Econ 2020 Chaper 32

The aggregate demand curve slopes downward because it reflects a direct relationship between the price level and the amount of real output demanded

False

The interest-rate effect occurs when a higher price level decreases the demand for money, thereby increasing the interest rate, assuming a fixed money supply.

False

True or false: The aggregate demand curve slopes downward because it reflects a direct relationship between the price level and the amount of real output demanded

False

A rise in consumer wealth will ______ consumer spending.

increase

An increase in consumer wealth prompts consumers to decrease savings and (_____) spending.

increase or raise

Aggregate demand will rise if consumers expect prices to (_____) in the future.

increase, rise, or escalate

The interest-rate effect creates a downward sloping aggregate demand curve because a higher price level ______.

increases money demand which increases interest rates and decreases the amount of real GDP

If consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______.

increases; right

The aggregate demand (AD) curve will shift to the right when consumers expect their future incomes to (_____).

rise, increase, grow, or expand

Changes in consumer spending, investment, government spending and net export spending will:

shift the aggregate demand curve

How can the effect of an unexpected decline in asset values on aggregate demand best be described?

A decline in wealth prompts consumers to save more and spend less which shifts the aggregate demand curve to the left.

Which of the following explain the reasons for the downward slope of the aggregate demand curve?

A higher price level decreases the purchasing power of the publics' accumulated savings balances.

How is the real-balances effect defined?

A higher price level reduces the purchasing power of the public's accumulated savings balances.

Investment spending refers to purchases of which of the following?

Capital goods

Which of the following are the four components or determinants of aggregate demand?

Consumer spending Net export spending Investment spending Government spending

An increase in the price level results in which of the following effects?

Decrease in investments Decrease in the level of consumption

Select all the choices that explain what happens with rising price levels.

Purchasing power drops. Real balances drop. People demand less output.

Which of the following statements best explains the effect of a decline in the price level on consumption, investment and net exports?

The level of consumption increases, investment increases, and net exports increase.

Businesses and consumers will decrease investment spending and interest-sensitive consumption spending, respectively, when interest rates are higher.

True

The wealth effect is reflected by ______.

a rightward shift of the aggregate demand curve

If consumers expect inflation in the near future, consumers will want to buy more products now and ______.

aggregate demand will increase

A schedule or curve that shows the amount of a nation's output (real GDP) that buyers collectively desire to purchase at each possible price level is called

aggregate demand.

A decrease in taxes will lead to ______.

an increase in aggregate demand

Consumer wealth is defined as the total value of ______.

assets minus the total value of liabilities

When the US price level rises relative to foreign price levels and exchange rates are not very responsive, US exports will ______ and US imports will ______.

foreigners buy fewer US goods and Americans buy more foreign goods

When interest rates are higher, businesses and consumers will:

decrease investment spending and interest-sensitive consumption spending.

A higher price level (_____) the real value or purchasing power of the public's accumulated savings balances.

decreases, reduces, lowers, drops, or erodes

If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______.

decreases; left

Aggregate (_____) is a schedule or curve that shows the amount of real GDP that buyers collectively desire to purchase at each possible price level.

demand

A decrease in investment spending at each price level will shift the aggregate ______.

demand curve to the left

The interest rate effect causes the aggregate demand to be ______.

downward sloping

When the US price level rises relative to foreign price levels and exchange rates are not very responsive, US exports will ______ and US imports will ______.

fall; rise

When a higher price level increases the demand for money, which will drive up the price paid for its use, assuming a fixed money supply, it is called the ______ effect.

interest-rate

A decline in investment spending at each price level will shift the aggregate demand curve to the (_____)

left

If consumers expect their future income to be lower, they may reduce their current consumption which would shift that aggregate demand curve to the (_____).

left

If consumers increase their saving rate in order to pay off their debts the aggregate demand (AD) curve will shift to the (_____).

left

An increase in real interest rates will ______ investment spending and ______ aggregate demand.

lower; reduce

The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances.

real-balances effect

A tax cut will shift the aggregate demand (AD) curve to the (_____).

right

If there is an increase in consumption spending caused by consumer borrowing, the aggregate demand (AD) curve will shift to the (_____).

right

An unexpected increase in asset values that results in an increase in consumer spending is called the (_____) effect.

wealth

An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect.

wealth