Aggregate Demand and Supply
A
(Last Word) In recent years: A) unemployment rates in Europe have been higher than in the United States. B) the natural rate of unemployment in Europe has fallen sharply. C) Europe has had strong aggregate demand and low unemployment rates. D) European nations have greatly reduced their unemployment rates by reducing minimum wages, welfare benefits, and government restrictions against firing workers.
A
A decline in investment will shift the AD curve to the: A) left by a multiple of the change in investment. B) left by the same amount as the change in investment. C) right by the same amount as the change in investment. D) right by a multiple of the change in investment.
A
A decrease in aggregate demand will cause a greater decline in real output the: A) less flexible is the economy's price level. B) more flexible is the economy's price level. C) steeper is the economy's AS curve. D) larger is the economy's marginal propensity to save.
B
A rightward shift in the aggregate supply curve is best explained by an increase in: A) business taxes. B) productivity. C) nominal wages. D) the price of imported resources.
A
Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.: A) aggregate demand curve would shift to the right. 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.
C
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.
D
The aggregate demand curve: A) is upsloping because a higher price level is necessary to make production profitable as production costs rise. B) is downsloping because production costs decline as real output increases. C) shows the amount of expenditures required to induce the production of each possible level of real output. D) shows the amount of real output that will be purchased at each possible price level.
C
The aggregate supply curve (short-run): A) slopes downward and to the right. B) graphs as a vertical line. C) slopes upward and to the right. D) graphs as a horizontal line.
C
Other things equal, an improvement in productivity will: A) shift the aggregate demand curve to the left. B) shift the aggregate supply curve C) shift the aggregate supply curve to the right.to the left. D) increase the price level.
C
The aggregate supply curve: A) is explained by the interest rate, real-balances, and foreign purchases effects. B) gets steeper as the economy moves from the top of the curve to the bottom of the curve. C) shows the various amounts of real output that businesses will produce at each price level. D) is downsloping because real purchasing power increases as the price level falls.
D
The foreign purchases effect: A) shifts the aggregate demand curve rightward. B) shifts the aggregate demand curve leftward. C) shifts the aggregate supply curve rightward. D) moves the economy along a fixed aggregate demand curve.
C
If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift: A) leftward by $40 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 $20 billion at each price level.
A
If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium: A) output would rise. B) output would fall. C) price level would necessarily fall. D) price level would necessarily rise
A
If the current price level was such that the aggregate quantity demanded exceeded the aggregate quantity supplied, we would expect: A) inflation to occur. B) the aggregate demand curve to shift rightward. C) the aggregate demand curve to shift leftward. D) the aggregate supply curve to shift leftward.
A
If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect: A) aggregate demand to decrease and aggregate supply to increase. B) both aggregate demand and aggregate supply to decrease. C) both aggregate demand and aggregate supply to increase. D) aggregate demand to increase and aggregate supply to decrease.
C
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
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.
B
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.
D
Shifts in the aggregate supply curve are caused by changes in: A) consumption spending. B) the quantity of real output demanded. C) the quantity of real output supplied. D) one or more of the determinants of aggregate supply.
B
Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate: A) demand curve will shift leftward. B) supply curve will shift rightward C) supply curve will shift leftward. D) expenditures curve will shift downward.
C
The aggregate demand curve is: A) vertical if full employment exists. B) horizontal when there is considerable unemployment in the economy. C) downsloping because of the interest-rate, real-balances, and foreign purchases effects. D) downsloping because production costs decrease as real output rises.
C
The aggregate supply curve (short-run) is upsloping because: A) wages and other resource prices match changes in the price level. B) the price level is flexible upward but inflexible downward. C) per-unit production costs rise as the economy moves toward and beyond its full-employment real output. D) wages and other resource prices are flexible upward but inflexible downward.
D
The aggregate supply curve (short-run) slopes upward and to the right because: A) changes in wages and other resource prices completely offset changes in the price level. B) the price level is flexible upward but inflexible downward. C) supply creates its own demand. D) wages and other resource prices adjust only slowly to changes in the price level.
B
The aggregate supply curve (short-run): A) graphs as a horizontal line. B) is steeper above the full-employment output than below it. C) slopes downward and to the right. D) presumes that changes in wages and other resource prices match changes in the price level.
B
The determinants of aggregate demand: A) explain why the aggregate demand curve is downsloping. B) explain shifts in the aggregate demand curve. C) demonstrate why real output and the price level are inversely related. D) include input prices and resource productivity.
D
The determinants of aggregate supply: A) are consumption, investment, government, and net export spending. B) explain why real domestic output and the price level are directly related. C) explain the three distinct ranges of the aggregate supply curve. D) include resource prices and resource productivity.
A
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.
B
The economy's long-run aggregate supply curve: A) slopes upward and to the right. B) is vertical. C) is horizontal. D) slopes downward and to the right.
D
The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will: A) shift the aggregate demand curve leftward. B) shift the aggregate supply curve leftward. C) decrease U.S. exports and increase U.S. imports. D) increase U.S. exports and decrease U.S. imports.
