Econ Test 4 T/F
The aggregate price level is a component of aggregate demand
False
The downward slope of the aggregate demand curve is a natural consequence of the law of demand.
False
The real value of household assets does not affect aggregate demand.
False
The interest rate effect does not effect aggregate price level.
False
When the real value of household assets falls—for example, because of a stock market crash—the purchasing power they embody is reduced and aggregate demand also falls.
True
When the real value of household assets rises aggregate demand increases
True
When the real value of these assets rises, the purchasing power they embody also rises, leading to an increase in aggregate spending.
True
Consumer spending is negatively related to the aggregate price level
True
A positive demand shock shifts the aggregate demand curve rightward
True
A positive supply shock generates higher aggregate output and a lower aggregate price level
True
A supply shock shifts the short-run aggregate supply curve, moving the aggregate price level and aggregate output in the opposite direction.
True
Changes in commodity prices can cause a shift in the short-run aggregate supply curve
True
Changes in nominal wages can cause a shift in the short-run aggregate supply curve
True
Changes in productivity can cause a shift in the short-run aggregate supply curve
True
Consumption is a competent of aggregate demand.
True
Government Spending is a component of aggregate demand
True
If aggregate demand is greater than aggregate supply short-term price levels will rise.
True
In the long-run changes in the price level will equalize across all prices, making long-run prices unimportant to understanding economic health
True
Investment is a component of aggregate demand
True
Macroeconomic equilibrium is a condition in the economy in which the quantity of aggregate demand equals the quantity of aggregate supply.
True
Net Exports (X-M) is a component of aggregate demand
True
The determinants of aggregate demand are consumer expectations, changes in wealth, physical capital, fiscal policy and monetary policy.
True
The interest rate effect is caused when consumers and firms respond to raising prices by increasing their demand for money, causing interest rates.
True
The interest rate effect is one reason why the aggregate demand curve slopes downward
True
The wealth effect is caused because a rise in prices makes held wealth lose value and a drop in prices makes held wealth gain value. This causes consumer spending to fall when the aggregate price level rises and rise when the aggregate price level falls.
True
The wealth effect is one reason why the aggregate demand curve slopes downward
True
When the central bank reduces the quantity of money aggregate demand decreases
True
The Streisand effect is one reason why the aggregate demand curve slopes downard
False
When consumers and firms become more optimistic aggregate demand increases
True
When consumers and firms become more pessimistic Aggregate demand decreases
True
When the central bank increases the quantity of money aggregate demand increases
True
When the government reduces spending or raises taxes aggregate demand decreases
True
When the real value of household assets falls aggregate demand decreases
True
A rise in aggregate price decreases the demand for exports.
True
When the existing stock of physical capital is relatively small aggregate demand increases
True
When the government increases spending or cuts taxes aggregate demand increases
True
Net exports have no effect on the downward slope of the aggregate demand curve.
False
Stagflation is a component of aggregate demand
False
Supply shocks are a component of aggregate demand
False
A Negative demand shock shifts the aggregate demand curve rightward.
False
A fall in the real value of household assets will cause an increase in aggregate demand
False
A positive demand shock will decrease the aggregate price level
False
A positive supply shock shifts the short-run aggregate supply curve leftward
False
A positive supply shock will cause stagflation
False
A rise in aggregate price has no effect on net exports.
False
Consumer spending is positively related to the aggregate price level
False
When the existing stock of physical capital is relatively large aggregate demand decreases
True
A Negative supply shock shifts the short-run aggregate supply curve leftward and causes stagflation
True
A demand shock shifts the aggregate demand curve, moving the aggregate price level and aggregate output in the same direction.
True
A rise in aggregate price increases the demand for imports.
True
When the government increases spending or cuts taxes aggregate demand decreases
False
When the government reduces spending or raises taxes aggregate demand increases
False
When the real value of household assets falls aggregate demand increases
False
When the real value of household assets rises aggregate demand decreases
False
When the central bank reduces the quantity of money aggregate demand increases
False
When the existing stock of physical capital is relatively large aggregate demand increases
False
When the existing stock of physical capital is relatively small aggregate demand decreases
False
If Aggregate demand is less than aggregate supply short-term price levels will rise.
False
Long-run changes in the price-level are important to understanding economic health
False
Monetary policy has no affect on aggregate demand
False
The tax multiplier is a component of aggregate demand
False
The wealth effect is cause by the wealthy increasing their consumption.
False
When consumers and firms become more optimistic aggregate demand decreases
False
When consumers and firms become more pessimistic Aggregate demand increases
False
When the central bank increases the quantity of money aggregate demand decreases
False
