Deck 24: Aggregate Demand and Aggregate Supply Analysis

Question 1

An increase in the value of which of the following would not increase household wealth?

A) the equity in one's home.
B) 500 shares of Google stock.
C) the balance in your savings account.
D) a credit card balance.

Answer 1

D

Question 2

Because of the slope of the aggregate demand curve, we can say that

A) a decrease in the price level leads to a lower level of real GDP demanded.
B) an increase in the price level leads to no change in the level of real GDP demanded.
C) a decrease in the price level leads to a higher level of real GDP demanded.
D) an increase in the price level leads to a higher level of real GDP demanded.

Answer 2

C

Question 3

If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.
B) This will move the economy down along a stationary aggregate demand curve.
C) This will shift the aggregate demand curve to the left.
D) This will shift the aggregate demand curve to the right.

Answer 3

D

Question 4

Higher personal income taxes

A) increase aggregate demand.
B) increase disposable income.
C) decrease aggregate demand.
D) both B and C

Question 5

An increase in the price level will

A) shift the aggregate demand curve to the left.
B) shift the aggregate demand curve to the right.
C) move the economy up along a stationary aggregate demand curve.
D) move the economy down along a stationary aggregate demand curve.

Question 6

Which of the following will shift the aggregate demand curve to the right, ceteris paribus?

A) an increase in interest rates
B) a decrease in disposable income
C) a decrease in expected profits for firms
D) an increase in net exports

Question 7

Deflation will

A) increase aggregate demand.
B) increase the quantity of real GDP demanded.
C) decrease aggregate demand.
D) decrease the quantity of real GDP demanded.

Question 8

When the economy enters into a recession, your employer is ________ to reduce your wages because ________.

A) unlikely; output and input prices generally fall during recession
B) unlikely; lower wages reduce productivity and morale
C) likely; output prices always fall during recession
D) likely; aggregate demand is vertical in the long run

Question 9

The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off

A) government spending.
B) government spending and unplanned investment.
C) investment and consumption spending.
D) net exports.

Question 10

An increase in the price level results in a(n) ________ in the quantity of real GDP demanded because ________.

A) decrease; a higher price level reduces consumption, investment, and net exports.
B) increase; a higher price level reduces consumption, investment, and net exports.
C) decrease; a higher price level increases consumption, investment, and net exports.
D) increase; a higher price level increases consumption, investment, and net exports.

Question 11

The international trade effect states that

A) an increase in the price level will raise net exports.
B) an increase in the price level will lower net exports.
C) an increase in the price level will raise exports.
D) an increase in the price level will lower imports.

Question 12

German luxury car exports were hurt in 2009 as a result of the recession. How did this decrease in exports affect Germany's aggregate demand curve?

A) The aggregate demand curve shifted to the right.
B) The aggregate demand curve did not shift, but there was a movement up the aggregate demand curve.
C) The aggregate demand curve did not shift, but there was a movement down the aggregate demand curve.
D) The aggregate demand shifted to the left.

Question 13

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

A) They will move the economy up along a stationary aggregate demand curve.
B) They will move the economy down along a stationary aggregate demand curve.
C) They will shift the aggregate demand curve to the left.
D) They will shift the aggregate demand curve to the right.

Question 14

The ________ shows the relationship between the price level and quantity of real GDP demanded.

A) consumer price index
B) aggregate expenditure line
C) 45-degree line
D) aggregate demand curve

Question 15

Which of the following best describes the "wealth effect"?

A) When the price level falls, the real value of household wealth falls.
B) When the price level falls, the nominal value of household wealth falls.
C) When the price level falls, the nominal value of household wealth rises.
D) When the price level falls, the real value of household wealth rises.

Question 16

The recession of 2007-2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.
B) This will move the economy down along a stationary aggregate demand curve.
C) This will shift the aggregate demand curve to the left.
D) This will shift the aggregate demand curve to the right.

Question 17

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

A) Decreases in the price level raise the interest rate and increase consumption spending.
B) Decreases in the price level raise the interest rate and increase investment spending.
C) Decreases in the U.S. price level relative to the price level in other countries lower net exports.
D) Decreases in the price level raise real wealth and increase consumption spending.

Question 18

The basic aggregate demand and aggregate supply curve model helps explain

A) short-term fluctuations in real GDP and the price level.
B) long-term growth.
C) price fluctuations in an individual market.
D) output fluctuations in an individual market.

Question 19

When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.

A) imports; exports; net exports
B) exports; imports; net exports
C) net exports; exports; imports
D) net exports; imports; exports

Question 20

Following the bursting of the housing bubble in 2005, KB Homes sold ________ new homes and its stock price ________ dramatically. The result was total losses of $2.4 billion between 2007 and 2010.

A) fewer; rose
B) fewer; fell
C) more; rose
D) more; fell

Question 21

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, a decrease in personal income taxes would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 22

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, a decrease in interest rates would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 23

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, an increase in firms' expectations of the future profitability of investment spending would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 24

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, an increase in the price level would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 25

How do lower taxes affect aggregate demand?

