Macro Ch 10 Midterm 2

14. Which of the above diagrams best portrays the effects of an increase in foreign spending on our products? A. A B. B C. C D. D

C. C

23. Which of the above diagrams best portrays the effects of an increase in productivity? A. A B. B C. C D. D

A. A

26. Refer to the diagram below. If the initial aggregate demand and supply curves are AD0 and AS0, the equilibrium price level and level of real domestic output will be: refer to actual quiz A. F and C, respectively. B. G and B, respectively. C. F and A, respectively. D. E and B, respectively.

A. F and C, respectively.

2. The aggregate demand curve shows the: A. inverse relationship between the price level and real GDP purchased. B. direct relationship between the price level and real GDP produced. C. inverse relationship between interest rates and real GDP produced. D. direct relationship between real-balances and real GDP purchased.

A. inverse relationship between the price level and real GDP purchased.

The following table is for a particular country in which C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. Each question is independent of the other questions. refer to actual quiz 4. Refer to the above table. The wealth or real balances effect of changes in the price level is: A. shown by columns (1) and (2) of the table. B. shown by columns (1) and (5) of the table. C. shown by columns (1) and (4) of the table. D. not shown by the data in the table.

A. shown by columns (1) and (2) of the table.

11. Which of the diagrams below best portrays the effects of an increase in consumer spending? A. A B. B C. C D. D

C. C

22. Refer to the above information. As a result of the change indicated in the previous question, the aggregate: A. supply curve would shift to the left. B. supply curve would shift to the right. C. demand curve would shift to the left. D. demand curve would shift to the right.

A. supply curve would shift to the left.

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

A. the demand for money falls and the interest rate falls.

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labour to produce its total output of 640 units. Each unit of capital costs $10, each unit of raw materials, $4, and each unit of labour, $3. 20. Refer to the above information. The per unit cost of production in this economy is: A. $.05. B. $.10. C. $.50. D. $1.00.

B. $.10

10. Changes in which of the two factors below would most likely cause a change in consumer spending? The following list of factors, are related to the aggregate demand curve. A. 1 and 3 B. 2 and 4 C. 5 and 10 D. 8 and 9

B. 2 and 4

29. Suppose higher taxes on businesses cause a decrease in spending on plant and equipment. How will this affect the aggregate expenditure (AE) and the aggregate demand (AD) schedules? A. AE shifts up; AD shifts to the left B. AE shifts down; AD shifts to the left C. AE shifts up; AD shifts to the right D. AE shifts down; AD shifts to the right

B. AE shifts down; AD shifts to the left

24. Which of the above diagrams best portrays the effects of a decrease in the availability of key natural resources? A. A B. B C. C D. D

B. B

18. Other things equal, if the international value of the dollar were to depreciate, the: A. aggregate demand curve would remain fixed in place. B. aggregate supply curve would shift to the left. C. aggregate supply curve would shift to the right. D. aggregate demand curve would shift to the left.

B. aggregate supply curve would shift to the left.

8. The foreign trade effect suggests that an increase in the Canadian price level relative to other countries will: A. increase the amount of Canadian real output purchased. B. increase Canadian imports and decrease Canadian exports. C. increase both Canadian imports and Canadian exports. D. decrease both Canadian imports and Canadian exports.

B. increase Canadian imports and decrease Canadian exports.

17. The long run aggregate supply: A. is downward sloping. B. is vertical. C. is horizontal. D. is upward sloping.

B. is vertical.

9. "If the price level increases in Canada relative to foreign countries, then Canadian consumers will purchase more foreign goods and fewer Canadian goods." This statement describes: A. the output effect. B. the foreign trade effect. C. the real-balances effect. D. the shift-of-spending effect.

B. the foreign trade effect.

5. Which of the following is incorrect? A. As the Canadian price level rises, Canadian goods become relatively more expensive so that its exports fall and its imports rise. B. As the price level falls, the demand for money declines, the interest rate declines, and interest rate-sensitive spending increases. C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending. D. Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward flexible prices, reduces the price level.

C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.

27. Refer to the above diagram. If aggregate supply shifts from AS1 to AS2, then the price level will: A. increase and real domestic output will increase. B. decrease and real domestic output will increase. C. increase and real domestic output will decrease. D. decrease and real domestic output will decrease.

C. increase and real domestic output will decrease.

30. A decrease in taxes will cause a(n): A. decrease in the quantity of real domestic output demanded. B. increase in the quantity of real domestic output demanded. C. increase in aggregate demand. D. decrease in aggregate demand.

C. increase in aggregate demand.

21. Refer to the above information. If the per unit price of raw materials rises from $4 to $8 and all else remains constant, the per unit cost of production will rise by about: A. 100 percent. B. 50 percent. C. 40 percent. D. 30 percent.

D. 30 percent.

16. Refer to the information below. A change in net export spending would most likely be caused by changes in: The following list of factors is related to the aggregate demand curve. A. 2 and 3. B. 5 and 6. C. 7 and 8. D. 6 and 9.

D. 6 and 9.

13. Which of the above diagrams best portrays the effects of a substantial reduction in government spending? A. A B. B C. C D. D

D. D

15. Which of the above diagrams best portrays the effects of declines in the incomes of other major nations with whom we trade? A. A B. B C. C D. D

D. D

3. 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 real value of many financial assets and therefore reduce spending. C. a higher price level will increase the real value of many financial assets and therefore increase spending. D. a higher price level will decrease the real value of many financial assets and therefore reduce spending.

D. a higher price level will decrease the real value of many financial assets and therefore reduce spending.

6. Which of the following explains why the aggregate demand schedule is downward sloping? A. the real-balances effect B. the interest rate effect C. the foreign trade effect D. all of the above

D. all of the above

28. In the above figure AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. At the original equilibrium price and quantity, this economy is experiencing: A. inflation. B. economic growth. C. full employment. D. less than full-capacity output.

D. less than full-capacity output.

19. Which would most likely shift the aggregate supply curve? A change in: A. consumer expectations. B. government spending. C. excess capacity in business. D. prices of imported resources.

D. prices of imported resources.

1. The aggregate demand curve: A. is upward sloping because a higher price level is necessary to make production profitable as production costs rise. B. is downward sloping because production costs decline as real output increases? C. shows the amount of expenditures required to induce the production of each possible level of real output. D. shows the amount of real output which will be purchased at each possible price level.

D. shows the amount of real output which will be purchased at each possible price level.

25. Refer to the above diagram. If equilibrium real output is Q2, then: refer to actual quiz A. aggregate demand is AD1. B. the equilibrium price level is P1. C. producers will supply output level Q1. D. the equilibrium price level is P2.

D. the equilibrium price level is P2.

12. An increase in aggregate demand is most likely to be caused by a decrease in: A. the wealth of consumers. B. consumer confidence. C. business confidence. D. the tax rates on household income.

D. the tax rates on household income.