Deck 13: Aggregate Demand and Aggregate Supply

Question 1

An increase in disposable income would tend to shift aggregate demand right.

Answer 1

True

Question 2

According to the "misperception effect" explanation of short-run aggregate supply, firms increase output as the price level rises because they mistake the increase in overall prices for an increase in the relative price of their own output.

Answer 2

True

Question 3

If input prices adjusted just as quickly as output prices, the profit effect leading to an increase in RGDP supplied would disappear.

Answer 3

True

Question 4

If the price level in the United States decreases, domestic goods will become relatively cheaper than foreign goods, the demand for U.S.-made goods will increase, and the U.S.aggregate demand curve will shift to the right.

Question 5

A disaster that destroys a large part of current agricultural output will not change LRAS, while a disaster that destroys the capital stock in a major city will reduce LRAS.

Question 6

The long-run aggregate supply curve is the relationship between the price level and the quantity of real GDP that is supplied once input prices have had time to fully adjust to that price level.

Question 7

When the price level falls, households and firms reduce their holdings of money, and shift their money into interest earning assets, which will increase the supply of loanable funds, leading to a lower interest rate and an increase in borrowing and an increase in RGDP demanded.

Question 8

If the price level in the United States increases, domestic goods will become relatively more expensive than foreign goods.Consumers will import more and reduce the quantity of domestic goods and services they buy.

Question 9

At a given price level, anything that changes the amount of total purchases in the economy will cause the aggregate demand curve to shift.

Question 10

The aggregate supply curves show how much a nation's businesses are willing and able to produce at each price level.

Question 11

If the overall price level decreases, then the aggregate demand curve will shift to the right.

Question 12

If there were no real wealth or interest rate effect, the aggregate demand curve would still be downward sloping.

Question 13

Higher interest rates will tend to reduce aggregate demand, other things being equal.

Question 14

The interest rate effect helps explain why a lower price level will reduce the quantity of real goods and services demanded as an economy moves down along its aggregate demand curve.

Question 15

Any permanent change in the quantity of any factor of production available - capital, technology, land, or labor - can cause a shift in both the long-run and short-run aggregate supply curves.

Question 16

The real wealth and the real interest rate effects are both causes of the downward slope of the aggregate demand curve.

Question 17

The quantity of RGDP supplied will decrease in both the short run and long run when the price level falls.

Question 18

A reduction in the price level will cause the aggregate demand curve to shift to the left.

Question 19

The real wealth effect is one reason for the negative slope of the aggregate demand curve.

Question 20

The SRAS curve is vertical at the natural level of real output.

Question 21

As the price level increases, the quantity of RGDP demanded ____, and when the price level decreases, the quantity of RGDP demanded in the economy ____.

A)decreases, decreases
B)increases, increases
C)increases, decreases
D)decreases, increases

Question 22

The long-run level of RGDP changes whenever the aggregate demand curve shifts.

Question 23

Which of the following does not explain why the aggregate demand curve is negatively sloped?

A)misperception effect
B)open economy effect
C)real wealth effect
D)interest rate effect

Question 24

A change that shifted the long-run aggregate supply curve to the right would also shift the short-run aggregate supply curve to the right.

Question 25

Ben N.Jerry prefers to keep his $10,000 retirement savings buried in the backyard.After an increase in the price level, Ben reduces the amount of goods and services he wants to purchase.Ben's rationalization, that now his retirement savings won't buy as much, is consistent with which explanation of the aggregate demand curve's negative slope?

A)the interest rate effect
B)the open economy effect
C)the inflation effect
D)the real wealth effect

Question 26

If there is currently an expansionary gap, an increase in aggregate demand will make the expansionary gap smaller, but a decrease in aggregate demand will make the expansionary gap larger.

Question 27

Stagflation could be caused solely by a shift in the aggregate demand curve.

