Question 1

The table given below reports the inflation rate in the U.S.and Canada for two years. Table 8.1
 Refer to Table 8.1.Assume that the exchange rate is fixed at 1.4 CAD = 1 USD and that price changes for lumber are identical to the inflation rate for each country.If Canadian lumber is sold in year 1 for 5, 500 CAD, what is the price of that lumber in year 2, given that exchange rates do not change?

Accepted Answer

The answer of The table given below reports the inflation...

Question 2

The _____ is the change in the purchasing power of assets that causes spending to change when the price level changes.

Accepted Answer

The real-balance effect refers to the change in purchasing power of assets (such as cash, savings, and other financial instruments) that results from a change in the price level. When the price level decreases, the real value of assets increases, which encourages people to spend more. Conversely, when the price level increases, the real value of assets decreases, which discourages people from spending as much. Therefore, the real-balance effect is an important driver of changes in aggregate demand.

Question 3

Identify the correct statement about the aggregate supply curve.

Accepted Answer

The aggregate supply curve shows the relationship between the total output produced in the economy and the different price levels at which it is sold. An increase in production costs, such as an increase in labor or material costs, will shift the aggregate supply curve inward, while a decrease in costs will shift it outward. Changes in consumer spending, investment, government spending, and net exports affect aggregate demand, not aggregate supply.

Question 4

Which of the following illustrates an optimistic expectation of the people about the economy?

Accepted Answer

A rightward shift of the aggregate demand curve indicates that people have optimistic expectations about the economy and are willing to spend more. This shift could be caused by factors such as an increase in consumer confidence, a decrease in taxes, or an increase in government spending.

Question 5

Other things remaining unchanged, the flatter the aggregate supply curve:

Accepted Answer

A flatter aggregate supply curve suggests that there is more spare capacity in the economy. Therefore, an increase in aggregate demand will have a smaller inflationary effect since there is more room for firms to increase output without pushing up prices.

Question 6

Pessimistic consumer expectations and decreased government spending are both associated with:

Accepted Answer

Pessimistic consumer expectations and decreased government spending both decrease aggregate demand, causing a leftward shift of the aggregate demand curve. This results in a lower level of real GDP and potentially lower price levels. A movement along the aggregate demand curve would occur due to a change in price level, not consumer expectations or government spending. A shift to the right of the curve would occur due to factors that increase aggregate demand, such as an increase in consumer or government spending. A steeper slope of the aggregate demand curve would indicate a stronger negative relationship between price level and real GDP, but this is not directly related to consumer expectations or government spending.

Question 7

Suppose a representative household holds a bond that is expected to pay a real return of $100 one year from now.However, over the next year, the inflation rate rises 15 percent more than was originally anticipated.As a consequence:

Accepted Answer

The unexpected rise in inflation erodes the real return on the bond, reducing the household's real wealth and purchasing power, leading to a decrease in aggregate expenditure.

Question 8

The table given below reports the inflation rate in the U.S.and Canada for two years. Table 8.1
 Refer to Table 8.1.Assume the exchange rate is fixed at 1.4 CAD (Canadian dollars)= 1 USD (United States dollars).Between year 1 and year 2, what happens to the U.S.aggregate demand curve?

Accepted Answer

The answer of The table given below reports the inflation...

Question 9

The wealth effect, the interest rate effect, and the international trade effect account for the:

Accepted Answer

The wealth effect, interest rate effect, and international trade effect explain why the aggregate demand curve slopes downward. As the price level decreases, real wealth increases, interest rates fall, and net exports rise, leading to higher quantity demanded of goods and services.

Question 10

An increase in aggregate demand due to higher foreign income will cause:

Accepted Answer

An increase in aggregate demand will cause domestic equilibrium GDP to rise since there will be an increase in demand for domestic products and services. This is due to higher foreign income, which increases foreign demand for these goods and services, thereby increasing exports and aggregate demand in the domestic economy.

Question 11

Assuming a fixed exchange rate, a decrease in U.S.prices relative to European prices will:

Accepted Answer

A decrease in U.S. prices relative to European prices makes U.S. goods cheaper for Europeans, leading to a decrease in European exports to the U.S. as Americans buy more domestic goods.

Question 12

Which of the following is most likely to lead to an inward shift of the aggregate demand curve?

Accepted Answer

A decrease in foreign income would likely reduce the demand for a country's exports, leading to a decrease in aggregate demand, thus causing an inward shift of the aggregate demand curve.

