Aggregate Demand/Supply

The labels for the axes of the aggregate demand graph should be -quantity of a product on the vertical axis and the price of a product on the horizontal axis. -price of a product on the vertical axis and quantity of a product on the horizontal axis. -real domestic output on the vertical axis and the price level on the horizontal axis. -real domestic output on the horizontal axis and the price level on the vertical axis.

(X) real domestic output on the horizontal axis and (Y) the price level on the vertical axis.

When the general price level in our economy increases, which of the following effects does not occur? The purchasing power of people's savings will increase. The interest rate will also tend to increase. Foreign buyers will buy less of our output, and we tend to import more. Our net exports will tend to decrease

The purchasing power of people's savings will increase.

Which of the following factors does not explain the inverse relationship between the price level and the total demand for output? a substitution effect a real-balances effect an interest-rate effect a foreign-purchases effect

a substitution effect

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

an interest-rate effect

An increase in the price level, other things equal, will shift the -consumption, investment, and net exports schedules of the aggregate expenditures model downward. -consumption, investment, and net exports schedules of the aggregate expenditures model upward. consumption and investment schedules of the aggregate expenditures model upward, but the net exports schedule downward. consumption and net exports schedules of the aggregate expenditures model upward, but the investment schedule downward.

consumption, investment, and net exports schedules of the aggregate expenditures model downward.

An increase in the price level in the aggregate expenditures model would decrease aggregate expenditures and shift the AD curve to the left. increase aggregate expenditures and shift the AD curve to the right. decrease aggregate expenditures but would not shift the AD curve. increase aggregate expenditures but would not shift the AD curve.

decrease aggregate expenditures but would not shift the AD curve.

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that a(n) -decrease in the price level shifts the aggregate expenditures schedule downward and decreases equilibrium GDP. -decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP. -increase in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP. -increase in the price level shifts the aggregate expenditures schedule downward and increases equilibrium GDP.

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

The interest rate effect on aggregate demand indicates that a(n) -decrease in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. -decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending. -increase in the price level will decrease the demand for money, reduce interest rates, and decrease consumption and investment spending. -increase in the supply of money will increase interest rates and decrease interest-sensitive consumption and investment spending.

decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending.

A decrease in consumer spending can be expected to shift the aggregate expenditures curve

downward and the aggregate demand curve leftward.

A movement upward along a given aggregate demand curve is equivalent to a(n)

downward shift in the aggregate expenditures schedule.

An increase in the aggregate expenditures schedule increases aggregate demand by the amount of the increase in aggregate expenditures only. increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier. decreases aggregate demand by the amount of the increase in aggregate expenditures. decreases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.

increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.

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

inverse relationship between price and real GDP purchased.

The real-balances effect on aggregate demand suggests that a -lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending. -higher price level will decrease the real value of many financial assets and therefore cause an increase in spending. -lower price level will increase the real value of many financial assets and therefore cause an increase in spending. -higher price level will increase the real value of many financial assets and therefore cause an increase in spending.

lower price level will increase the real value of many financial assets and therefore cause an increase in spending.

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a movement down along the aggregate demand curve. shift in aggregate demand to the right. shift in aggregate demand to the left. movement up along the aggregate demand curve.

movement down along the aggregate demand curve.

The aggregate demand curve or schedule shows the relationship between the total demand for output and the income level. interest rate. price level. real GDP.

price level

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

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

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

the demand for money falls and the interest rate falls.

An increase in investment and government purchases can be expected to shift the aggregate expenditures curve

upward and the aggregate demand curve rightward.

An increase in net exports will shift the aggregate expenditures curve

upward and the aggregate demand curve rightward.

In the aggregate demand-aggregate supply model, the economy's price level is assumed to be constant, just like in the aggregate expenditures model. variable, just like in the aggregate expenditures model. constant, unlike in the aggregate expenditures model. variable, unlike in the aggregate expenditures model.

variable, unlike in the aggregate expenditures model.