Question 1

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

Accepted Answer

Higher personal income taxes decrease disposable income, which in turn decreases aggregate demand as consumers have less money to spend on goods and services.

Question 2

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.

Accepted Answer

An increase in the price level leads to a decrease in consumption, investment, and net exports because consumers can buy fewer goods and services with the same amount of income, firms may be less likely to invest in new projects as their costs increase, and net exports decrease as foreign buyers face higher prices for goods and services produced in the domestic market. This results in a decrease in the quantity of real GDP demanded.

Question 3

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

Accepted Answer

An increase in net exports will increase the demand for domestically produced goods and services, which will shift the aggregate demand curve to the right.

Question 4

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

Accepted Answer

The aggregate demand curve shows the relationship between the price level and quantity of real GDP demanded in the economy. The other options listed are not specifically related to this relationship. The consumer price index measures changes in the average price level of goods and services consumed by households, the aggregate expenditure line shows the total amount of spending in the economy at different levels of income, and the 45-degree line represents the identity between income and expenditure in macroeconomic analysis.

Question 5

German luxury car exports were hurt in 2009 as a result of the recession.How would this decrease in exports have affected Germany'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.

Accepted Answer

The decrease in exports would have resulted in a decrease in the demand for German luxury cars, which would have led to a decrease in Germany's overall GDP, causing a leftward shift in the aggregate demand curve.

Question 6

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.

Accepted Answer

Decreases in the price level increase the purchasing power of consumers' money, which raises real wealth and leads to an increase in consumption spending. This is one reason why the aggregate demand curve slopes downward.

Question 7

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.

Accepted Answer

The basic aggregate demand and aggregate supply curve model is used to explain short-term fluctuations in real GDP and the price level. This model shows how changes in aggregate demand or aggregate supply can lead to changes in the overall level of real GDP and the price level in an economy. It does not focus on long-term growth or fluctuations in an individual market's price or output.

Question 8

FedEx plays such a large role in moving packages around the country that there is usually a close relationship between fluctuations in FedEx's business and fluctuations in GDP.Some economists refer to this relationship as the
A)shipping cycle.
B)FedEx indicator.
C)overnight delivery index.
D)package prognostication process.

Accepted Answer

The question specifically mentions "Some economists refer to this relationship as the FedEx indicator," which indicates that the correct choice would be B - the FedEx indicator.

Question 9

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.

Accepted Answer

The slope of the aggregate demand curve is negative, which implies that a decrease in the price level leads to an increase in the quantity of goods and services demanded, resulting in a higher level of real GDP demanded. Similarly, an increase in the price level leads to a decrease in the quantity of goods and services demanded, resulting in a lower level of real GDP demanded. Therefore, option C is the best choice.

Question 10

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.

Accepted Answer

When the U.S. dollar decreases in value relative to other currencies, U.S. goods and services become cheaper for foreign buyers, increasing exports. Simultaneously, foreign goods and services become more expensive for U.S. consumers, reducing imports. This increase in net exports raises the aggregate demand, shifting the aggregate demand curve to the right.

Question 11

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.

Accepted Answer

The "wealth effect" is the idea that as the value of household wealth increases, so does the consumption and spending of a household or economy. When the price level falls (i.e. deflation), the real value of household wealth rises, making households or the economy feel wealthier and thus, increasing their willingness to spend and consume more. Therefore, option D, which states that the real value of household wealth rises when the price level falls, best describes the "wealth effect".

Question 12

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.

Accepted Answer

Increased pessimism about future incomes will lead consumers to reduce their spending. This decrease in spending will lead to a decrease in aggregate demand, which will shift the aggregate demand curve to the left.

Question 13

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.

Accepted Answer

An increase in the price level leads to an increase in interest rates, which in turn reduces investment and consumption spending. This is because higher interest rates increase the cost of borrowing, making it less attractive for individuals and firms to spend and invest. Therefore, choice C is the most accurate answer as the interest rate effect chokes off investment and consumption spending.

Question 14

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.

Accepted Answer

Increases in spending on the war in Afghanistan will shift the aggregate demand curve to the right as government purchases are a component of aggregate demand. This increase in government purchases will lead to an increase in overall spending and output in the economy.

Question 15

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

Accepted Answer

During a recession, both output and input prices tend to fall, meaning that firms are able to maintain their profit margins without having to reduce wages. Additionally, reducing wages can decrease morale and productivity among workers, making it an undesirable strategy for employers.

Question 16

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.

Accepted Answer

An increase in the price level does not shift the aggregate demand curve; instead, it moves the economy up along a stationary aggregate demand curve, reflecting a decrease in the quantity of goods and services demanded as the price level rises.

Question 17

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.

Accepted Answer

The international trade effect states that as a country's price level rises relative to those of its trading partners, its exports become more expensive and its imports become relatively cheaper. This makes exporting less attractive and imports more attractive, leading to a decrease in net exports. Therefore, an increase in the price level will lower net exports.

Question 18

All of the following would be considered a positive addition to household wealth except
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

Accepted Answer

A credit card balance represents debt and is a liability, not an asset. Therefore, it would not be a positive addition to household wealth.

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

Accepted Answer

When the price level in the United States falls relative to other countries, U.S. goods become cheaper for foreigners, leading to an increase in exports. Conversely, foreign goods become relatively more expensive for Americans, leading to a decrease in imports. As a result, net exports (exports minus imports) will rise.

Question 20

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.

Accepted Answer

Deflation, a decrease in the general price level, increases the real value of money, allowing consumers and businesses to purchase more goods and services with the same amount of money. This leads to an increase in the quantity of real GDP demanded, as goods and services become relatively cheaper.

Quiz 15: Aggregate Demand and Aggregate Supply Analysis

Higher personal income taxes

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

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

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

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

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

The basic aggregate demand and aggregate supply curve model helps explain

FedEx plays such a large role in moving packages around the country that there is usually a close relationship between fluctuations in FedEx's business and fluctuations in GDP.Some economists refer to this relationship as the

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

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

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

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

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

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?

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

An increase in the price level will

The international trade effect states that

All of the following would be considered a positive addition to household wealth except

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

Deflation will