Econ 210 Final AS/AD

36. The aggregate demand curve slopes _____ and has _____ on the vertical axis. A) downward; output B) downward; the price level C) upward; output D) upward; the price level

b. downward; the price level

11. If the amount of regulation in an economy increases, the aggregate supply curve shifts _____ and output supplied will be _____. A) left; increased B) left; reduced C) right; increased D) right; reduced

b. left; reduced

10. The collapse of home values that began in 2008 led to ____ in Americans' saving rates, shifting aggregate demand to the ____. A) a decrease; left B) a decrease; right C) an increase; left D) an increase; right

c. an increase; left

9. Which of the following factors will cause the aggregate demand curve to shift to the left? A) rise in consumer confidence B) fall in excess capacity at businesses C) increase in foreign income D) appreciation of the dollar

d. appreciation of the dollar

1. A change in _____ will cause a change in the quantity demanded of real GDP. A) consumer spending B) investment C) the price level D) imports

C. the price level

28. Demand-pull inflation scenarios took place in the: A) 1960s for the United States and from 1985 to 1995 for Japan. B) 1930s for the United States and from 1985 to 1995 for Japan. C) 1960s for the United States and in the 1930s for Japan. D) 1930s for both the United States and Japan.

a. 1960s for the United States and from 1985 to 1995 for Japan

59. The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS) model is that the: A) Keynesian model assumes that prices are constant. B) AD/AS model assumes that prices are constant. C) Keynesian model assumes full employment. D) AD/AS model assumes that equilibrium always occurs at less than full employment.

a. Keynesian model assumes that prices are constant

39. An increase in aggregate demand can be caused by: A) the depreciation of the dollar. B) a cut in government spending. C) an increase in interest rates. D) a rise in consumer debt.

a. the depreciation of the dollar

25. Suppose a booming stock market encourages consumption spending to rise dramatically. What would be the most likely long-run impact? A) Prices fall. B) GDP first rises, and then falls back to long-run equilibrium. C) A recession occurs. D) The impact cannot be determined from the information given.

b. GDP first rises, and then falls back to long-run equilibrium

34. Which of the following would NOT cause a shift in the aggregate demand curve? A) a change in consumption spending B) a change in the price level C) a change in investment D) a change in net exports

b. a change in the price level

Use the following to answer question 8: Figure: Predicting Aggregate Demand Shifts 8. (Figure: Predicting Aggregate Demand Shifts) Which of the following would shift the aggregate demand curve from AD1 to AD2? A) a tax increase B) a decrease in interest rates C) a decrease in government purchases D) a worsening of consumer expectations about the future

b. a decrease in interest rates

49. Suppose the government raises income taxes, so consumers have less take-home pay. This policy action will cause a(n): A) increase in aggregate demand. B) decrease in aggregate demand. C) increase in short-run aggregate supply. D) decrease in short-run aggregate supply.

b. decrease in aggregate demand

60. (Figure: Shifting SRAS and AD) What economic event is represented if full employment GDP occurs at point (a)? A) a recession B) demand-pull inflation C) cost-push inflation D) deflation

b. demand-pull inflation

23. When home values collapsed in the period that began in 2008, it reduced many Americans': A) bank balances. B) household wealth. C) household income. D) retirement accounts.

b. household wealth

64. Which is a determinant of aggregate supply? A) interest rates B) productivity C) prices of substitutes D) household expectations

b. productivity

16. ______ are components of consumer spending that affect aggregate demand. A) Expected rates of return on investment B) Taxes C) Exchange rate changes D) Government spending programs

b. taxes

37. If both consumers and businesses are pessimistic about the future of the economy: A) there is a movement up along the aggregate demand curve. B) the aggregate demand curve shifts to the left. C) there is a movement down along the aggregate demand curve. D) the aggregate demand curve shifts to the right.

b. the aggregate demand curve shifts to the left

52. The idea that new spending creates more new spending is known as: A) the crowding-out effect. B) the multiplier effect. C) the wealth effect. D) the interest rate effect.

