment and output are subject to ________,a departure from full employment levels as a result of past high unemployment.

A)supply; hysterisis
B)supply; systerisis
C)demand; hysterisis
D)demand; systerisis

Question 65

According to aggregate demand and supply analysis,the favorable supply shock of 1995-1999 had the effect of

A)increasing aggregate output,lowering unemployment,and raising inflation.
B)decreasing aggregate output,raising unemployment,and raising inflation.
C)increasing aggregate output,lowering unemployment,and lowering inflation.
D)decreasing aggregate output,raising unemployment,and lowering inflation.

Question 66

According to aggregate demand and supply analysis,the rising oil prices coupled with the subprime financial crisis in 2007-2008 caused the unemployment rate to ________ and the level of real aggregate output to ________.

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

Question 67

A reduction of aggregate demand may raise the natural rate of unemployment above the full employment level,meaning that the self-correcting mechanism will only be able to return the economy to the natural rate level of output and unemployment-not to the full employment levels.Such a view is consistent with

A)monetarism.
B)hysterisis.
C)Keynesianism.
D)real business cycle theory.

Question 68

Suppose the U.S.economy is producing at the natural rate of output.An appreciation of the U.S.dollar will cause ________ in real GDP in the short run and ________ in the aggregate price level in the long run,everything else held constant.(Assume the appreciation 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 69

The expectations-augmented Phillips curve implies that as expected inflation increases,nominal wages ________ to prevent real wages from ________.

A)fall; rising
B)fall; falling
C)rise; falling
D)rise; rising

Question 70

Suppose the U.S.economy is operating at potential output.A negative supply shock that is accommodated by an open market purchase by the Federal Reserve will cause ________ in real GDP in the long run and ________ in the aggregate price level in the long run,everything else held constant.

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

Question 71

According to aggregate demand and supply analysis,the negative demand shock of 2000-2004 had the effect of

A)increasing aggregate output,lowering unemployment,and raising inflation.
B)decreasing aggregate output,raising unemployment,and raising inflation.
C)increasing aggregate output,lowering unemployment,and lowering inflation.
D)decreasing aggregate output,raising unemployment,and lowering inflation.

Question 72

The Phillips curve indicates that when the labor market is ________,production costs will ________ and aggregate supply decreases.

A)easy; rise
B)easy; fall
C)tight; fall
D)tight; rise

Question 73

According to aggregate demand and supply analysis,the negative supply shocks of 1973-1975 and 1978-1980 had the effect of

A)increasing aggregate output,lowering unemployment,and raising the price level.
B)decreasing aggregate output,raising unemployment,and raising the price level.
C)increasing aggregate output,raising unemployment,and raising the price level.
D)decreasing aggregate output,raising unemployment,and lowering the price level.

Question 74

The Phillips curve indicates that when the labor market is ________,production costs will ________ and aggregate supply increases.

A)easy; rise
B)easy; fall
C)tight; fall
D)tight; rise

Question 75

This theory views shocks to tastes (workers' willingness to work,for example)and technology (productivity)as the major driving forces behind short-run fluctuations in the business cycle because these shocks lead to substantial short-run fluctuations in the natural rate of output.

A)The natural rate hypothesis
B)Hysteresis
C)Real business cycle theory
D)The Phillips curve model

Question 76

According to aggregate demand and supply analysis,America's involvement in the Vietnam War had the effect of

A)increasing aggregate output,lowering unemployment,and raising the price level.
B)decreasing aggregate output,lowering unemployment,and lowering the price level.
C)increasing aggregate output,raising unemployment,and raising the price level.
D)decreasing aggregate output,raising unemployment,and lowering the price level.

Question 77

Suppose the economy is producing below the natural rate of output and the government is suffering from large budget deficits.To deal with the deficit problem,suppose the government takes a policy action to reduce the size of the deficits.This policy action will cause ________ in the unemployment rate in the short run and ________ in the aggregate price level in the short run,everything else held constant.

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

Question 78

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 79

Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run.

Question 80

Suppose the U.S.economy is producing at the natural rate of output.An appreciation of the U.S.dollar will cause ________ in real GDP in the short run and ________ in the aggregate price level in the short run,everything else held constant.(Assume the appreciation 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