Question 1

A rise in foreign real national income tends to raise U.S. __________, shifting the U.S. AD curve to the __________.
A)exports; left
B)exports; right
C)imports; left
D)imports; right

Accepted Answer

When foreign real national income rises, there is an increase in demand for U.S. goods and services, leading to an increase in U.S. exports. This shift of demand towards U.S. exports shifts the U.S. AD curve to the right.

Question 2

An appreciation of the U.S. dollar against foreign currencies tends to __________ U.S. net exports and shift the U.S. AD curve to the __________.
A)raise; right
B)raise; left
C)lower; right
D)lower; left

Accepted Answer

An appreciation of the U.S. dollar makes U.S. goods more expensive relative to foreign goods, which decreases U.S. net exports. This results in a decrease in aggregate demand (AD) because net exports are a component of AD. A shift to the left of the AD curve shows a decrease in aggregate demand. Therefore, the correct answer is D: lower; left.

Question 3

As the interest rate rises, the cost of a given investment project __________ and businesses invest __________.
A)rises; more
B)rises; less
C)falls; more
D)falls; less

Accepted Answer

When interest rates rise, the cost of borrowing money increases, making it more expensive to invest in projects. This leads to businesses investing less in such projects, as the increased cost becomes a barrier to entry. Therefore, choice B is the correct answer.

Question 4

Suppose the real exchange rate of 115 Japanese yen to the dollar changes to 105 yen to the dollar. In this situation, the dollar has __________, making Japanese goods __________ expensive for Americans.
A)appreciated; less
B)appreciated; more
C)depreciated; less
D)depreciated; more

Accepted Answer

When the real exchange rate changes from 115 yen to 105 yen per dollar, it means that the dollar has depreciated relative to the yen. This makes Japanese goods more expensive for Americans, as they now have to spend more dollars to buy the same amount of yen needed to purchase Japanese goods.

Question 5

An economic policy initiative results in the AD curve shifting to the right. As a result,
A)the price level will rise.
B)the price level will stay constant.
C)the price level will fall.
D)Real GDP will rise in the short run.
E)a and d

Accepted Answer

When the AD curve shifts to the right, there is an increase in aggregate demand. This usually results in an increase in both the price level and real GDP in the short run. Therefore, choices A and D are correct.

Question 6

A falling interest rate affects the demand for consumer __________ and shifts the AD curve to the __________.
A)nondurables; right
B)nondurables; left
C)durables; right
D)durables; left

Accepted Answer

Falling interest rates reduce the cost of borrowing, which typically increases the demand for durable goods (like cars and appliances that are financed). This increase in demand shifts the aggregate demand (AD) curve to the right.

Question 7

An increase in the interest rate __________ purchases of consumer __________.
A)increases; durables
B)increases; nondurables
C)reduces; durables
D)reduces; nondurables

Accepted Answer

An increase in the interest rate makes borrowing more expensive, prompting consumers to reduce purchases of big-ticket items like cars and homes (durables) as they become more expensive to finance. As a result, reducing usually applies to durables, not nondurables.

Question 8

As income taxes rise, disposable income __________, causing __________ the AD curve.
A)increases; movement down along
B)increases; a rightward shift of
C)decreases; movement up along
D)decreases; a leftward shift of

Accepted Answer

As income taxes rise, disposable income decreases, causing a leftward shift of the AD curve. This is because higher income taxes reduce consumer spending which decreases aggregate demand, resulting in a leftward shift of the AD curve.

Question 9

When the government lowers income taxes, consumption is ______________, causing a __________ the AD curve.
A)stimulated; rightward shift of
B)stimulated; movement down along
C)reduced; leftward shift of
D)reduced; movement up along

Accepted Answer

When the government lowers income taxes, consumers have more disposable income, which leads to an increase in consumption. This increase in consumption stimulates the economy, causing a rightward shift of the AD curve.

Question 10

Greater wealth makes people _____________ willing to spend on consumption, causing __________ the economy's AD curve.
A)more; movement down along
B)more; a rightward shift of
C)less; movement up along
D)less; a rightward shift of

Accepted Answer

Greater wealth leads to an increase in disposable income, which in turn leads to an increase in consumption spending. This results in a rightward shift of the economy's AD curve.

Question 11

Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar. In this situation, the dollar has __________________, making American goods __________ expensive for Mexicans.
A)appreciated; less
B)appreciated; more
C)depreciated; less
D)depreciated; more

Accepted Answer

The answer of Suppose the real exchange rate of 10...

Question 12

As the interest rate rises, businesses invest __________ and the AD curve shifts to the __________.
A)more; right
B)more; left
C)less; right
D)less; left

Accepted Answer

As the interest rate rises, the cost of borrowing increases for businesses, leading them to invest less. This decrease in investment reduces overall demand in the economy, causing the Aggregate Demand (AD) curve to shift to the left.

Question 13

Individuals' expectations of lower future prices is a
A)rightward shifter of the AD curve.
B)leftward shifter of the AD curve.
C)reason for moving up along a given AD curve.
D)reason for moving down along a given AD curve.

