Question 1

A decline in taxes ________ consumer expenditure and shifts the ________ curve to the ________, everything else held constant.
A)raises; MP; right
B)lowers; IS; left
C)raises; IS; right
D)lowers; MP; left

Accepted Answer

A decline in taxes increases disposable income, leading to an increase in consumer expenditure. This, in turn, shifts the IS (Investment-Saving) curve to the right, reflecting an increase in overall demand in the goods and services market at each interest rate.

Question 2

Everything else held constant, an increase in government spending will cause ________.
A)aggregate demand to increase
B)aggregate demand to decrease
C)the quantity of aggregate demand to increase
D)the quantity of aggregate demand to decrease

Accepted Answer

An increase in government spending will directly increase aggregate demand as it is a component of GDP. This will increase demand for goods and services which in turn will stimulate economic activity and promote economic growth.

Question 3

Everything else held constant, an autonomous tightening of monetary policy will cause ________.
A)the quantity of aggregate demand to increase
B)the quantity of aggregate demand to decrease
C)aggregate demand to increase
D)aggregate demand to decrease

Accepted Answer

Autonomous tightening of monetary policy involves increasing interest rates and reducing the money supply, which decreases spending and investments. As a result, the quantity of aggregate demand decreases.

Question 4

An increase in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.
A)rise; MP; right
B)rise; IS; right
C)fall; IS; left
D)fall; MP; left

Accepted Answer

An increase in government spending would increase aggregate demand, shifting the IS curve to the right. This would result in an increase in equilibrium level of aggregate output at any given interest rate.

Question 5

The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise ________ interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
A)real; lowering
B)real; raising
C)nominal; lowering
D)nominal; raising

Accepted Answer

The answer of The aggregate demand curve is downward sloping...

Question 6

Everything else held constant, an autonomous easing of monetary policy will cause ________.
A)aggregate demand to increase
B)aggregate demand to decrease
C)the quantity of aggregate demand to increase
D)the quantity of aggregate demand to decrease

Accepted Answer

An autonomous easing of monetary policy, such as lowering the interest rates, will lead to an increase in the money supply and a decrease in the cost of borrowing. This, in turn, will encourage households and firms to increase their spending, leading to an increase in aggregate demand.

Question 7

Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A)right; increase
B)right; decrease
C)left; increase
D)left; decrease

Accepted Answer

A decrease in autonomous consumer spending will shift the IS curve to the left due to a decrease in spending and a decrease in GDP. This will lead to a decrease in aggregate demand.

Question 8

Everything else held constant, an increase in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A)right; increase
B)right; decrease
C)left; increase
D)left; decrease

Accepted Answer

An increase in autonomous consumer spending will shift the IS curve to the right because it represents an increase in demand for goods and services. This shift will lead to an increase in aggregate demand because individuals are spending more, which will stimulate production and increase overall economic activity.

Question 9

If Canadian college students decide that drinking Mexican-brewed beer helps one get noticed, net exports will tend to fall, causing aggregate demand to ________ and the ________ curve to shift to the left, everything else held constant.
A)fall; MP
B)fall; IS
C)rise; MP
D)rise; IS

Accepted Answer

If Canadian college students decide to drink Mexican-brewed beer, there will be a decrease in the demand for domestically produced beer, resulting in a decrease in net exports. This decrease in net exports will cause a leftward shift in the IS curve, as a result of a decrease in aggregate demand. The MP curve will not be affected by this change, as it represents the monetary policy of the central bank, which is independent of changes in consumer preferences. Therefore, the best choice is B, fall in aggregate demand, and leftward shift in the IS curve.

Question 10

Everything else held constant, a decrease in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________.
A)right; increase
B)right; decrease
C)left; increase
D)left; decrease

Accepted Answer

A decrease in net taxes will increase disposable income which will increase consumption expenditure. As a result, aggregate demand will shift to the right. This shift will be reflected in the IS curve as well, which shows the combination of interest rates and output levels where goods and services markets are in equilibrium. Therefore, the correct choice is A.

Question 11

A reduction in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.
A)rise; MP; right
B)fall; IS; left
C)fall; MP; left
D)rise; IS; right

Accepted Answer

A reduction in government spending means that there is less demand in the economy, leading to a decrease in the equilibrium level of aggregate output. This shift in demand is reflected in the IS (investment-savings) curve, which moves to the left. Therefore, the correct answer is B. A rise in the equilibrium level of output and a rightward shift in the MP (monetary policy) curve is incorrect. A fall in the equilibrium level of output and a leftward shift in the MP curve is partially correct, but it misses the shift in the IS curve. A rise in the equilibrium level of output and a rightward shift in the IS curve is incorrect.