Question 28

Jason has been holding his retirement savings in a safe in his house.Currently the economy is experiencing a falling price level.He can conclude that:

A)the real purchasing power of his money is remaining constant.
B)the real value of his savings is increasing as long as the price level is falling.
C)the real value of his savings is decreasing as long as the price level is falling.
D)none of the above are true.

Question 29

The short-run equilibrium level of real output and the price level are determined by the intersection of the aggregate demand curve and the short-run aggregate supply curve.

Question 30

The interest rate effect suggests that the negative slope of the aggregate demand curve results at least in part because changes in the price level affect:

A)domestic purchases of foreign goods.
B)the holdings of money by households and firms.
C)the real purchasing power of assets.
D)the level of income.

Question 31

If there is currently a recessionary gap, a fall in aggregate demand would make the recessionary gap larger.

Question 32

An unexpected increase in aggregate demand results in a decrease in real wages in the short run.

Question 33

Increases in government regulations can make it more costly for producers, and the increase in production costs results in a leftward shift of the short-run aggregate supply curve.

Question 34

As the price level decreases, money demand (money supply unchanged.____, interest rates ____, investments ____, and the quantity of RGDP demanded ____.

A)increases, decrease, increase, decreases
B)increases, increase, increase, increases
C)decreases, decrease, decrease, increases
D)decreases, decrease, increase, increases
E)increases, decrease, decrease, decreases

Question 35

When the price level rises as a result of a decrease in aggregate supply, it is called cost-push inflation.

Question 36

An increase in net exports would lead to an increase aggregate demand but would not lead to an increase in aggregate supply.

Question 37

Both short- and long-run aggregate supply curves can shift to the right if entrepreneurial activities lower costs of production and expand what can be produced.

Question 38

When there is a recessionary gap, one is likely to see an increase in overtime work and more hours worked by part-time workers.

Question 39

For individuals who are holding money or fixed dollar value assets, inflation has the effect of:

A)improving their ability to purchase goods and services with those dollars.
B)reducing their ability to purchase goods and services with those dollars.
C)increasing the purchasing power of those dollars.
D)demonstrating the interest rate effect.

Question 40

If you are living in a period of continued high inflation on a fixed income (that is not indexed), the cost of the goods and services you buy ____ and your income ____.

A)decreases, decreases
B)increases, increases
C)decreases, remains the same
D)increases, remains the same

Question 41

Which of the following will cause consumption, and as a result, aggregate demand, to decrease?

A)a tax cut
B)a fall in consumer confidence
C)increased population
D)an optimistic forecast of future income growth

Question 42

If some non-price level determinant causes total spending to increase, then the effect on aggregate demand will be a:

A)movement upward along the curve.
B)movement downward along the curve.
C)shift to the left.
D)shift to the right.

Question 43

In an open economy as the price level decreases, a(n) ____ in demand for domestic goods relative to foreign goods results in a(n) ____ in the quantity of RGDP demanded.

A)increase, decrease
B)increase, increase
C)decrease, decrease
D)decrease, increase

Question 44

Which of the following do not increase U.S.aggregate demand?

A)a lower price level, increasing citizen's real wealth
B)a lower price level, reducing interest rates
C)a lower price level, increasing exports and decreasing imports
D)All of the above increase U.S. aggregate demand.
E)None of the above increase U.S. aggregate demand.

Question 45

Which of the following increases U.S.aggregate demand?

A)a lower price level, increasing citizen's real wealth
B)a lower price level, reducing interest rates
C)a lower price level, increasing exports and decreasing imports
D)an increase in Americans' expected future incomes
E)All of the above increase U.S. aggregate demand.

Question 46

In an open economy, as the price level increases, a(n) ____ in demand for domestic goods results in a(n) ____ in the quantity of RGDP demanded.

A)increase, decrease
B)increase, increase
C)decrease, decrease
D)decrease, increase

Question 47

Which of the following will decrease aggregate demand?

A)exports rising faster than imports
B)exports falling faster than imports.
C)exports rising the same amount as imports
D)exports rising and imports falling

Question 48

Investment will decrease if business taxes ____, real interest rates ____, or if business confidence ____.