A) They increase disposable income, consumption, and aggregate demand.
B) They reduce disposable income, consumption, and aggregate demand.
C) they increase corporate investment and aggregate demand.
D) They increase aggregate supply and thus increase aggregate demand as well.

Question 26

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, a decrease in government spending would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 27

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, an increase in personal income taxes would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 28

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, an increase in the value of the domestic currency relative to foreign currencies would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 29

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, an increase in the growth rate of domestic GDP relative to the growth rate of foreign GDP would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 30

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, an increase in interest rates would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 31

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, a decrease in households' expectations of their future income would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 32

Last week, six Swedish kronor could purchase one U.S. dollar. This week, it takes eight Swedish kronor to purchase one U.S. dollar. This change in the value of the dollar will ________ exports from the United States to Sweden and ________ U.S. aggregate demand.

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

Question 33

If aggregate demand just increased, which of the following may have caused the increase?

A) an increase in government purchases
B) an increase in the interest rate
C) an increase in the price level
D) an increase in imports

Question 34

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, an increase in households' expectations of their future income would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 35

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, a decrease in the price level would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 36

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, a decrease in firms' expectations of the future profitability of investment spending would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 37

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, a decrease in the growth rate of domestic GDP relative to the growth rate of foreign GDP would result in U.S. exports increasing faster than U.S. imports. This would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 38

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, an increase in government spending would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 39

Suppose the U.S. GDP growth rate is faster relative to other countries' GDP growth rates. U.S. imports will therefore increase faster than U.S. exports, and this will

A) move the economy up along a stationary aggregate demand curve.
B) move the economy down along a stationary aggregate demand curve.
C) shift the aggregate demand curve to the left.
D) shift the aggregate demand curve to the right.

Question 40

During the recession of 2007-2009 in the United States, ________ relative to potential GDP.

A) business fixed investment spending rose and net export spending declined
B) consumption spending rose and residential construction spending declined
C) federal government purchases rose and changes in business inventories declined
D) net export spending rose and consumption spending declined

Question 41

According to the "wealth effect," when the ________ falls, the ________ rises.

A) inflation rate; nominal value of household assets
B) unemployment rate; average level of household income
C) price level; the nominal value of household wealth
D) price level; the real value of household wealth

Question 42

Spending on the war in Afghanistan is essentially categorized as government purchases. How do decreases in spending on the war in Afghanistan affect the aggregate demand curve?

A) They will move the economy down along a stationary aggregate demand curve.
B) They will move the economy up along a stationary aggregate demand curve.
C) They will shift the aggregate demand curve to the right.
D) They will shift the aggregate demand curve to the left.

Question 43

The business cycle ________ on KB Homes since the company's inception over 60 years ago.

A) has had virtually no effect
B) has always had a negative effect
C) has had a large effect
D) has always had a positive effect

Question 44

Inflation will

A) increase aggregate demand.
B) increase the quantity of real GDP demanded.
C) decrease aggregate demand.
D) decrease the quantity of real GDP demanded.

Question 45

Because of the slope(s) of the ________, we can say that a decrease in the price level leads to a higher level of real GDP demanded.

A) aggregate demand curve
B) short-run aggregate supply curve
C) long-run aggregate supply curve
D) short-run and long-run aggregate supply curves

Question 46

Figure 24-1
Refer to Figure 24-1. Ceteris paribus, a decrease in the value of the domestic currency relative to foreign currencies would be represented by a movement from

A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question 47

Just before and during the recession of 2007-2009, net exports in the United States

A) fell and remained negative.
B) fell, but remained positive.
C) rose and became positive.
D) rose, but remained negative.

Question 48

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

A) Increases in the price level lower the interest rate and decrease consumption spending.
B) Increases in the price level lower the interest rate and decrease investment spending.
C) Increases in the U.S. price level relative to the price level in other countries lowers net exports.
D) Increases in the price level raise real wealth and lowers consumption spending.

Question 49

The basic aggregate demand and aggregate supply curve model helps explain ________ fluctuations in real GDP and the price level.

A) short-term
B) long-term
C) both short-term and long-term
D) unrelated

Question 50

When the price level in the United States rises relative to the price level of other countries, ________ will rise, ________ will fall, and ________ will fall.

A) imports; exports; net exports
B) exports; imports; net exports
C) net exports; exports; imports
D) net exports; imports; exports

Question 51

The international trade effect states that a(n) ________ in the price level will ________ net exports.

A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; not affect

Question 52

When the economy enters a recession, your employer is unlikely to reduce your wages because ________ during a recession.

A) output and input prices generally fall
B) lower wages increase your incentive to find employment elsewhere.
C) output prices always fall
D) output prices generally fall and input prices generally rise

Question 53

A decrease in the price level results in a(n) ________ in the quantity of real GDP demanded because a lower price level ________ consumption, investment, and net exports.