b. the multiplier effect

42. If the marginal propensity to consume is 0.6, then the spending multiplier is: A) 6. B) 4. C) 2.5. D) 2.

c. 2.5

7. The curve that shows how much GDP is demanded at various price levels is called: A) the aggregate expenditures schedule. B) the consumption line. C) aggregate demand. D) aggregate supply.

c. aggregate demand

63. According to John Maynard Keynes, what determines employment and income? A) aggregate supply B) government spending alone C) aggregate expenditures D) wages, prices, and interest rates

c. aggregate expenditures

40. During the 1970s, some countries stopped oil sales to the United States. As petroleum prices rose: A) both aggregate supply and the aggregate price level fell. B) aggregate demand fell and the aggregate price level fell. C) aggregate supply fell and the aggregate price level rose. D) both aggregate demand and the aggregate price level rose.

c. aggregate supply fell and the aggregate price level rose

56. Which of the following events will shift the aggregate demand curve to the right? A) a catastrophic hurricane hitting the northeastern United States B) an increase in household debt C) decreased taxes D) decrease in military spending

c. decreased taxes

19. Which of the following factors causes a shift in the aggregate demand curve to the left? A) increase in consumption B) increase in wealth C) increase exports D) decrease in government spending

d. decrease in government spending

12. (Figure: Aggregate Demand Shift) Which of the following may be an explanation for the shift in aggregate demand from A to B? A) Prices fall and increase real wealth. B) Consumer confidence drops and consumption spending falls. C) Goods and services become less competitive and exports fall. D) Interest rates fall and boost investment.

d. interest rates fall and boost investment

26. Because of the wealth effect, a rising aggregate price level ____ the purchasing power of wealth and therefore _____ output demanded. A) increases; increases B) increases; reduces C) reduces; increases D) reduces; reduces

d. reduces; reduces

57. If the U.S. aggregate price level rises: A) U.S. imports rise. B) the aggregate demand curve shifts to the left. C) the aggregate demand curve shifts to the right. D) business investment increases.

a. U.S. imports rise

50. The Great Depression was primarily the result of: A) a decrease in aggregate demand. B) an increase in aggregate demand. C) disequilibrium. D) an increase in aggregate supply.

a. a decrease in aggregate demand

38. If the market power of firms increases, what happens in the AD/AS model? A) Aggregate supply shifts left. B) Aggregate supply shifts right. C) Aggregate demand shifts left. D) Aggregate demand shifts right.

a. aggregate supply shifts left

45. Which of the following will shift the short-run aggregate supply curve to the left? A) an increase in the minimum wage B) a decrease in immigration from abroad C) a decrease in the price of oil D) a decrease in the actual price level

a. an increase in the minimum wage

68. The drop in aggregate demand that occurred during the Great Depression caused a drop in real GDP: A) and deflation. B) but an increase in the price level. C) but no change in the price level. D) but a modest rise in inflation.

a. and deflation

67. Which of the following will NOT cause a shift in the short-run aggregate supply curve? A) changes in the aggregate price level B) changes in input prices C) changes in productivity D) changes in inflationary expectations

a. changes in the aggregate price level

53. Suppose energy prices spike. In the short run, output will ____; in the long run, output will _____from its starting point. A) decrease; remain unchanged B) decrease; increase C) remain unchanged; decrease D) remain unchanged; increase

a. decrease; remain unchanged

62. _____ occurs when aggregate demand expands so much that equilibrium output exceeds full employment output. A) Demand-pull inflation B) Demand-push inflation C) Cost-push inflation D) Cost-pull inflation

a. demand-pull inflation

66. A(n) _______ in oil prices and a(n) _______ in taxes will shift short-run aggregate supply to the left. A) increase; increase B) increase; reduction C) reduction; increase D) reduction; reduction

a. increase; increase

54. If Europe has a large increase in income, what will happen in the United States? A) The aggregate demand curve will shift to the right. B) The aggregate demand curve will shift to the left. C) The aggregate demand curve will not change. D) The aggregate demand curve will shift to the left in the short run and then to the right in the long run.