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

Question 49

As the price level increases, households and firms holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____.

A)increases, decrease, increase, decreases
B)increases, increase, increase, decreases
C)decreases, decrease, decrease, increases
D)decreases, decrease, increase, increases
E)increases, increase, decrease, decreases

Question 50

During the 1970s, U.S.prices generally rose faster than prices in other parts of the world.Which of the following changes would the Open Economy Effect predict took place in response to these price level changes?

A)Americans reduced the proportion of foreign goods bought since their foreign prices became relatively lower.
B)Americans reduced the amount of investment they undertook because interest rates increased.
C)Americans reduced the amount of goods and services they wanted to purchase for consumption because they felt less wealthy.
D)Americans reduced the fraction of purchases they made from domestic producers of goods and services since foreign prices became relatively lower.

Question 51

Which of the following decreases U.S.aggregate demand?

A)a lower price level, increasing citizen's real wealth
B)a lower price level, reducing interest rates
C)a lower price level, increasing exports and decreasing imports
D)an increase in Americans' expected future incomes
E)None of the above decrease U.S. aggregate demand.

Question 52

Which of the following will cause consumption, and as a result, aggregate demand, to shift to the right?

A)an optimistic business forecast of future income growth
B)increased consumer wealth
C)an increase in consumer confidence
D)a tax cut
E)All of the above.

Question 53

If the stock market continues a steady climb upwards, this ____ consumer confidence and wealth, leading to ____ consumption, and ____ aggregate demand.

A)increases, decreased, increased
B)decreases, decreased, decreased
C)increases, increased, increased
D)increases, increased, decreased

Question 54

An economic boom in China is likely to lead to a(n):

A)decrease in U.S. exports and U.S. aggregate demand.
B)increase in U.S. exports and U.S. aggregate demand.
C)decrease in U.S. imports and U.S. aggregate demand.
D)increase in U.S. imports and U.S. aggregate demand.

Question 55

Which of the following are likely to increase investment and as a result, aggregate demand?

A)decreased demand for investment goods
B)falling real interest rates
C)rising real interest rates
D)increased business taxes
E)All of the above.

Question 56

Pierre is French Canadian, and like many Canadians he is experiencing booming good economic times.His good fortune is likely to impact U.S.aggregate demand in what way?

A)Positively, because he prefers to make all his purchases in Canada from Canadian firms.
B)Negatively, because he prefers to make all his purchases in Canada from Canadian firms.
C)Negatively, since we are all members of North American Free Trade Zone.
D)Positively, since he will be in a better position to purchase U.S.-made goods.

Question 57

Investment will increase if business taxes ____, real interest rates ____, or if business confidence ____.

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

Question 58

Which of the following will not cause consumption, and as a result, aggregate demand, to increase?

A)an optimistic business forecast of future income growth
B)a tax cut
C)an increase in consumer confidence
D)a tax increase
E)increased consumer wealth

Question 59

Which of the following would lead to an increase in aggregate demand?

A)an increase in consumer confidence
B)a decrease in the overall price level
C)an improvement in labor productivity
D)all of the above

Question 60

If some non-price level determinant causes total spending to decrease, then the effect on aggregate demand will be a:

A)movement upward along the curve.
B)movement downward along the curve.
C)shift to the left.
D)shift to the right.

Question 61

If exports and imports both fell, but exports fell more than imports,

A)AD would fall.
B)AD would rise.
C)AD would be unaffected.
D)AD could either increase or decrease.

Question 62

A reduction in business expectations, combined with the imposition of new tariffs by major trading partners, would have what effect on aggregate demand?

A)AD would increase.
B)AD would decrease.
C)AD would stay the same.
D)AD could either increase or decrease, depending on which change was of a greater magnitude.

Question 63

A decrease in the price level will:

A)increase the quantity of RGDP supplied, but not increase short-run aggregate supply.
B)decrease the quantity of RGDP supplied, but not decrease short-run aggregate supply.
C)increase short-run aggregate supply.
D)decrease short-run aggregate supply.