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

Question 54

Lower personal income taxes

A) increase aggregate demand.
B) decrease disposable income.
C) decrease aggregate demand.
D) increase transfer payments.

Question 55

The impact of Hurricane Katrina on consumers in the economy was to make them very pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.
B) This will move the economy down along a stationary aggregate demand curve.
C) This will shift the aggregate demand curve to the left.
D) This will shift the aggregate demand curve to the right.

Question 56

A decrease in the price level will

A) shift the aggregate demand curve to the left.
B) shift the aggregate demand curve to the right.
C) move the economy up along a stationary aggregate demand curve.
D) move the economy down along a stationary aggregate demand curve.

Question 57

Which of the following would not be considered a positive addition to household wealth?

A) the equity in one's home
B) 1,000 shares of Microsoft stock
C) a credit card balance
D) the balance in your checking account

Question 58

The aggregate demand curve shows the relationship between the ________ and ________.

A) inflation rate; quantity of real GDP demanded
B) real interest rate; quantity of real GDP supplied
C) nominal interest rate; quantity of real GDP demanded
D) price level; quantity of real GDP demanded

Question 59

Which of the following best describes the "interest rate effect"?

A) An increase in the price level raises the interest rate and chokes off government spending.
B) An increase in the price level lowers the interest rate and chokes off government spending.
C) An increase in the price level raises the interest rate and chokes off investment and consumption spending.
D) An increase in the price level lowers the interest rate and chokes off investment and consumption spending.

Question 60

Which of the following will shift the aggregate demand curve to the left, ceteris paribus?

A) an increase in interest rates
B) an increase in disposable income
C) an increase in expected profits for firms
D) an increase in net exports

Question 61

An increase in the price level shifts the aggregate demand curve to the left.

Question 62

An increase in exports decreases aggregate demand.

Question 63

An increase in the price level causes a movement down the aggregate demand curve.

Question 64

If the U.S. dollar increases in value relative to other currencies, how does this affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.
B) This will move the economy down along a stationary aggregate demand curve.
C) This will shift the aggregate demand curve to the left.
D) This will shift the aggregate demand curve to the right.

Question 65

An increase in imports increases aggregate demand.

Question 66

Using an aggregate demand graph, illustrate the impact of an increase in the interest rate.

Question 67

Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.

Question 68

Last week, 13 Mexican pesos could purchase one U.S. dollar. This week, it takes 11 Mexican pesos to purchase one U.S. dollar. This change in the value of the dollar will ________ exports from the United States to Mexico and ________ U.S. aggregate demand.

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

Question 69

A decrease in disposable income will shift the aggregate demand curve to the left.

Question 70

Suppose the U.S. GDP growth rate is slower relative to other countries' GDP growth rates. This will

A) move the economy up along a stationary aggregate demand curve.
B) move the economy down along a stationary aggregate demand curve.
C) shift the aggregate demand curve to the left.
D) shift the aggregate demand curve to the right.

Question 71

Using an aggregate demand graph, illustrate the impact of an increase in the growth rate of U.S. GDP relative to the growth rate of foreign GDP.

Question 72

President Trump has proposed lowering income taxes for individuals. Explain how lower income taxes affect the aggregate demand curve.

Question 73

How do changes in income tax policies affect aggregate demand?

A) Higher taxes increase disposable income, consumption, and aggregate demand.
B) Higher taxes reduce disposable income, consumption, and aggregate demand.
C) Higher taxes increase corporate investment and aggregate demand.
D) Higher taxes increase aggregate supply and thus increase aggregate demand as well.

Question 74

While in office, President Obama discussed raising income taxes for individuals earning over $250,000 in income. Explain how these higher income taxes would affect the aggregate demand curve.

Question 75

Explain how each of the following events would affect the aggregate demand curve.
a. Lower interest rates
b. A decrease in net exports
c. A decrease in the price level
d. Slower income growth in other countries
e. A decrease in imports

Question 76

Japanese electronics exports were hurt in 2008 as a result of the recession. How would this decrease in exports have affected Japan's aggregate demand curve?

A) The aggregate demand curve would have shifted to the right.
B) The aggregate demand curve would not have shifted, but there would have been a movement up the aggregate demand curve.
C) The aggregate demand curve would not have shifted, but there would have been a movement down the aggregate demand curve.
D) The aggregate demand curve would have shifted to the left.

Question 77

Explain the three reasons the aggregate demand curve slopes downward.

Question 78

An increase in disposable income will shift the aggregate demand curve to the right.

Question 79

If aggregate demand just decreased, which of the following may have caused the decrease?

A) a decrease in exports
B) a decrease in the interest rate
C) a decrease in the price level
D) a decrease in imports

Question 80

In September of 2007, the Federal Reserve Board Open Market Committee voted to lower interest rates for the first time that year. Explain how lower interest rates affect the aggregate demand curve.