Question 1

All points on an economyʹs AD curve
A)correspond to a particular point on industry demand curves for a particular product.
B)relate a particular price level to the total demand for output at that price level.
C)show only changes in relative prices and quantities.
D)show the direct relationship between the price level and net exports.
E)show the direct relationship between the price level and the demand for consumer goods.

Accepted Answer

The AD curve shows the relationship between the price level and total demand for output in an economy, which includes consumption, investment, government spending, and net exports. It does not correspond to a particular point on industry demand curves for a particular product or show changes in relative prices and quantities. It indirectly reflects the relationship between price level and net exports and other components of aggregate demand, and not just the demand for consumer goods.

Question 2

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the domestic price level changes equilibrium real GDP
A)in the same direction.
B)in the opposite direction.
C)by the same amount in the same direction.
D)by the same amount in the opposite direction.
E)by a lesser amount in either direction.

Accepted Answer

According to the inverse relationship between price level and output, an increase in the domestic price level will lead to a decrease in equilibrium real GDP and vice versa. Therefore, the change will be in the opposite direction.

Question 3

Other things being equal,when the domestic price level falls exogenously,
A)Canadian goods become more expensive relative to foreign goods.
B)the net export function shifts upward.
C)the aggregate expenditure function shifts downward.
D)imports of foreign goods rise.
E)the net export function shifts downward.

Accepted Answer

When the domestic price level falls, Canadian goods become cheaper relative to foreign goods, making them more attractive to both domestic and foreign buyers. This increases the quantity of exports and decreases the quantity of imports, leading to an upward shift in the net export function.

Question 4

Suppose there is an exogenous increase in the domestic price level.Which of the individuals listed below would experience an increase in wealth?
A)a person with a 25-year home mortgage
B)a person with cash under the mattress
C)a person with deposits in a bank savings account
D)a person with a government bond that promises to pay the holder $1000,5 years hence
E)a person with a corporate bond that promises to repay the face value of the bond in the future

Accepted Answer

An increase in the domestic price level (inflation) erodes the real value of fixed payments. A person with a 25-year home mortgage benefits because they repay their loan with money that is worth less than when they borrowed it, effectively increasing their wealth in real terms. Cash, savings, and fixed-income securities like government and corporate bonds lose value in real terms because the fixed amounts they represent or will pay out in the future buy less due to the higher price level.

Question 5

The AD curve relates the price level to which of the following?
A)desired aggregate expenditure
B)desired consumption
C)the level of real GDP where desired AE equals actual national income
D)the level of nominal GDP where desired AE equals actual national income
E)equilibrium savings and wealth.

Accepted Answer

The AD (aggregate demand) curve relates the price level to the level of real GDP where desired aggregate expenditure (AE) equals actual national income.

Question 6

Which of the following events would cause the AE function to shift upwards in a parallel way?
A)an increase in the MPC
B)a decrease in the net tax rate
C)a decrease in the business confidence of firms
D)a decrease in foreign income
E)a decrease in the aggregate price level

Accepted Answer

The answer of Which of the following events would cause...

Question 7

Consider a simple macro model with demand-determined output.Other things being equal,the price level and desired aggregate expenditure are related to each other
A)positively.
B)proportionally.
C)progressively.
D)exponentially.
E)negatively.

Accepted Answer

In a demand-determined output model, as the price level increases, the purchasing power of consumers decreases, leading to a decrease in desired aggregate expenditure. Conversely, if the price level decreases, consumers' purchasing power increases, leading to an increase in desired aggregate expenditure. This inverse relationship means the correct answer is negatively.

Question 8

Consider a simple macro-model with demand-determined output. An exogenous increase in the domestic price level will ________ the real value of the private sectorʹs wealth, which leads to ________ in autonomous consumption and thus ________ shift in the AE function.
A)increase; a decrease; a downward
B)increase; an increase; a downward
C)increase; an increase; an upward
D)reduce; a decrease; a downward
E)reduce; an increase; an upward

Accepted Answer

An exogenous increase in the domestic price level will reduce the real value of the private sector's wealth as their money holdings will now be worth less in real terms. This leads to a decrease in autonomous consumption as consumers feel poorer and cut back on spending. This will lead to a downward shift in the AE function as consumption is a key component of aggregate demand.

