Macro-Chapter 12

Which of the following is not an effect that occurs when the general price level in our economy increases? A. The purchasing power of people's savings will increase. B. The interest rate will also tend to increase. C. Foreign buyers will buy less of our output, and we tend to import more. D. Our net exports will tend to decrease.

A. The purchasing power of people's savings will increase.

A decrease in consumer spending can be expected to shift the A. aggregate expenditures curve downward and the aggregate demand curve leftward. B. aggregate expenditures curve upward and the aggregate demand curve leftward. C. aggregate expenditures curve downward and the aggregate demand curve rightward. D. aggregate expenditures curve upward and the aggregate demand curve rightward.

A. aggregate expenditures curve downward and the aggregate demand curve leftward.

The economy's long-run AS curve assumes that wages and other resource prices A. eventually rise and fall to match upward or downward changes in the price level. B. are flexible upward but inflexible downward. C. rise and fall more rapidly than the price level. D. are relatively inflexible both upward and downward.

A. eventually rise and fall to match upward or downward changes in the price level

When aggregate demand declines, the price level may remain constant, at least for a time, because A. firms individually may fear that their price cut may set off a price war. B. menu costs rise. C. price cuts tend to increase efficiency wages. D. product markets are highly competitive.

A. firms individually may fear that their price cut may set off a price war.

The aggregate demand curve shows the A. inverse relationship between the price level and the quantity of real GDP purchased. B. direct relationship between the price level and the quantity of real GDP produced. C. inverse relationship between interest rates and the quantity of real GDP produced. D. direct relationship between real-balances and the quantity of real GDP purchased.

A. inverse relationship between the price level and the quantity of real GDP purchased.

Changes in which of the following would not shift the aggregate demand curve? A. productivity rates B. foreign-exchange rates C. real interest rates D. income tax rates

A. productivity rates

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Given an increase in input price from $4 to $6, we would expect the aggregate A. supply curve to shift to the left. B. supply curve to shift to the right. C. demand curve to shift to the left. D. supply and demand curves to both remain unchanged

A. supply curve to shift to the left.

When the price level decreases, A. the demand for money falls and the interest rate falls. B. holders of financial assets with fixed money values decrease their spending. C. holders of financial assets with fixed money values have less purchasing power. D. there is a decrease in consumer spending that is sensitive to changes in interest rates.

A. the demand for money falls and the interest rate falls.

The upward slope of the short-run aggregate supply curve is based on the assumption that A. wages and other resource prices do not respond to price level changes. B. wages and other resource prices do respond to price level changes. C. prices of outputs do not respond to price level changes. D. prices of inputs are flexible, while prices of outputs are fixed.

A. wages and other resource prices do not respond to price level changes.

The short-run aggregate supply curve shows the A. inverse relationship between the price level and real GDP purchased. B. inverse relationship between the price level and real GDP produced. C. direct relationship between the price level and real GDP produced. D. direct relationship between the price level and real GDP purchased.

C. direct relationship between the price level and real GDP produced.

An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a A. rightward shift of the aggregate demand curve. B. leftward shift of the aggregate demand curve. C. movement downward along a fixed aggregate demand curve. D. decrease in aggregate supply.

C. movement downward along a fixed aggregate demand curve.

If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift A. leftward by $50 billion at each price level. B. rightward by $10 billion at each price level. C. rightward by $50 billion at each price level. D. leftward by $40 billion at each price level.

C. rightward by $50 billion at each price level.

The foreign purchases effect on aggregate demand suggests that a A. fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand. B. fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand. C. rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand. D. rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand.

C. rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand.

Other things equal, an improvement in productivity will A. increase the equilibrium price level. B. shift the aggregate supply curve to the left. C. shift the aggregate supply curve to the right. D. shift the aggregate demand curve to the left.

C. shift the aggregate supply curve to the right.

In response to the Great Recession, the federal government engaged in significant deficit-funded spending. While it kept the recession from getting worse, and did result in some positive economic growth, it did not fully achieve the desired result. Which of the following best explains why the fiscal policy actions fell short of their objective? A. Despite the fiscal stimulus, aggregate demand continued to shift to the right. B. The fiscal stimulus caused a significant leftward shift of aggregate supply. C. Offsetting monetary policy caused the aggregate demand to remain virtually unchanged, meaning that all gains in output came from aggregate supply shifts. D. The fiscal stimulus shifted aggregate demand to the right, but not enough to restore full employment.

D. The fiscal stimulus shifted aggregate demand to the right, but not enough to restore full employment.

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of A. the interest-rate effect. B. the real-balances effect. C. a change in the degree of excess capacity. D. a change in the real value of consumer wealth.

D. a change in the real value of consumer wealth.

An increase in aggregate demand is most likely to be caused by which of the following? A. an increase in real interest rates B. a decrease in government spending C. a decrease in expected returns on investment D. a decrease in the tax rates on household income

D. a decrease in the tax rates on household income

In deriving the aggregate demand curve from the aggregate expenditures model, we note that A. the real-balances effect is irrelevant to both models. B. a change in the price level will have no impact on the aggregate expenditures schedule. C. an increase (decrease) in the price level shifts the aggregate expenditures schedule upward (downward). D. an increase (decrease) in the price level shifts the aggregate expenditures schedule downward (upward).

