EC141 Week 5

Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the price level is 200, the quantity of real GDP demanded is:

$600 billion

Which event would most likely increase aggregate demand?

A depreciation of the dollar

Which would be one of the factors that increase aggregate demand

An increase in consumer wealth

Which set of events would most likely decrease aggregate demand?

An increase in personal income tax rates

If the prices of imported resources increase, then this event would most likely:

Decrease aggregate supply

A decrease in net exports will cause a(n):

Decrease in aggregate demand

An increase in government spending will cause a(n):

Increase in aggregate demand

Cost-push inflation occurs because of a:

Leftward shift in the aggregate supply curve

The labels for the axes of an aggregate supply curve should be:

Real domestic output for the horizontal axis and price level for the vertical axis

The labels for the axes of the aggregate demand graph should be:

Real domestic output on the horizontal axis and the price level on the vertical axis

The magnification of small changes in spending into larger changes in output and income is produced by:

The multiplier effect

The long-run aggregate supply curve is:

Vertical

Wage contracts, efficiency wages, and the minimum wage are explanations for why:

Wages tend to be inflexible downward

The ratchet effect means that:

When aggregate demand decreases, the price level remains constant

An increase in aggregate demand is most likely to be caused by a decrease in:

the tax rates on household income.