B
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will: A) increase the amount of U.S. real output purchased. B) increase U.S. imports and decrease U.S. exports. C) increase both U.S. imports and U.S. exports. D) decrease both U.S. imports and U.S. exports.
D
The graphical relationship between the price level and the amount of real GDP that businesses will offer for sale is known as the: A) aggregate demand curve. B) investment supply curve. C) investment demand curve. D) aggregate supply curve.
C
The interest-rate and real-balances effects are important because they help explain: A) rightward and leftward shifts of the aggregate demand curve. B) why fiscal policy cannot be used effectively to curb inflation. C) the shape of the aggregate demand curve. D) the shape of the aggregate supply curve.
C
The interest-rate effect suggests that: A) a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. B) an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. C) an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. D) an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.
D
The real-balances effect indicates that: A) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B) a lower price level will decrease the real value of many financial assets and therefore reduce spending. C) a higher price level will increase the real value of many financial assets and therefore increase spending. D) a higher price level will decrease the real value of many financial assets and therefore reduce spending.
A
The real-balances, interest-rate, and foreign purchases effects all help explain: A) why the aggregate demand curve is downsloping. B) why the aggregate supply curve is upsloping. C) shifts in the aggregate demand curve. D) shifts in the aggregate supply curve.
D
Which of the following would not shift the aggregate supply curve? A) an increase in labor productivity B) a decline in the price of imported oil C) a decline in business taxes D) an increase in the price level
C
Which one of the following would increase per unit production cost and therefore shift the aggregate supply curve to the left? A) a reduction in business taxes B) production bottlenecks occurring when producers near full plant capacity C) an increase in the price of imported resources D) deregulation of industry
A
Which one of the following would not shift the aggregate demand curve? A) a change in the price level B) depreciation of the international value of the dollar C) a decline in the interest rate at each possible price level D) an increase in personal income tax rates
C
(Last Word) It is unclear whether: A) high European rates of inflation reflect demand-pull or cost-push forces. B) high European rates of poverty can be reduced by by higher transfer payments. C) high European unemployment rates have resulted from high natural rates of unemployment or insufficient aggregate demand. D) European trade deficits stimulate or retard the European economies.
A
A rightward shift of the AD curve in the very flat part of the upsloping AS curve will: A) increase real output by more than the price level. B) increase the price level by more than real output. C) reduce real output by more than the price level. D) reduce the price level by more than real output.
B
A rightward shift of the AD curve in the very steep upper part of the upsloping AS curve will: A) increase real output by more than the price level. B) increase the price level by more than real output. C) reduce real output by more than the price level. D) reduce the price level by more than real output
D
An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the: A) net export effect. B) wealth effect. C) real-balances effect. D) multiplier effect
B
An increase in input productivity will: A) shift the aggregate supply curve leftward. B) reduce the equilibrium price level, assuming downward flexible prices. C) reduce the equilibrium real output. D) reduce aggregate demand.
D
An increase in net exports will shift the AD curve to the: A) left by a multiple of the change in investment. B) left by the same amount as the change in investment. C) right by the same amount as the change in investment. D) right by a multiple of the change in investment
D
Given a fixed upsloping AS curve, a rightward shift of the AD curve will: A) cause cost push inflation. B) increase real output but not the price level. C) increase the price level but not real output. D) increase both the price level and real output
B
If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, we can assume that: A) the money supply has declined. B) the price level is inflexible downward and a recession has occurred. C) cost-push inflation has occurred. D) productivity has declined.
B
If aggregate demand increases and aggregate supply decreases, the price level: A) will decrease, but real output may either increase or decrease. B) will increase, but real output may either increase or decrease. C) and real output will both increase. D) and real output will both decrease.
B
If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes: A) the output effect. B) the foreign purchases effect. C) the real-balances effect. D) the shift-of-spending effect.
B
Other things equal, a decrease in the real interest rate will: A) expand investment and shift the AD curve to the left. B) expand investment and shift the AD curve to the right. C) reduce investment and shift the AD curve to the left. D) reduce investment and shift the AD curve to the right.
B
Other things equal, a reduction in personal and business taxes can be expected to: A) increase aggregate demand and decrease aggregate supply. B) increase both aggregate demand and aggregate supply. C) decrease both aggregate demand and aggregate supply. D) decrease aggregate demand and increase aggregate supply.
A
We would expect a decline in personal and corporate income taxes to: A) shift the aggregate demand curve rightward. B) decrease consumption and investment spending. C) decrease real output. D) shift the aggregate supply curve leftward.
D
Which of the following explains why the aggregate demand schedule is downward sloping: A) the real-balances effect B) the interest-rate effect C) the foreign purchases effect D) all of the above
C
Which of the following is incorrect? A) As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. B) As the price level falls, the demand for money declines, the interest rate declines, and interest-rate sensitive spending increases. C) When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending. D) Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward flexible prices, reduces the price level.
A
If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift: A) leftward by $40 billion at each price level. B) rightward by $20 billion at each price level. C) rightward by $40 billion at each price level. D) leftward by $20 billion at each price level.