Question 1

Everything else held constant,a decrease in net taxes ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

Accepted Answer

A decrease in net taxes puts more income in the hands of consumers and businesses, which typically increases their spending. This increase in spending leads to an increase in aggregate demand.

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

Accepted Answer

The downward slope of the aggregate demand curve is primarily due to the wealth effect and the interest rate effect, which are not explicitly listed among the options. However, planned investment spending and net exports are components that can influence aggregate demand, making option A the closest match despite the question's phrasing not directly aligning with standard economic explanations for the aggregate demand curve's slope.

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

Accepted Answer

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

Accepted Answer

The aggregate demand curve represents the total quantity of an economy's final goods and services demanded at different price levels (which can be interpreted as different levels of inflation).

Question 5

Everything else held constant,an increase in net taxes ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

Accepted Answer

An increase in net taxes reduces disposable income, hence decreasing consumption and therefore reducing aggregate demand.

Question 6

Everything else held constant,an autonomous monetary policy easing ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

Accepted Answer

An autonomous monetary policy easing, such as a reduction in interest rates or an increase in the money supply, will lead to an increase in aggregate demand as borrowing and spending are encouraged.

Question 7

Everything else held constant,an autonomous monetary policy tightening ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

Accepted Answer

Tightening of autonomous monetary policy refers to a decrease in money supply which leads to an increase in interest rates. This results in a decrease in demand for goods and services as borrowing becomes more expensive, thus decreasing aggregate demand. Therefore, the correct answer is B.

Question 8

Everything else held constant,a decrease in government spending ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

Accepted Answer

When the government decreases spending, it reduces demand in the economy because it is spending less. As a result, businesses produce less, and employment may decrease, which ultimately leads to a decrease in aggregate demand.

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

Accepted Answer

An increase in planned investment expenditure will increase demand because investment is a component of aggregate demand. As investment increases, firms will increase production to meet the increased demand, which will lead to an increase in the overall level of economic activity, i.e. aggregate demand.

Question 10

Everything else held constant,a decrease in net exports ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

Accepted Answer

A decrease in net exports means that there is a decrease in the amount of exports sold overseas. This leads to a decrease in demand for domestically produced goods and services, as there is less demand from foreign countries. Therefore, aggregate demand decreases.

Question 11

Everything else held constant,an increase in financial frictions ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

Accepted Answer

Financial frictions, such as higher interest rates or tighter lending standards, make borrowing more expensive or difficult. This tends to reduce spending by businesses on investment and by consumers, leading to a decrease in aggregate demand.

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

Accepted Answer

Planned investment expenditure is a component of aggregate demand. A decrease in planned investment expenditure reduces aggregate demand, resulting in a decrease in overall demand in the economy.

Question 13

Everything else held constant,an increase in net exports ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

Accepted Answer

An increase in net exports means an increase in exports relative to imports, which increases the demand for goods and services. This leads to a shift of the aggregate demand curve to the right.

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

Accepted Answer

The aggregate demand curve represents the total quantity of all goods and services demanded by the economy at different price levels, or inflation rates. It shows the relationship between the price level and the level of demand.

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

Accepted Answer

According to the component parts of aggregate demand, a decrease in the price level leads to an increase in consumption, investment, net exports and government spending. When the price level falls, the real interest rate also falls which stimulates planned investment spending. Therefore, a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending, leading to a downward sloping aggregate demand curve.

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

Accepted Answer

The four component parts of aggregate demand are consumer expenditures, planned investment spending, government spending, and net exports.

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

Accepted Answer

An increase in government spending matched by an identical increase in taxes will increase aggregate demand due to the government spending multiplier effect. However, the increase in taxes will partially offset this effect because it reduces disposable income and consumption, making the net increase in aggregate demand smaller than it would be with just an increase in government spending.

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

Accepted Answer

A decline in the inflation rate would lead to a decline in nominal interest rates. This would lead to a decline in the cost of borrowing, leading to increased investment spending. This, in turn, would lead to an increase in aggregate demand. Additionally, a decline in the inflation rate means that the purchasing power of consumers and businesses would increase, leading to an increase in aggregate demand. Therefore, a decline in the inflation rate would lead to a decline in real interest rates, an increase in investment spending, and an increase 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

Accepted Answer

When financial frictions increase, the real cost of borrowing increases (as lenders demand higher interest rates to compensate for the increased risk). As a result, planned investment spending falls at any given inflation rate, because firms are less willing to invest when the cost of borrowing is higher.

Question 20

Everything else held constant,an increase in government spending ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

Accepted Answer

An increase in government spending increases the demand for goods and services in the economy, as the government purchases more goods and services from firms. This leads to an increase in aggregate demand.

Quiz 24: Aggregate Demand and Supply Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 ________.

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

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

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