D. an increase (decrease) in the price level shifts the aggregate expenditures schedule downward (upward).

Which of the following events would most likely reduce aggregate demand? A. a reduction in the amount of existing capital stock B. a reduction in business and personal tax rates C. an increase in expected returns on investment D. an increase in real interest rates

D. an increase in real interest rates

Which of the following effects best explains the downward slope of the aggregate demand curve? A. a multiplier effect B. an expectations effect C. a substitution effect D. an interest-rate effect

D. an interest-rate effect

If the dollar appreciates relative to foreign currencies, then A. U.S. goods will look cheaper to foreign buyers.. B. foreign goods will look more expensive to U.S. buyers. C. net exports of the U.S. will increase. D. foreign buyers will find U.S. goods become more expensive.

D. foreign buyers will find U.S. goods become more expensive.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. All else being equal, if the price of each input increased from $4 to $6, productivity would A. fall from 2 to 3. B. fall from 0.50 to 0.33. C. rise from 1 to 2. D. remain unchanged.

D. remain unchanged.

Which would most likely shift the aggregate supply curve? A change in the prices of A. domestic products. B. foreign products. C. financial assets. D. resources.

D. resources.

An increase in investment spending caused by higher expected rates of return will A. shift the aggregate supply curve to the left. B. move the economy up along an existing aggregate demand curve. C. shift the aggregate expenditures curve downward and the aggregate demand curve to the left. D. shift the aggregate expenditures curve upward and the aggregate demand curve to the right.

D. shift the aggregate expenditures curve upward and the aggregate demand curve to the right.

A change in net export spending would most likely be caused by changes in

National Incomes Abroad Exchange Rates

Investment spending would most likely be influenced by changes in

Profit Expectations Degree of Excess Capacity

Which of the factors best explain the downward slope of aggregate demand curve?

Real-Balances Effect, Interest-Rate Effect, Foreign Purchases Effect

The aggregate demand curve shows that when the price level rises, the quantity of real output demanded decreases. T/F

T

The shape of the short-run aggregate supply curve indicates that as the general price level rises, output will expand but not by much when the economy reaches full employment. T/F

T

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. The level of productivity in this economy is A. 20. B. 30. C. 40. D. 50.

C. 40.

In which of the following sets of circumstances can we confidently expect inflation? A. Aggregate supply and aggregate demand both increase. B. Aggregate supply and aggregate demand both decrease. C. Aggregate supply decreases and aggregate demand increases. D. Aggregate supply increases and aggregate demand decreases.

C. Aggregate supply decreases and aggregate demand increases.

In the mid-1970s, changes in oil prices greatly affected U.S. inflation. When oil prices rose, the U.S. experienced A. cost-push inflation and rising output. B. demand-pull inflation and rising output. C. cost-push inflation and falling output. D. demand-pull inflation and falling output.

C. cost-push inflation and falling output.

Other things equal, appreciation of the dollar A. increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. B. increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources. C. decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. D. decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.

C. decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the A. real-balances, interest-rate, and foreign purchases effects. B. determinants of aggregate supply. C. determinants of aggregate demand. D. sole determinants of the equilibrium price level and the equilibrium real output.

C. determinants of aggregate demand.

In response to the Great Recession, the federal government engaged in significant deficit-funded spending, but it did not fully achieve the desired result. Which of the following best explains why the fiscal policy actions fell short of their objective? A. Monetary policy counteracted fiscal policy, keeping the unemployment rate from falling as much as intended. B. Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt. C. Although the fiscal stimulus increased consumer spending significantly, it mostly went to purchase foreign-produced goods and services. D. The fiscal stimulus caused massive inflation that further disrupted economic activity.

B. Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt.

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that A. a decrease in the price level shifts the aggregate expenditures schedule downward and decreases equilibrium GDP. B. a decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP. C. an increase in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP. D. an increase in the price level shifts the aggregate expenditures schedule downward and increases equilibrium GDP.

B. a decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP.

Other things equal, if the U.S. dollar were to depreciate, the A. aggregate demand curve would remain fixed in place. B. aggregate supply curve would shift to the left. C. aggregate supply curve would shift to the right. D. aggregate demand curve would shift to the left.

B. aggregate supply curve would shift to the left.

An increase in productivity will A. increase aggregate demand. B. increase aggregate supply. C. increase aggregate supply and aggregate demand. D. decrease aggregate supply and aggregate demand.

B. increase aggregate supply

The expenditure multiplier concept of the aggregate expenditures model A. is not at all relevant in the AD-AS model. B. magnifies the shifts of the aggregate demand curve. C. explains movement up or down the aggregate demand curve. D. reverses the shift of the aggregate demand curve.

B. magnifies the shifts of the aggregate demand curve.

A change in which factor is most likely to change both aggregate demand and aggregate supply?

Business Taxes

Changes in which combination of factors best explain why the aggregate supply curve would shift?

Business Taxes Domestic Resource Availability

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. The per-unit cost of production is A. $0.25. B. $0.50. C. $0.75. D. $2.00.

C. $0.75.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The per-unit cost of production in the economy described is A. $0.50. B. $1. C. $2. D. $5.

C. $2.

Cost-push inflation is depicted as a rightward shift of the aggregate demand curve along an upsloping aggregate supply curve. T/F

F

Minimum wage laws tend to make the price level more flexible rather than less flexible. T/F

F