Accepted Answer

When individuals expect lower future prices, they tend to delay their purchases in anticipation of the lower prices, which leads to a decrease in current demand. This leads to a leftward shift of the AD curve, as the level of real GDP and price level decrease.

Question 14

Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar. In this situation, the dollar has ________________, making Mexican goods __________ expensive for Americans.
A)appreciated; less
B)appreciated; more
C)depreciated; less
D)depreciated; more

Accepted Answer

The answer of Suppose the real exchange rate of 10...

Question 15

Individuals' expectations of higher future income is a
A)rightward shifter of the AD curve.
B)leftward shifter of the AD curve.
C)reason for moving up along a given AD curve.
D)reason for moving down along a given AD curve.

Accepted Answer

Expectations of higher future income increase consumers' confidence, leading them to spend more now. This increase in consumption shifts the Aggregate Demand (AD) curve to the right, as it reflects a higher demand for goods and services at every price level.

Question 16

A decrease in business taxes, causes the expected profitability of investment projects to __________, which then shifts the AD curve to the __________.
A)rise; right
B)rise; left
C)decline; right
D)decline; left

Accepted Answer

A decrease in business taxes increases expected profitability of investment projects, which in turn leads to an increase in aggregate demand. This shift is to the right of the AD curve.

Question 17

Business optimism about future sales tends to __________ investment expenditures, shifting the AD curve to the __________.
A)increase; left
B)increase; right
C)decrease; left
D)decrease; right

Accepted Answer

Business optimism about future sales leads to an increase in investment expenditures, which increases the overall level of aggregate demand (AD) in an economy, shifting the AD curve to the right.

Question 18

Suppose the price level is rising and it is widely forecast to rise even further. This forecast might cause __________ of some consumption plans, resulting in __________ the AD curve.
A)postponement; a rightward shift of
B)postponement; a leftward shift of
C)acceleration; a rightward shift of
D)acceleration; movement down along

Accepted Answer

When the price level is rising and expected to rise further, consumers and businesses might accelerate their consumption and investment plans to avoid higher costs in the future. This behavior increases aggregate demand, shifting the AD curve to the right.

Question 19

Suppose a drop in prices in the stock market makes people feel less financially secure. This would cause __________ the economy's AD curve.
A)movement down along
B)movement up along
C)a rightward shift of
D)a leftward shift of

Accepted Answer

A drop in prices in the stock market will decrease confidence and decrease consumption, which will lead to a decrease in aggregate demand. This will result in a leftward shift of the economy's AD curve.

Question 20

Suppose the real exchange rate of 105 Japanese yen to the dollar changes to 115 yen to the dollar. In this situation, the dollar has _________________, making Japanese goods __________ expensive for Americans.
A)appreciated; less
B)appreciated; more
C)depreciated; less
D)depreciated; more

Accepted Answer

When the exchange rate changes from 105 yen to 115 yen per dollar, it means that each dollar can buy more yen than before. This indicates that the dollar has appreciated in value relative to the yen. As a result, Japanese goods become less expensive for Americans because they need fewer dollars to buy the same amount of yen.

Quiz 8: Aggregate Demand and Aggregate Supply

A rise in foreign real national income tends to raise U.S. , shifting the U.S. AD curve to the .

An appreciation of the U.S. dollar against foreign currencies tends to U.S. net exports and shift the U.S. AD curve to the .

As the interest rate rises, the cost of a given investment project and businesses invest .

Suppose the real exchange rate of 115 Japanese yen to the dollar changes to 105 yen to the dollar. In this situation, the dollar has , making Japanese goods expensive for Americans.

An economic policy initiative results in the AD curve shifting to the right. As a result,

A falling interest rate affects the demand for consumer and shifts the AD curve to the .

An increase in the interest rate purchases of consumer .

As income taxes rise, disposable income , causing the AD curve.

When the government lowers income taxes, consumption is ____, causing a the AD curve.

Greater wealth makes people ___ willing to spend on consumption, causing the economy's AD curve.

Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar. In this situation, the dollar has ________, making American goods expensive for Mexicans.

As the interest rate rises, businesses invest and the AD curve shifts to the .

Individuals' expectations of lower future prices is a

Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar. In this situation, the dollar has ______, making Mexican goods expensive for Americans.

Individuals' expectations of higher future income is a

A decrease in business taxes, causes the expected profitability of investment projects to , which then shifts the AD curve to the .

Business optimism about future sales tends to investment expenditures, shifting the AD curve to the .

Suppose the price level is rising and it is widely forecast to rise even further. This forecast might cause of some consumption plans, resulting in the AD curve.

Suppose a drop in prices in the stock market makes people feel less financially secure. This would cause __________ the economy's AD curve.

Suppose the real exchange rate of 105 Japanese yen to the dollar changes to 115 yen to the dollar. In this situation, the dollar has _______, making Japanese goods expensive for Americans.