Question 13

The change in aggregate expenditures resulting from a movement in the domestic price level, which in turn changes the price of domestic goods in relation to foreign goods, is known as the:

Accepted Answer

The international trade effect refers to the change in aggregate expenditures due to a change in the domestic price level, which affects the relative price of domestic goods compared to foreign goods, influencing exports and imports.

Question 14

Which of the following does not account for a movement along a given AD curve?

Accepted Answer

The government spending effect would cause a shift in the AD curve, not a movement along it. The other options all describe factors that would cause a movement along the same AD curve.

Question 15

A decrease in the price level will result in:

Accepted Answer

A decrease in the price level will lead to an increase in the quantity of goods and services demanded due to lower prices. This will cause a movement down the AD curve, as lower prices will increase the real value of money, leading to increased spending and output.

Question 16

If foreign income falls, we can expect to see all of the following, except:

Accepted Answer

A rise in domestic aggregate demand is not a result of a fall in foreign income.

Question 17

Which of the following would result in a decrease in aggregate demand?

Accepted Answer

Lower aggregate expenditures means that consumers and businesses are spending less, which results in a decrease in aggregate demand.

Answer: A and B are incorrect because they would result in an increase in aggregate demand. A higher domestic price level means that consumers and businesses have more income and wealth, leading to an increase in spending. Higher raw materials prices increase production costs, which can lead to higher prices, but also typically lead to increased demand for products and services as companies try to maintain profits.

Answer: D and E are incorrect because they would result in an increase in aggregate demand. Technological advances can increase productivity and reduce costs, leading to greater production and increased spending. Expansionary government policy involves increasing government spending, which can boost aggregate demand.

Question 18

The AD curve will shift to the right if:

Accepted Answer

An increase in foreign price levels makes domestic goods relatively cheaper, increasing exports, which shifts the AD curve to the right.

Question 19

As the general price level in the country of Norweinshire rose, the average interest rate in the economy increased, thereby lowering aggregate expenditure.This relationship between price level, interest rate, and aggregate expenditure is referred to as the:

Accepted Answer

This relationship is referred to as the interest rate effect, which states that as the price level increases, the demand for money also increases, causing interest rates to rise. This increase in interest rates then leads to a decrease in consumer spending and investment in the economy, resulting in a lower aggregate expenditure. The other effects listed (total price effect, wealth effect, real-balance effect, and income effect) all represent different ways in which changes in the general price level can affect the economy, but they are not specifically related to the relationship between price level, interest rate, and aggregate expenditure.

Question 20

The table given below reports the inflation rate in the U.S.and Canada for two years. Table 8.1
 Refer to Table 8.1.Assume that the exchange rate is fixed at 1.4 CAD = $1 and that price changes for salmon are identical to the inflation rate in each country.If U.S.importers pay 10, 000 CAD for a trailer of Canadian salmon in year 1, what is the approximate price of that salmon in year 2, given that exchange rates do not change?

Accepted Answer

The answer of The table given below reports the inflation...

Quiz 11: Macroeconomic Equilibrium: Aggregate Demand and Supply

The _____ is the change in the purchasing power of assets that causes spending to change when the price level changes.

Identify the correct statement about the aggregate supply curve.

Which of the following illustrates an optimistic expectation of the people about the economy?

Other things remaining unchanged, the flatter the aggregate supply curve:

Pessimistic consumer expectations and decreased government spending are both associated with:

Suppose a representative household holds a bond that is expected to pay a real return of $100 one year from now.However, over the next year, the inflation rate rises 15 percent more than was originally anticipated.As a consequence:

The table given below reports the inflation rate in the U.S.and Canada for two years. Table 8.1 Refer to Table 8.1.Assume the exchange rate is fixed at 1.4 CAD (Canadian dollars) = 1 USD (United States dollars) .Between year 1 and year 2, what happens to the U.S.aggregate demand curve?

The wealth effect, the interest rate effect, and the international trade effect account for the:

An increase in aggregate demand due to higher foreign income will cause:

Assuming a fixed exchange rate, a decrease in U.S.prices relative to European prices will:

Which of the following is most likely to lead to an inward shift of the aggregate demand curve?

The change in aggregate expenditures resulting from a movement in the domestic price level, which in turn changes the price of domestic goods in relation to foreign goods, is known as the:

Which of the following does not account for a movement along a given AD curve?

A decrease in the price level will result in:

If foreign income falls, we can expect to see all of the following, except:

Which of the following would result in a decrease in aggregate demand?

The AD curve will shift to the right if:

As the general price level in the country of Norweinshire rose, the average interest rate in the economy increased, thereby lowering aggregate expenditure.This relationship between price level, interest rate, and aggregate expenditure is referred to as the: