Question 1

In an open economy,as the price level increases,a(n)____ in demand in the quantity of domestic goods results in a(n)____ in the quantity of RGDP demanded.
A) increase, decrease
B) increase, increase
C) decrease, decrease
D) decrease, increase

Accepted Answer

As the price level increases in an open economy, the demand for domestic goods decreases due to the increase in imports, which results in a decrease in the quantity of RGDP demanded.

Question 2

Holding all other things constant,when the price level falls,interest rates:
A) rise and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.
B) rise and firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding.
C) falls and firms want to borrow less for new plants and equipment and households want to borrow more for homebuilding.
D) falls and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.

Accepted Answer

When the price level falls, the real value of money increases, leading to lower interest rates. Lower interest rates make borrowing cheaper, encouraging both firms to invest in new plants and equipment and households to borrow more for homebuilding.

Question 3

Aggregate demand can be defined as:
A) the total spending by all consumers, business firms, government agencies, and foreigners in the United States.
B) the total amounts that all consumers, business firms, government agencies, and foreigners wish to spend on all final goods and services at various price levels.
C) the total spending by consumers, business firms, and government agencies in one year.
D) the total spending by consumers, business firms, and government agencies on final goods and services.

Accepted Answer

Aggregate demand refers to the total amount that all consumers, businesses, government agencies, and foreigners wish to spend on all final goods and services at various price levels. It is not just limited to spending in the United States or one year, and it includes all final goods and services.

Question 4

Aggregate demand includes:
A) the demand for intermediate goods and final goods.
B) all monetary and nonmonetary transactions.
C) the demand for investment, including stocks, bonds, and gold.
D) the demand for final goods and services.

Accepted Answer

Aggregate demand refers to the total demand for all final goods and services in an economy. It does not include intermediate goods, investments, or nonmonetary transactions.

Question 5

If private consumption in the United States was 69 percent of GDP,investment was 18 percent,government purchases were 18 percent,exports were 9 percent,and imports were 14 percent,net exports were equal to ____ percent of GDP.
A) -5
B) 5
C) -23
D) 23

Accepted Answer

Net exports = exports - imports
Net exports = 9% - 14%
Net exports = -5%
Therefore, net exports were equal to -5% of GDP, which is option A.

Question 6

If consumption in the United States was 68 percent of GDP,investment was 19 percent,government purchases were 13 percent,exports were 14 percent,and imports were 14 percent,net exports were equal to ____ percent of GDP.
A) -1
B) 0
C) -28
D) 28

Accepted Answer

Net exports are calculated as exports minus imports. In this case, exports (14 percent) minus imports (14 percent) equals 0 percent, indicating that net exports were equal to 0 percent of GDP.

Question 7

As the price level increases,the quantity of RGDP demanded ____,and when the price level decreases,the quantity of RGDP demanded in the economy ____.
A) decreases, decreases
B) increases, increases
C) increases, decreases
D) decreases, increases

Accepted Answer

As the price level increases, the quantity of real GDP demanded decreases due to the wealth effect, interest rate effect, and exchange rate effect. Conversely, when the price level decreases, the quantity of real GDP demanded increases.

Question 8

In an open economy as the price level decreases,a(n)____ in demand for domestic goods relative to foreign goods results in a(n)____ in the quantity of RGDP demanded.
A) increase, decrease
B) increase, increase
C) decrease, decrease
D) decrease, increase

Accepted Answer

When the price level decreases in an open economy, domestic goods become relatively cheaper compared to foreign goods. This leads to an increase in demand for domestic goods relative to foreign goods, which in turn results in an increase in the quantity of Real Gross Domestic Product (RGDP) demanded.

Question 9

Holding all other things constant,when the price level rises,interest rates:
A) rise and firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding.
B) rise and firms will want to borrow less for new plants and equipment and households will want to borrow less for homebuilding.
C) fall and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.
D) all of the above

Accepted Answer

When the price level rises, the demand for loanable funds increases and lenders increase the interest rate. As interest rates rise, the cost of borrowing increases, and firms and households respond by borrowing less for new plants, equipment, and homebuilding.

Question 10

During the 1970s,U.S.prices generally rose faster than prices in other parts of the world.Which of the following changes would the open economy effect predict took place in response to these price level changes?
A) Americans reduced the proportion of foreign goods bought since their foreign prices became relatively lower.
B) Americans reduced the amount of investment they undertook because interest rates increased.
C) Americans reduced the amount of goods and services they wanted to purchase for consumption because they felt less wealthy.
D) Americans reduced the fraction of purchases they made from domestic producers of goods and services since foreign prices became relatively lower.

Accepted Answer

The open economy effect predicts that as prices rise in one country, other countries become relatively cheaper, leading to an increase in imports and a decrease in domestic production. Therefore, Americans would reduce the fraction of purchases they made from domestic producers of goods and services, since foreign prices became relatively lower. Choice A is incorrect because as foreign prices become relatively cheaper, Americans would increase their proportion of foreign goods bought. Choice B is incorrect because higher interest rates would actually encourage more investment. Choice C is incorrect because the feeling of being less wealthy would not directly affect the demand for goods and services.

Question 11

Which of the following expenditures would be counted as consumption in GDP accounts?
A) Mary buys a new computer to check her e-mail and play computer games.
B) Mark buys a new computer for his medical economic consulting business.
C) Leslie, an EPA scientist, buys a new computer for her lab at work.
D) Juan leases a new computer for his graphic design company.

Accepted Answer

Mary's purchase of a new computer for personal use counts as consumption in GDP accounts, as it represents spending on goods and services by households. The other purchases listed would be counted as investment spending by businesses or government, rather than consumption.

Question 12

Jason has been holding his retirement savings in a safe in his house.Currently the economy is experiencing a falling price level.He can conclude that:
A) the real purchasing power of his money is remaining constant.
B) the real value of his savings is increasing as long as the price level is falling.
C) the real value of his savings is decreasing as long as the price level is falling.
D) none of the above are true.

Accepted Answer

When the price level is falling, the purchasing power of money increases. This means that Jason's savings can buy more goods and services than before, indicating that the real value of his savings is increasing.

Question 13

If some non-price level determinant causes total spending to increase,then the effect on aggregate demand will be a:
A) movement upward along the curve.
B) movement downward along the curve.
C) shift to the left.
D) shift to the right.

Accepted Answer

A non-price level determinant that causes total spending to increase will shift the aggregate demand curve to the right, indicating an increase in overall demand at every price level. This is because there is an increase in factors such as consumer confidence, government spending, or investment, which will lead to an increase in demand for goods and services.

Question 14

According to the interest rate effect,as the price level increases,households and firms' holdings of money ____,interest rates ____,investments ____,and the quantity RGDP demanded ____.
A) increases, decrease, increase, decreases
B) increases, increase, increase, decreases
C) decreases, decrease, decrease, increases
D) increases, increase, decrease, decreases

Accepted Answer

According to the interest rate effect, as the price level increases, households and firms' holdings of money increase, leading to an increase in the demand for goods and services. As a result, interest rates increase due to an increase in investment demand, making borrowing more expensive. This increase in interest rates leads to a decrease in investments, causing a decrease in the quantity of real GDP demanded. Therefore, option D is the best choice.

Question 15

The interest rate effect suggests that the negative slope of the aggregate demand curve results at least in part because changes in the price level affect:
A) domestic purchases of foreign goods.
B) the holdings of money by households and firms.
C) the real purchasing power of assets.
D) the level of income.

Accepted Answer

The answer of The interest rate effect suggests that the...

Question 16

For individuals who are holding money or fixed dollar value assets,inflation has the effect of:
A) improving their ability to purchase goods and services with those dollars.
B) reducing their ability to purchase goods and services with those dollars.
C) increasing the purchasing power of those dollars.
D) demonstrating the interest rate effect.

Accepted Answer

Inflation reduces the purchasing power of money, which means that the same amount of money can buy fewer goods and services than before. Therefore, individuals holding money or fixed dollar value assets lose their ability to purchase goods and services with those dollars as their value decreases over time.

Question 17

Ben N.Jerry prefers to keep his $10,000 retirement savings buried in the backyard.After an increase in the price level,Ben reduces the amount of goods and services he wants to purchase.Ben's rationalization,that now his retirement savings won't buy as much,is consistent with which explanation of the aggregate demand curve's negative slope?
A) the interest rate effect
B) the open economy effect
C) the inflation effect
D) the wealth effect

Accepted Answer

The wealth effect states that as the price level increases, the real value of households' wealth decreases, which leads to a decrease in consumption and a downward shift in the aggregate demand curve. Ben's decision to reduce his consumption due to the decrease in the purchasing power of his retirement savings is consistent with the wealth effect.

Question 18

Which of the following will decrease aggregate demand?
A) exports rising faster than imports
B) exports falling faster than imports.
C) exports rising the same amount as imports
D) exports rising and imports falling

Accepted Answer

A fall in exports (choice B) will decrease aggregate demand as it means that there is a decrease in demand from foreign countries for goods and services produced domestically. This leads to a decrease in domestic production and therefore a decrease in aggregate demand. The other options (A, C, D) all involve either an increase in exports or a combination of an increase and decrease, which will either increase or have no effect on aggregate demand.

Question 19

If you are living in a period of continued high inflation on a fixed income,the cost of the goods and services you buy ____ and your nominal income ____.
A) decreases, decreases
B) increases, increases
C) decreases, remains the same
D) increases, remains the same

Accepted Answer

During periods of high inflation, the cost of goods and services increases, but if you are on a fixed income, your nominal income does not change, it remains the same.

Question 20

As the price level decreases,other things being equal,
A) aggregate demand increases.
B) the quantity of real gross domestic product demanded increases.
C) the quantity of real gross domestic product demanded decreases.
D) real gross domestic product supplied increases.

Accepted Answer

When the price level decreases, the purchasing power of money increases, leading to an increase in consumption and investment spending. This, in turn, leads to an increase in the quantity of real gross domestic product demanded.

Quiz 22: Aggregate Demand and Aggregate Supply

In an open economy,as the price level increases,a(n) in demand in the quantity of domestic goods results in a(n) in the quantity of RGDP demanded.

Holding all other things constant,when the price level falls,interest rates:

Aggregate demand can be defined as:

Aggregate demand includes:

If private consumption in the United States was 69 percent of GDP,investment was 18 percent,government purchases were 18 percent,exports were 9 percent,and imports were 14 percent,net exports were equal to ____ percent of GDP.

If consumption in the United States was 68 percent of GDP,investment was 19 percent,government purchases were 13 percent,exports were 14 percent,and imports were 14 percent,net exports were equal to ____ percent of GDP.

As the price level increases,the quantity of RGDP demanded ,and when the price level decreases,the quantity of RGDP demanded in the economy .

In an open economy as the price level decreases,a(n) in demand for domestic goods relative to foreign goods results in a(n) in the quantity of RGDP demanded.

Holding all other things constant,when the price level rises,interest rates:

During the 1970s,U.S.prices generally rose faster than prices in other parts of the world.Which of the following changes would the open economy effect predict took place in response to these price level changes?

Which of the following expenditures would be counted as consumption in GDP accounts?

Jason has been holding his retirement savings in a safe in his house.Currently the economy is experiencing a falling price level.He can conclude that:

If some non-price level determinant causes total spending to increase,then the effect on aggregate demand will be a:

According to the interest rate effect,as the price level increases,households and firms' holdings of money ,interest rates ,investments ,and the quantity RGDP demanded .

The interest rate effect suggests that the negative slope of the aggregate demand curve results at least in part because changes in the price level affect:

For individuals who are holding money or fixed dollar value assets,inflation has the effect of:

Which of the following will decrease aggregate demand?

If you are living in a period of continued high inflation on a fixed income,the cost of the goods and services you buy and your nominal income .

As the price level decreases,other things being equal,