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

Accepted Answer

According to the quantity theory of money, if the money supply decreases, the aggregate demand will decrease as well, assuming everything else is held constant. This is because with a decrease in the money supply, people and businesses will have less cash to spend, which puts downward pressure on 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

Accepted Answer

An increase in net taxes decreases disposable income, which lowers consumer spending. This leads to a decrease in aggregate 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

Accepted Answer

An increase in government spending will stimulate demand in the economy, as the government's injection of funds into the economy will increase overall spending by consumers and businesses. As a result, aggregate demand will increase.

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

Accepted Answer

A decrease in the price level increases the real money supply, which lowers interest rates and encourages higher levels of real spending, leading to a downward-sloping aggregate demand curve.

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.

Accepted Answer

The downward slope of the aggregate demand curve is based on the relationship between the price level and the real quantity of goods and services demanded by consumers, businesses, and government. As the price level falls, the real value of money increases, leading to a decrease in interest rates and an increase in investment spending. This leads to an overall increase in demand and a downward-sloping aggregate demand curve. Choice A correctly describes this relationship, as a lower price level leads to a larger quantity of money in real terms and stimulates 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.

Accepted Answer

The quantity theory of money posits that the general price level in an economy is directly proportional to the amount of money in circulation, and that aggregate demand is derived from the equation of exchange, which relates the money supply to the values of goods and services bought and sold. Therefore, the correct answer is A.

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

Accepted Answer

The quantity theory of money suggests that an increase in the money supply leads to an increase in aggregate demand, assuming other factors remain constant. This is because more money in the economy typically boosts spending and demand for goods and services.

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.

Accepted Answer

According to the components of aggregate demand, an increase in the money supply would lead to an increase in consumption, investment, and net exports. This would result in an overall increase in aggregate demand, which is in the same direction as a change in government spending. Therefore, the correct answer is C.

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.

Accepted Answer

A decline in the price level increases the real value of money supply. This leads to a decrease in interest rates, as individuals and firms demand less interest to lend their excess money supply. The lower interest rates encourage more investment spending, which increases aggregate output demand. Therefore, choice C accurately describes the effects of a decline in the price level on aggregate demand through its component parts.

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.

Accepted Answer

The quantity theory of money is derived from the equation of exchange, which states that the total nominal value of all transactions in an economy is equal to the money supply multiplied by the velocity of money. This theory suggests that changes in the money supply will ultimately cause changes in nominal GDP.

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.

Accepted Answer

The aggregate demand curve shows the total quantity of final goods and services demanded by all agents in the economy 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

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 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 that there is an increase in demand for a country's goods and services from foreign markets. This increase in demand will shift the aggregate demand curve to the right, increasing overall demand in the economy.

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.

Accepted Answer

Aggregate demand is the total amount of goods and services demanded in an economy at a given price level. It is derived by adding up the four component parts of demand: consumer expenditures, planned investment spending, government spending, and net exports. Consumer expenditures are the amount of money spent by individuals on goods and services, planned investment spending is the amount of money businesses plan to spend on new capital goods and equipment, government spending is the amount of money spent by the government on goods and services, and net exports is the difference between exports and imports. Together, these four components make up aggregate demand. Option A correctly identifies all four components.

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

Accepted Answer

When the price level is lower, the real quantity of money expands, making it easier for consumers to purchase goods and services, which encourages higher spending. On the other hand, when the price level is higher, the real quantity of money contracts, making it more difficult for consumers to purchase goods and services, which discourages spending.

Question 16

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

Accepted Answer

Net exports are part of aggregate demand, so a decrease in net exports would decrease aggregate demand.

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.

Accepted Answer

The description matches the definition of aggregate demand curve which shows the total demand for final goods and services at different price levels in an economy. The other options are not relevant to the given description.

Question 18

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

Accepted Answer

A decrease in government spending leads to a decrease in demand for goods and services, as the government is less likely to purchase products from businesses, leading to a decrease in aggregate demand.

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.

Accepted Answer

A balanced budget increase in government spending will increase aggregate demand, but not by as much as if just government spending increases. This is because the increase in government spending is offset by an equal increase in net taxes, meaning that consumers will have less disposable income to spend. Therefore, the overall impact on aggregate demand will be less than if there was an increase in government spending without an increase in net taxes.

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

Accepted Answer

An increase in planned investment expenditure will increase the demand for goods and services in the economy, which will in turn increase aggregate demand. Therefore, choice A is the best answer.

Quiz 22: Aggregate Demand and Supply Analysis

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

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

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

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.

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

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

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

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

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

The quantity theory of money is derived from

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

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

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

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

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

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

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

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

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

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