Question 12

Everything else held constant, an increase in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A)right; increase
B)right; decrease
C)left; increase
D)left; decrease

Accepted Answer

An increase in autonomous planned investment spending will shift the IS curve to the right, as it represents an increase in aggregate demand. Therefore, the correct choice is A.

Question 13

Everything else held constant, a decrease in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A)right; increase
B)right; decrease
C)left; increase
D)left; decrease

Accepted Answer

A decrease in autonomous planned investment spending will cause a leftward shift in the IS curve as it will decrease overall output and aggregate demand. Therefore, the correct answer is D) left; decrease.

Question 14

The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
A)raise; lowering
B)raise; raising
C)reduce; lowering
D)reduce; raising

Accepted Answer

A higher inflation rate typically leads the central bank to raise real interest rates as a measure to control inflation. Higher real interest rates make borrowing more expensive, which tends to reduce consumption and investment, thereby lowering the level of equilibrium aggregate output.

Question 15

A decrease in autonomous planned investment spending, other things equal, shifts the ________ curve to the ________.
A)IS; right
B)IS; left
C)MP; left
D)MP; right

Accepted Answer

Autonomous planned investment spending is a component of aggregate demand, which is represented by the IS curve. A decrease in this spending would lead to a decrease in AD, causing the IS curve to shift to the left.

Question 16

Everything else held constant, an autonomous easing of monetary policy will cause ________.
A)the quantity of aggregate demand to increase
B)the quantity of aggregate demand to decrease
C)aggregate demand to decrease
D)aggregate demand to increase

Accepted Answer

An autonomous easing of monetary policy involves an increase in money supply which in turn lowers the interest rate. This lowers the cost of borrowing which increases investment and consumption. Therefore, an increase in aggregate demand occurs.

Question 17

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.
A)rise; left
B)rise; right
C)fall; left
D)fall; right

Accepted Answer

An increase in investment spending will lead to a rise in aggregate demand and output. This will shift the IS curve to the right, as higher levels of output are now achieved at each interest rate.

Question 18

A decline in autonomous consumer expenditure causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.
A)up; rise
B)up; fall
C)down; rise
D)down; fall

Accepted Answer

According to the aggregate demand equation, a decrease in autonomous consumption expenditure would lead to a decrease in AD, shifting the AD curve to the left. This new intersection with the short-run aggregate supply curve will correspond to a lower level of output and a lower price level. Hence, equilibrium level of aggregate output will fall.

Question 19

Other things equal, a decrease in autonomous consumption shifts the ________ curve to the ________.
A)IS; right
B)IS; left
C)MP; left
D)MP; right

Accepted Answer

Autonomous consumption refers to the level of consumption that does not depend on income, such as basic necessities. A decrease in autonomous consumption reduces the overall level of consumption at all levels of income, which shifts the IS curve (which represents the relationship between income and spending in the economy) to the left.

Question 20

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.
A)rise; left
B)rise; right
C)fall; left
D)fall; right

Accepted Answer

A decrease in investment spending will decrease the level of aggregate demand, causing a decrease in equilibrium level of aggregate output. This would lead to a leftward shift of the IS curve, as there is a negative relationship between the two variables.

Quiz 22: The Monetary Policy and Aggregate Demand Curves

A decline in taxes consumer expenditure and shifts the curve to the , everything else held constant.

Everything else held constant, an increase in government spending will cause ________.

Everything else held constant, an autonomous tightening of monetary policy will cause ________.

An increase in government spending causes the equilibrium level of aggregate output to at any given interest rate and shifts the curve to the , everything else held constant.

The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise interest rates, thereby the level of equilibrium aggregate output., everything else held constant.

Everything else held constant, an autonomous easing of monetary policy will cause ________.

Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the and aggregate demand will .

Everything else held constant, an increase in autonomous consumer spending will cause the IS curve to shift to the and aggregate demand will .

If Canadian college students decide that drinking Mexican-brewed beer helps one get noticed, net exports will tend to fall, causing aggregate demand to and the curve to shift to the left, everything else held constant.

Everything else held constant, a decrease in net taxes will cause the IS curve to shift to the and aggregate demand will .

A reduction in government spending causes the equilibrium level of aggregate output to at any given interest rate and shifts the curve to the , everything else held constant.

Everything else held constant, an increase in autonomous planned investment spending will cause the IS curve to shift to the and aggregate demand will .

Everything else held constant, a decrease in autonomous planned investment spending will cause the IS curve to shift to the and aggregate demand will .

The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to real interest rates, thereby the level of equilibrium aggregate output., everything else held constant.

A decrease in autonomous planned investment spending, other things equal, shifts the curve to the .

Everything else held constant, an autonomous easing of monetary policy will cause ________.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

A decline in autonomous consumer expenditure causes the aggregate demand function to shift and the equilibrium level of aggregate output to , everything else held constant.

Other things equal, a decrease in autonomous consumption shifts the curve to the .

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.