Question 1

A rightward shift in the aggregate demand curve cannot be caused by:

Accepted Answer

An increase in taxes would decrease disposable income and shift the aggregate demand curve to the left.

Question 2

A lower U.S. net exports caused by a higher U.S. price level will cause:

Accepted Answer

A higher U.S. price level makes U.S. goods more expensive for foreign buyers, reducing net exports and causing a movement upward along the AD curve as the quantity of real GDP demanded decreases.

Question 3

If the marginal propensity to consume is 0.8, the value of the multiplier is:

Accepted Answer

The multiplier is calculated as 1/(1-MPC) where MPC is the marginal propensity to consume. In this case, the multiplier is 1/(1-0.8) = 5. Thus, the correct answer is B.

Question 4

An increase in government expenditure has a multiplier effect on aggregate demand due to:

Accepted Answer

An increase in government expenditure will lead to additional spending by consumers, as they have more money to spend due to higher government spending. This additional spending by consumers will further increase aggregate demand and have a multiplier effect on the economy. Option B is incorrect as the negative slope of the consumption function refers to the fact that as disposable income increases, the proportion of income spent on consumption decreases, and not relevant in this context. Option C is incorrect as the marginal propensity to consume is usually less than one, indicating that consumers do not spend all additional income received. Option D is incorrect as private consumption expenditure is not autonomous, it is influenced by factors such as disposable income, interest rates, etc.

Question 5

Figure 9.6
-Refer to Figure 9.6. Suppose the equilibrium is at point A. An oil embargo which raises the price of oil would move the equilibrium to:

Accepted Answer

An oil embargo would increase the cost of production, causing a leftward shift of the aggregate supply curve from AS1 to AS2. This will result in a new equilibrium point at E with lower output and higher price level than the original equilibrium at A. Points D and F are both to the left of the original equilibrium point, so they are not possible new equilibria. Point H is to the right of the original equilibrium point, so it is not affected by the leftward shift of the aggregate supply curve.

Question 6

If the economy is in long run equilibrium at full employment, the level of overall economic activity:

Accepted Answer

Long run equilibrium at full employment means that the economy is producing at its potential and there is no cyclical unemployment. In this situation, changes in the price level do not affect the overall level of economic activity because the economy is already at its maximum sustainable output. This is represented by the vertical portion of the long run aggregate supply curve. Therefore, the correct answer is C.

Question 7

If the marginal propensity to consume is 0.2 and there is a $10 million increase in one component of spending, the aggregate demand curve will shift horizontally to the right by:

Accepted Answer

The spending multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Here, MPC is 0.2, so the multiplier is 1/(1-0.2) = 1/0.8 = 1.25. Therefore, a $10 million increase in spending will shift the aggregate demand curve by 1.25 * $10 million = $12.5 million.

Question 8

Figure 9.1
-Refer to Figure 9.1. An increase in government spending causes:

Accepted Answer

An increase in government spending will shift the aggregate demand curve to the right, from AD₁ to AD₂. This is because an increase in government spending leads to more demand and an increase in aggregate demand.

Question 9

If the marginal propensity to consume is 0.2, the value of the multiplier is:

Accepted Answer

The multiplier is 1/(1-MPC), so if MPC is 0.2, the multiplier is 1/(1-0.2) = 1.25.

Question 10

Figure 9.5
-Refer to Figure 9.5. Suppose the economy is a point B. A large _______ in the supply of labor leads to a shift from _______ to _______.

Accepted Answer

A large increase in the supply of labor would typically lead to an increase in aggregate supply, shifting the curve from AS¹ to AS².

Question 11

Recall Application 2, "Two Approaches to Determining the Causes of Recessions," to answer the following questions:
-According to the application, a recession is likely to be caused by a decrease in aggregate demand if:

Accepted Answer

The answer of Recall Application 2, "Two Approaches to Determining...

Question 12

The long run aggregate supply curve assumes that in the long run, the economy:

Accepted Answer

The long run aggregate supply curve assumes that the economy is at full employment, which means that all resources are being utilized and there is no cyclical unemployment. Supply shocks, inflation, and any other short-term fluctuations are assumed to have been adjusted for in the long run.

Question 13

In the consumption function C = Ca + bY, the term Ca represents:

Accepted Answer

Ca represents the autonomous consumption spending, which is the level of consumption that is independent of income. It includes the consumption spending that households make regardless of their income level, such as spending for basic necessities like food and shelter.

Question 14

Figure 9.1
-Refer to Figure 9.1. A reduction in the money supply causes:

Accepted Answer

A reduction in the money supply will increase interest rates, causing a decrease in consumption and investment spending. This will shift the aggregate demand curve to the left, from AD₁to AD₀.

Question 15

An example of a good that has auction prices is

Accepted Answer

Fresh fish is often sold at auctions, especially in wholesale markets where buyers bid on lots of fish.

Question 16

In the short run, a decrease in the price of a major input such as oil will:

Accepted Answer

A decrease in the price of a major input such as oil will decrease the cost of production, leading to a decrease in the price level and an increase in the level of output. This is because firms can now produce goods and services more cheaply and thus offer them at a lower price, leading to an increase in demand and output.

Question 17

Figure 9.6
-Refer to Figure 9.6. In the short run, a large decrease in oil prices will would move the equilibrium to:

Accepted Answer

In the short run, a large decrease in oil prices will shift the supply curve to the right, which will move the equilibrium to point A.