Question 9

Other things being equal,as the price level rises exogenously,the aggregate expenditure (AE)function shifts
A)down and the economy will move upward to the left along the AD curve.
B)down and the economy will move downward to the right along the AD curve.
C)upward and the economy moves upward to the left along the AD curve.
D)upward and the economy moves downward to the right along the AD curve.
E)to the right and the AD curve will also shift to the right.

Accepted Answer

When the price level rises exogenously, the aggregate expenditure (AE) function shifts down because consumers and firms reduce their spending due to the higher prices. This results in the economy moving upward to the left along the aggregate demand (AD) curve, as the higher price level reduces the quantity of goods and services demanded.

Question 10

An exogenous fall in the domestic price level causes an increase in real wealth and
A)a fall in desired investment.
B)a rise in desired consumption.
C)a downward shift in the AE curve.
D)a downward shift of the net export function.
E)a fall in government purchases.

Accepted Answer

A fall in the domestic price level leads to an increase in the purchasing power of money, thus increasing real wealth. This, in turn, leads to an increase in desired consumption as consumers are now able to afford more goods and services with the same amount of money.

Question 11

Other things being equal,a rise in the domestic price level
A)causes a decrease in real saving.
B)lowers the real value of all assets denominated in money units.
C)makes domestic goods more attractive to foreigners.
D)makes foreign goods less attractive to domestic residents.
E)raises the real burden of repaying a fixed money value debt.

Accepted Answer

The answer of Other things being equal,a rise in the...

Question 12

Other things being equal,a fall in the domestic price level leads to a rise in private -sector wealth and thus
A)an increase in the average propensity to save.
B)an increase in autonomous desired consumption.
C)a downward shift in the AE curve.
D)a downward shift in net exports.
E)domestic goods appearing less attractive to foreigners.

Accepted Answer

A fall in the domestic price level increases the real value of money, boosting consumers' purchasing power. This typically leads to an increase in autonomous desired consumption as people feel wealthier and are likely to spend more.

Question 13

Other things being equal,as the price level falls exogenously,the aggregate expenditure (AE)function shifts
A)down and the economy will move upward along the AD curve.
B)down and the economy will move downward along the AD curve.
C)upward and the economy moves upward along the AD curve.
D)upward and the economy moves downward along the AD curve.
E)to the left,as does the AD curve.

Accepted Answer

The answer of Other things being equal,as the price level...

Question 14

Other things being equal,an exogenous rise in the domestic price level will
A)have no effect on the level of desired real expenditure.
B)increase the level of desired real expenditure.
C)decrease desired real expenditure only if it is accompanied by a change in the current income of households.
D)decrease desired real expenditure because it will affect the real value of wealth.
E)cause net exports to rise.

Accepted Answer

An exogenous rise in the domestic price level will decrease the desired real expenditure because it will affect the real value of wealth. As the price level rises, the purchasing power of money decreases, so households will have lower real wealth than before. This means households will spend less on consumption and investment, leading to a decrease in desired real expenditure.

Question 15

In a macro model with a constant price level,an increase in autonomous desired consumption will cause the AE curve to shift
A)downward and the AD curve to shift to the left.
B)downward and the AD curve to shift to the right.
C)upward and the AD curve to shift to the left.
D)upward and the AD curve to shift to the right.
E)upward and a movement to the right along the AD curve.

Accepted Answer

An increase in autonomous desired consumption will shift the AE curve upward, indicating an increase in aggregate expenditures at each level of output. This will cause the AD curve to shift to the right as aggregate demand increases at each price level. Therefore, the correct choice is D.

Question 16

Other things being equal, a rise in the price level will imply ________ in wealth for the bondholder and ________ in the wealth of the issuer of the bond.
A)a decline; an increase
B)a decline; a decline
C)a decline; no change
D)an increase; a decline
E)an increase; an increase

Accepted Answer

If the price level rises, the purchasing power of the money received by the bondholder at maturity will decline, leading to a decline in their real wealth. On the other hand, the issuer of the bond will benefit from the rise in price level as they will be able to repay the fixed amount borrowed with money that has a lower purchasing power, leading to an increase in their real wealth.