a. the aggregate demand curve will shift to the right

18. The long-run economic growth model assumes that: A) the economy always moves toward equilibrium at full employment. B) the long run takes a long time to arrive. C) macroeconomic equilibrium at full employment is only a theory and has little to do with reality. D) the economy is at all times at full employment.

a. the economy always moves toward equilibrium at full employment

21. The long-run supply curve is: A) vertical. B) horizontal. C) elastic. D) inelastic.

a. vertical

14. The collapse of home values that began in 2008 led to ____ in Americans' consumption and _____ in their saving rates. A) a decrease; a decrease B) a decrease; an increase C) an increase; a decrease D) an increase; an increase

b. a decrease; an increase

6. What would cause the price level to rise and employment to increase? A) a shift to the left of the aggregate demand curve B) a shift to the right of the aggregate demand curve C) a shift to the left of the short-run aggregate supply curve D) supply shift to the right of the short-run aggregate supply curve

b. a shift to the right of the aggregate demand curve

70. Which of the following will shift the short-run aggregate supply curve to the right? A) an increase in the minimum wage B) an increase in immigration from other countries C) an increase in the price of oil D) an increase in the actual price level

b. an increase in immigration from other countries

17. (Figure: Determining SRAS Shifts 2) Which of the following might be a cause of the change in short-run aggregate supply? A) Unions successfully negotiated higher wages. B) Businesses are increasingly optimistic about the future. C) Consumer incomes dropped. D) Taxes on businesses are raised.

b. businesses are increasingly optimistic about the future

51. The long-run aggregate supply curve is most consistent with the ________ school of economic thought. A) Keynesian B) classical C) monetarist D) libertarian

b. classical

41. The more time a free market economy has to adjust to price changes, the: A) greater the rate of inflation. B) closer GDP gets to the natural rate of output. C) closer the economy gets to the horizontal portion of the aggregate demand curve. D) more volatility is seen in the business cycle.

b. closer GDP gets to the natural rate of output

58. The 1973 oil shocks created: A) demand-pull inflation. B) cost-push inflation. C) a shift to the right of the aggregate supply curve. D) a shift to the right of the aggregate demand curve.

b. cost-push inflation

32. Suppose consumers spend more than usual. In the short run, prices will ____; in the long run, prices will _____ from their starting point. A) increase; remain unchanged B) increase; increase C) remain unchanged; decrease D) remain unchanged; increase

b. increase; increase

61. Output definitely increases if aggregate demand ______ and aggregate supply ______. A) increases; increases B) rises; falls C) falls; rises D) decreases; decreases

a. increases; increases

69. A shift to the ________ of the __________ curve would cause the price level to decrease and employment to decrease. A) left; aggregate demand B) right; aggregate demand C) left; short-run aggregate supply D) right; short-run aggregate supply

a. left; aggregate demand

46. A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded. A) left; decrease B) left; increase C) right; increase D) right; decrease

a. left; decrease

48. The short-run supply curve slopes up because: A) profits increase at higher price levels. B) productivity increases at higher price levels. C) wages increase at higher output in the short run. D) resource costs increase at higher price levels.

a. profits increase at higher price levels

3. The aggregate demand curve displays: A) real GDP demanded at various price levels. B) nominal GDP versus real GDP. C) GDP demanded at various investment levels. D) the business cycle.

a. real GDP demanded at various price level

22. If businesses expect to start earning more profit, what will happen to the aggregate demand curve? A) The aggregate demand curve will shift to the right. B) The aggregate demand curve will shift to the left. C) The aggregate demand curve will not change. D) The aggregate demand curve will shift to the left in the short run and then to the right in the long run.