Question 18

Figure 9.3
-Refer to Figure 9.3. Which of the following causes the economy to move from Point A to Point E in the short run?

Accepted Answer

An oil embargo that increases the price of oil sharply would cause a decrease in aggregate supply, shifting the short-run aggregate supply curve to the left and leading to a higher price level and lower output in the short-run equilibrium at Point E.

Question 19

Figure 9.5
-Refer to Figure 9.5. Suppose the economy is a point B. A large _______ in the price level will move the economy to _______ .

Accepted Answer

The answer of  Figure 9.5
-Refer to Figure 9.5. Suppose...

Question 20

The aggregate supply curve in the short run is different from the aggregate supply curve in the long run because of:

Accepted Answer

The existence of sticky prices in the short run means that some prices may be slow to adjust to changes in demand and supply conditions. This can cause the short-run aggregate supply curve to slope upwards, as firms are willing to supply more output at higher prices due to the higher marginal benefits of production. In the long run, however, prices are more flexible and can adjust to changes in demand and supply conditions, resulting in a vertical aggregate supply curve.

Quiz 9: Aggregate Demand and Aggregate Supply

A rightward shift in the aggregate demand curve cannot be caused by:

A lower U.S. net exports caused by a higher U.S. price level will cause:

If the marginal propensity to consume is 0.8, the value of the multiplier is:

An increase in government expenditure has a multiplier effect on aggregate demand due to:

Figure 9.6 -Refer to Figure 9.6. Suppose the equilibrium is at point A. An oil embargo which raises the price of oil would move the equilibrium to:

If the economy is in long run equilibrium at full employment, the level of overall economic activity:

If the marginal propensity to consume is 0.2 and there is a $10 million increase in one component of spending, the aggregate demand curve will shift horizontally to the right by:

Figure 9.1 -Refer to Figure 9.1. An increase in government spending causes:

If the marginal propensity to consume is 0.2, the value of the multiplier is:

Figure 9.5 -Refer to Figure 9.5. Suppose the economy is a point B. A large ___ in the supply of labor leads to a shift from _ to _____.

Recall Application 2, "Two Approaches to Determining the Causes of Recessions," to answer the following questions: -According to the application, a recession is likely to be caused by a decrease in aggregate demand if:

The long run aggregate supply curve assumes that in the long run, the economy:

In the consumption function C = Ca + bY, the term Ca represents:

Figure 9.1 -Refer to Figure 9.1. A reduction in the money supply causes:

An example of a good that has auction prices is

In the short run, a decrease in the price of a major input such as oil will:

Figure 9.6 -Refer to Figure 9.6. In the short run, a large decrease in oil prices will would move the equilibrium to:

Figure 9.3 -Refer to Figure 9.3. Which of the following causes the economy to move from Point A to Point E in the short run?

Figure 9.5 -Refer to Figure 9.5. Suppose the economy is a point B. A large _ in the price level will move the economy to _ .

The aggregate supply curve in the short run is different from the aggregate supply curve in the long run because of:

Quiz 9: Aggregate Demand and Aggregate Supply

A rightward shift in the aggregate demand curve cannot be caused by:

A lower U.S. net exports caused by a higher U.S. price level will cause:

If the marginal propensity to consume is 0.8, the value of the multiplier is:

An increase in government expenditure has a multiplier effect on aggregate demand due to:

Figure 9.6 -Refer to Figure 9.6. Suppose the equilibrium is at point A. An oil embargo which raises the price of oil would move the equilibrium to:

If the economy is in long run equilibrium at full employment, the level of overall economic activity:

If the marginal propensity to consume is 0.2 and there is a $10 million increase in one component of spending, the aggregate demand curve will shift horizontally to the right by:

Figure 9.1 -Refer to Figure 9.1. An increase in government spending causes:

If the marginal propensity to consume is 0.2, the value of the multiplier is:

Figure 9.5 -Refer to Figure 9.5. Suppose the economy is a point B. A large _______ in the supply of labor leads to a shift from _______ to _______.

Recall Application 2, "Two Approaches to Determining the Causes of Recessions," to answer the following questions: -According to the application, a recession is likely to be caused by a decrease in aggregate demand if:

The long run aggregate supply curve assumes that in the long run, the economy:

In the consumption function C = Ca + bY, the term Ca represents:

Figure 9.1 -Refer to Figure 9.1. A reduction in the money supply causes:

An example of a good that has auction prices is

In the short run, a decrease in the price of a major input such as oil will:

Figure 9.6 -Refer to Figure 9.6. In the short run, a large decrease in oil prices will would move the equilibrium to:

Figure 9.3 -Refer to Figure 9.3. Which of the following causes the economy to move from Point A to Point E in the short run?

Figure 9.5 -Refer to Figure 9.5. Suppose the economy is a point B. A large _______ in the price level will move the economy to _______ .

The aggregate supply curve in the short run is different from the aggregate supply curve in the long run because of:

Figure 9.5 -Refer to Figure 9.5. Suppose the economy is a point B. A large ___ in the supply of labor leads to a shift from _ to _____.

Figure 9.5 -Refer to Figure 9.5. Suppose the economy is a point B. A large _ in the price level will move the economy to _ .