Chapter 12 Review Questions

Which of the diagrams in Figure 2 best portrays the effects of an increase in productivity in the economy? a. A b. B c. C d. D

a. A

Which of the following would not shift the aggregate demand curve? a. a change in the price level b. depreciation of the dollar versus other currencies c. an improved outlook for the economy leads to an increased level of investment by the business community d. an increase in personal income tax rates

a. a change in the price level

Other things being equal, if the national incomes of the major trading partners of the US were to rise, the US a. aggregate demand curve would shift to the right b. aggregate supply curve would shift to the right c. aggregate supply curve would shift to the left d. aggregate demand curve would shift to the left

a. aggregate demand curve would shift to the right

In Figure 1, a shift from Aggregate Supply AS (1) to AS (2) might be caused by a a. increase in productivity b. increase in the price of imported resources c. decrease in consumer confidence d. increase in business taxes

a. increase in productivity

Which of the diagrams in Figure 2 best portrays the effects of an increase in government regulation of the US economy? a. A b. B c. C d. D

b. 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. expand investment and shift the AD curve to the right

A rightward shift in the aggregate supply curve is best explained by an increase a. in business taxes b. in productivity c. in wages and salaries d. in the price of imported resources

b. in productivity

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will a. increase the amount of US real output purchased b. increase US imports and decrease US exports c. increase both US imports and US exports d. decrease both US imports and US exports

b. increase US imports and decrease US exports

Other things being 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

b. increase both aggregate demand and aggregate supply

The aggregate supply curve (short run): a. graphs a horizontal line b. is steeper above full employment than below it c. slopes downward to the right d. graphs consumer expenditure against the price level

b. is steeper above full employment than below it

In which of the following sets of circumstances can we confidently expect inflation? a. Aggregate supply and aggregate demand both increase b. Aggregate supply and aggregate demand both decrease c. Aggregate supply decreases and aggregate demand increases d. Aggregate supply increases and aggregate demand decreases

c. Aggregate supply decreases and aggregate demand increases

Which of the diagrams in Figure 2 best portrays the effects of an increase in income in foreign countries and increased sales to these export markets? a. A b. B c. C d. D

c. C

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 household's level of real wealth and buying power c. a higher price level will decrease the household's level of real wealth and buying power d. a higher price level will increase the household's level of real wealth and buying power

c. a higher price level will decrease the household's level of real wealth and buying power

The interest rate effect suggest that: a. a decrease in the price level increases the household's level of real wealth and buying power 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

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

Other things being equal, appreciation of the US dollar a. increases aggregate demand in the US, and may increase aggregate supply by reducing the prices of imported resources b. increases aggregate demand in the US, and may decrease aggregate supply by reducing the prices of imported resources c. decreases aggregate demand in the US, and may increase aggregate supply by reducing the prices of imported resources d. decreases aggregate demand in the US and may reduce aggregate supply by increasing the price of imported resources

c. decreases aggregate demand in the US, and may increase aggregate supply by reducing the prices of imported resources

If investment increases by $10 billion and the economy's MPC is 0.8, 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

c. rightward by $50 billion at each price level

In Figure 1, a shift from Aggregate Supply AS (1) to AS (3) might be caused by an increase in a. government regulation b. business taxes c. the prices of imported resources d. All of the above

d. All of the above

Which of the diagrams in Figure 2 best portrays the effects of a decline in consumer confidence in the US? a. A b. B c. C d. D

d. D

Which of the diagrams in Figure 2 best portrays the effects of an increased preference for foreign made products by US consumers? a. A b. B c. C d. D

d. D