a. the aggregate demand curve will shift to the right

27. Suppose a booming stock market encourages consumption spending to rise dramatically. What would be the most likely short-run impact? A) recession and falling prices B) inflation and rising GDP C) recession and rising prices D) The impact cannot be determined from the information given.

b. inflation and rising GDP

43. High taxes and/or heavy regulation: A) can cause firms to boost production so they can cover the added costs. B) raise costs of production so that the aggregate supply curve shifts to the left. C) are not likely to affect firms' behavior, since they are more concerned about profit than taxes or regulation . D) are likely to shift aggregate supply to the right.

b. raise costs of production so that the aggregate supply curve shifts to the left

4. Which of the following factors will cause the aggregate demand curve to shift to the right? A) reduction in the aggregate price level B) reduction in personal income taxes C) increase in interest rates D) drop in foreign income

b. reduction in personal income taxes

5. If the national incomes of foreign countries fall at the same time the dollar appreciates, then in the United States the aggregate demand curve: A) shifts to the right. B) shifts to the left. C) remains unchanged. D) does not shift, but there is movement up along it.

b. shifts to the left

2. In the short run, a decrease in market power (or monopolization): A) will increase the price level. B) will decrease the price level. C) will not affect the price level. D) will not affect output.

b. will decrease the price level

29. Which of the following statements regarding the short-run aggregate supply curve is TRUE? A) The short-run aggregate supply curve shifts to the left when tax rates on businesses are lowered. B) The short-run aggregate supply curve shifts to the right when the costs of capital rise. C) The short-run aggregate supply curve shifts to the left when business expectations become more positive. D) The short-run aggregate supply curve shifts to the right with a reduction in burdensome regulations.

d. The short-run aggregate supply curve shifts to the right with a reduction in burdensome regulations

55. During cost-push inflation, aggregate output _______ and the aggregate price level _________. A) rises; rises B) rises; falls C) falls; falls D) falls; rises

d. falls; rises

20. Which of the following best illustrates the wealth effect? A) Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000. B) Simon felt he needed at least $800,000 to retire comfortably. He increased his saving to build up his wealth. C) The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished. D) Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks.

c. The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished

24. Which of the following items is NOT a determinant of aggregate demand? A) consumption B) investment C) government saving D) government spending

c. government saving

33. Which is NOT consistent with the level of output in the long run? A) the natural rate of output B) full capacity output level C) high inflation D) the natural rate of unemployment

c. high inflation

35. An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _________ in the ____________ U.S.-made products. A) decrease; aggregate demand for B) increase; short-run aggregate supply of C) increase; aggregate demand for D) decrease; short-run aggregate supply of

c. increase; aggregate demand for

30. In the short run, the aggregate supply curve is: A) horizontal. B) negatively sloped. C) positively sloped. D) vertical.

c. positively sloped

47. The long-run aggregate supply curve is vertical because: A) many inputs are fixed. B) it incorporates the assumptions of Keynesian theory. C) the economy will gravitate to the position of full employment when all variables are flexible. D) wages, prices, and interest rates are not flexible in the long run.

c. the economy will gravitate to the position of full employment when all variables are flexible

31. Short-run macroeconomic equilibrium cannot be achieved when: A) inflation rates are low. B) the short-run aggregate supply and aggregate demand curves intersect. C) the quantity of short-run aggregate supply exceeds the quantity of aggregate demand. D) inflation rates are high.

c. the quantity of short-run aggregate supply exceeds the quantity of aggregate demand.

44. The situation when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises is known as ________ inflation. A) cost-push B) unnecessary C) overextended D) demand-pull

d. demand-pull

13. In the Keynesian model, the price level is ___________; in the aggregate demand and supply model, the price level is _______________. A) fixed; fixed B) flexible; flexible C) flexible; fixed D) fixed; flexible

d. fixed; flexible

15. A decrease in regulation would cause aggregate: A) supply to shift to the left. B) demand to shift to the right. C) demand to shift to the left. D) supply to shift to the right.

d. supply to shift to the right