Problem Set 5

Which of the following would most likely decrease aggregate demand? A. an appreciation in the value of the U.S. dollar B. an increase in government spending on national defense C. an improvement in consumer expectations about the future D. a decline in real interest rates

A. an appreciation in the value of the U.S. dollar

Other things equal, a decrease in the real interest rate will: A. expand investment and shift the AD curve to the right. B. reduce investment and shift the AD curve to the right. C. reduce investment and shift the AD curve to the left. D. expand investment and shift the AD curve to the left.

A. expand investment and shift the AD curve to the right.

Prices and wages tend to be: A. flexible upward, but inflexible downward. B. flexible both upward and downward. C. flexible downward, but inflexible upward. D. inflexible both upward and downward.

A. flexible upward, but inflexible downward.

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting personal taxes for consumers. We would expect this to: A. increase aggregate demand. B. decrease aggregate supply. C. increase aggregate supply. D. decrease aggregate demand.

A. increase aggregate demand.

Assume that it takes 100 units of input to produce 300 units of output in an economy. Then because of an improvement in technology, it requires only 75 units of input to produce the same level of output. Which statement is correct? A. productivity in the economy increased from 3 to 4. B. productivity in the economy decreased from .33 to .25. C. productivity in the economy is 2. D. productivity in the economy is .33.

A. productivity in the economy increased from 3 to 4.

Other things equal, a decrease in government spending on highway repairs will A. shift aggregate demand to the left. B. shift aggregate supply to the left. C. shift aggregate demand to the right. D. shift aggregate supply to the right.

A. shift aggregate demand to the left.

Which of the following would most likely decrease aggregate demand? A. an improvement in consumer expectations. B. an increase in real interest rates C. an increase in government spending D. an increase in consumer wealth

B. an increase in real interest rates

An increase in the aggregate supply curve is best explained by: A. an increase in regulatory costs. B. an increase in the price level. C. an increase in productivity. D. an increase in the price of imported resources.

C. an increase in productivity.

A decrease in the aggregate supply curve is best explained by:A. an increase in the price level. B. an increase in productivity. C. an increase in the prices of domestic resources. D. a decrease in the costs of government regulation.

C. an increase in the prices of domestic resources

If aggregate demand increases, this situation is most likely to lead to: A. a recession. B. cost-push inflation. C. demand-pull inflation. D. stagflation.

C. demand-pull inflation

An increase in aggregate demand in the short run will: A. increase the price level and have no effect on real domestic output. B. increase real domestic output and have no effect on the price level. C. increase real domestic output and increase the price level. D. increase the price level and decrease real domestic output.

C. increase real domestic output and increase the price level.

Aggregate supply is a schedule or curve showing the relationship between the: A. price level and real output purchased. B. cost of production and output prices. C. price level and real output produced. D. cost of production and input price

C. price level and real output produced.

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

D. aggregate supply decreases and aggregate demand increases

If the aggregate supply decreases due to a major natural disaster the resulting increase in the price level is known as: A. a recession. B. stagflation. C. demand-pull inflation. D. cost-push inflation.

D. cost-push inflation.

A decrease in aggregate demand in the short run will: A. decrease the price level and have no effect on real domestic output. B. increase the price level and decrease real domestic output. C. decrease the price level and increase real domestic output. D. decrease real domestic output and decrease the price level.

D. decrease real domestic output and decrease the price level.