Question 17

Other things being equal,an exogenous increase in the price level causes the aggregate wealth of holders and issuers of private-sector bonds to
A)decrease.
B)increase.
C)not change since the changes in the wealth of bondholders and bond issuers offset each other.
D)either increase or decrease depending on other factors.
E)rise in nominal terms,but fall in real terms.

Accepted Answer

An exogenous increase in the price level does not change the aggregate wealth of holders and issuers of private-sector bonds because the loss in the real value of the bonds for the holders is offset by an equivalent decrease in the real value of the debt for the issuers.

Question 18

Consider a simple macro model with demand-determined output.An exogenous increase in the domestic price level will
A)shift both the net export function and the AE curve upward.
B)shift the net export function upward and the AE curve downward.
C)shift both the net export function and the AE curve downward.
D)shift the net export function downward and the AE curve upward.
E)pivot the net export function and the AE curve upward.

Accepted Answer

An exogenous increase in the domestic price level makes domestic goods more expensive relative to foreign goods, reducing exports and increasing imports, which shifts the net export function downward. Since net exports are a component of aggregate expenditure (AE), a decrease in net exports reduces AE, shifting the AE curve downward as well.

Question 19

Other things being equal,when the domestic price level rises exogenously,
A)Canadian goods become more expensive relative to foreign goods.
B)the net export function shifts upward.
C)the aggregate expenditure function shifts upward.
D)imports of foreign goods fall.
E)the desired investment function shifts upward.

Accepted Answer

When the domestic price level rises exogenously, Canadian goods become more expensive relative to foreign goods. This leads to a decrease in demand for Canadian goods and an increase in demand for foreign goods. As a result, Canadian exports fall and imports of foreign goods increase.

Question 20

Other things being equal, when the price level rises, the real value of money holdings ________; when the domestic price level falls, the real value of money holdings ________.
A)rises; falls
B)falls; is not affected
C)falls; rises
D)is not affected; falls
E)is not affected; rises

Accepted Answer

When the price level rises, each unit of currency buys fewer goods and services, so the real value of money holdings falls. Conversely, when the price level falls, each unit of currency buys more goods and services, so the real value of money holdings rises.

Quiz 23: Output and Prices in the Short Run

All points on an economyʹs AD curve

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the domestic price level changes equilibrium real GDP

Other things being equal,when the domestic price level falls exogenously,

Suppose there is an exogenous increase in the domestic price level.Which of the individuals listed below would experience an increase in wealth?

The AD curve relates the price level to which of the following?

Which of the following events would cause the AE function to shift upwards in a parallel way?

Consider a simple macro model with demand-determined output.Other things being equal,the price level and desired aggregate expenditure are related to each other

Consider a simple macro-model with demand-determined output. An exogenous increase in the domestic price level will the real value of the private sectorʹs wealth, which leads to in autonomous consumption and thus shift in the AE function.

Other things being equal,as the price level rises exogenously,the aggregate expenditure (AE) function shifts

An exogenous fall in the domestic price level causes an increase in real wealth and

Other things being equal,a rise in the domestic price level

Other things being equal,a fall in the domestic price level leads to a rise in private -sector wealth and thus

Other things being equal,as the price level falls exogenously,the aggregate expenditure (AE) function shifts

Other things being equal,an exogenous rise in the domestic price level will

In a macro model with a constant price level,an increase in autonomous desired consumption will cause the AE curve to shift

Other things being equal, a rise in the price level will imply in wealth for the bondholder and in the wealth of the issuer of the bond.

Other things being equal,an exogenous increase in the price level causes the aggregate wealth of holders and issuers of private-sector bonds to

Consider a simple macro model with demand-determined output.An exogenous increase in the domestic price level will

Other things being equal,when the domestic price level rises exogenously,

Other things being equal, when the price level rises, the real value of money holdings ; when the domestic price level falls, the real value of money holdings .