Question 1

What happens to consumption spending when the price level rises? Explain.

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Question 2

The table identifies annual gross domestic product (GDP)(in billions of dollars)for country X.
  Based on the table,during which year(s)was the country in a recession?

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Question 3

Explain and illustrate how the short-run and long-run equilibrium levels of output and the price level are affected by legislation that increases the employer's cost of providing health care to workers.

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Question 4

Explain how a change in real wealth can sometimes cause a movement along the aggregate demand curve and how sometimes it can cause a shift of the aggregate demand curve.

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Question 5

What happens to net export spending when the price level rises? Explain.

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Question 6

What is the difference between a movement along the aggregate demand curve and a shift of the aggregate demand curve? Explain in terms of what causes a movement and what causes a shift.

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Question 7

An increase in aggregate demand is beneficial in the short run because ________ but not in the long run because ________.
A) output decreases; the unemployment rate falls
B) the unemployment rate falls; the price level rises
C) wages decrease; wages increase
D) real wealth decreases; real wealth increases
E) wages increase; the unemployment rate rises

Accepted Answer

An increase in aggregate demand in the short run leads to an increase in output and a decrease in unemployment rate due to increased demand for goods and services. However, in the long run, wages and production costs rise leading to an increase in the price level, and the unemployment rate may return to its natural rate. Therefore, an increase in aggregate demand is only beneficial in the short run but not in the long run.

Question 8

Suppose that after living through the great recession of 2007-2009,people decide to save a greater percentage of their incomes.How does this impact the loanable funds market and the aggregate demand curve?

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Question 9

How does the international trade effect explain the slope of the aggregate demand curve?

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Question 10

Explain and illustrate how the short-run and long-run equilibrium levels of output and the price level are affected by successful efforts by the government to reduce the budget deficit.

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Question 11

An increasing number of firms decide to install tablets and computers so that customers are able to order and pay on their own.This can be expected to ________ investment spending by the firms.At the same time we can expect the unemployment rate to ________ and consumption spending to ________.Overall the effect on gross domestic product (GDP)is ________.
A) have no effect on; increase; decrease; negative
B) increase; increase; decrease; negative
C) increase; increase; increase; positive
D) increase; increase; decrease; uncertain
E) decrease; increase; decrease; negative

Accepted Answer

Installing tablets and computers for customer self-service can increase investment spending by firms. However, this may also result in a decrease in employment as fewer employees may be needed due to the automation of ordering and payment processes. This may lead to a decrease in consumption spending as unemployed workers may have lower disposable income. It is uncertain how these factors will ultimately affect GDP, as the positive impact of investment spending may be offset by the negative impact of decreased employment and consumption spending.

Question 12

Why would a change in the price level lead to a change in interest rates?

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Question 13

How does the wealth effect explain the slope of the aggregate demand curve?

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Question 14

Starting from long-run equilibrium,draw an aggregate demand-aggregate supply graph to illustrate the difference between a long-run and a short-run equilibrium due to an increase in aggregate demand.Once the economy is in the short-run equilibrium,explain-but it's not necessary to illustrate-how long-run equilibrium will be restored.

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Question 15

During the latter part of the 1990s,firms purchased new computer systems so that they could establish web sites and eventually online ordering systems.How is this likely to impact the aggregate demand curve and the loanable funds market?

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Question 16

Explain the difference between the short-run and long-run aggregate supply curves.

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Question 17

How does the interest rate effect explain the slope of the aggregate demand curve?

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Question 18

During the early 2000s,housing prices increased by record amounts in many parts of the United States.What was the likely impact on the aggregate demand curve?

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Question 19

Explain and illustrate how the long-run equilibrium levels of output and the price level are affected by a technological advance that increases labor productivity.

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Question 20

What happens to investment spending when the price level rises? Explain and illustrate using a loanable funds market graph.

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Quiz 26: The Aggregate Demandaggregate Supply Model