Question 64

Which of the following observations will be valid, if major trading partners of the United States experience an economic slowdown?

A)an increase in U.S. exports to them
B)aggregate demand will not be affected
C)U.S. net exports will fall
D)aggregate demand will shift to the right

Question 65

An increase in business tax rates, combined with a decrease in consumer confidence, would have what effect on aggregate demand?

A)AD would increase.
B)AD would decrease.
C)AD would stay the same.
D)AD could either increase or decrease, depending on which change was of a greater magnitude.

Question 66

If both imports and exports fell,

A)AD would fall.
B)AD would rise.
C)AD would be unaffected.
D)AD would rise if exports fell more than imports.
E)AD would fall if exports fell more than imports.

Question 67

Faster growth rates by a major trading partner, combined with an increase in stock market wealth, would have what effect on aggregate demand?

A)AD would increase.
B)AD would decrease.
C)AD would stay the same.
D)AD could either increase or decrease, depending on which change was of a greater magnitude.

Question 68

If exports rose and imports fell,

A)AD would fall.
B)AD would rise.
C)AD would be unaffected.
D)AD could either increase or decrease.

Question 69

If both imports and exports rose,

A)AD would fall.
B)AD would rise.
C)AD would be unaffected.
D)AD would rise if exports rose more than imports.
E)AD would fall if exports rose more than imports.

Question 70

The SRAS curve is ____ with real output levels that ____.

A)upward sloping; vary positively with the price level
B)upward sloping; vary negatively with the price level
C)vertical; are equal to the natural level of real output at all price levels
D)vertical; can be either greater than or less than the natural level of real output

Question 71

If exports and imports both fell, but exports fell less than imports,

A)AD would fall.
B)AD would rise.
C)AD would be unaffected.
D)AD could either increase or decrease.

Question 72

Ceteris paribus, which of the following would cause the aggregate demand curve to shift to the left?

A)lower personal taxes
B)a rise in consumer confidence
C)greater stock market wealth
D)a reduction in transfer payments

Question 73

Ceteris paribus, which of the following would cause the aggregate demand curve to shift to the right?

A)higher personal taxes
B)a rise in consumer confidence
C)reduced stock market wealth
D)a reduction in transfer payments

Question 74

If exports fell and imports rose,

A)AD would fall.
B)AD would rise.
C)AD would be unaffected.
D)AD could either increase or decrease.

Question 75

If exports and imports both rose, but exports rose less than imports,

A)AD would fall.
B)AD would rise.
C)AD would be unaffected.
D)AD could either increase or decrease.

Question 76

If exports and imports both rose, but exports rose more than imports,

A)AD would fall.
B)AD would rise.
C)AD would be unaffected.
D)AD could either increase or decrease.

Question 77

An increase in the price level will:

A)increase the quantity of RGDP supplied, but not increase short-run aggregate supply.
B)decrease the quantity of RGDP supplied, but not decrease short-run aggregate supply.
C)increase short-run aggregate supply.
D)decrease short-run aggregate supply.

Question 78

An increase in investment, combined with an increase in imports, would have what effect on aggregate demand?

A)AD would increase.
B)AD would decrease.
C)AD would stay the same.
D)AD could either increase or decrease, depending on which change was of a greater magnitude.

Question 79

The SRAS is ____; the LRAS is ____.

A)upward sloping; upward sloping
B)upward sloping; vertical
C)vertical; upward sloping
D)vertical; vertical

Question 80

What would happen to aggregate demand if the federal government increased military purchases and state and local governments decreased their road building budgets at the same time?

A)AD would increase, because only federal government purchases affect AD.
B)AD would decrease, because only state and local government purchases affect AD.
C)AD would increase if the change in federal purchases were smaller than the change in state and local purchases.
D)AD would decrease if the change in federal purchases was smaller than the change in state and local purchases.