Econ Test 4 T/F

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The aggregate price level is a component of aggregate demand

False

The downward slope of the aggregate demand curve is a natural consequence of the law of demand.

False

The real value of household assets does not affect aggregate demand.

False

The interest rate effect does not effect aggregate price level.

False

When the real value of household assets falls—for example, because of a stock market crash—the purchasing power they embody is reduced and aggregate demand also falls.

True

When the real value of household assets rises aggregate demand increases

True

When the real value of these assets rises, the purchasing power they embody also rises, leading to an increase in aggregate spending.

True

Consumer spending is negatively related to the aggregate price level

True

A positive demand shock shifts the aggregate demand curve rightward

True

A positive supply shock generates higher aggregate output and a lower aggregate price level

True

A supply shock shifts the short-run aggregate supply curve, moving the aggregate price level and aggregate output in the opposite direction.

True

Changes in commodity prices can cause a shift in the short-run aggregate supply curve

True

Changes in nominal wages can cause a shift in the short-run aggregate supply curve

True

Changes in productivity can cause a shift in the short-run aggregate supply curve

True

Consumption is a competent of aggregate demand.

True

Government Spending is a component of aggregate demand

True

If aggregate demand is greater than aggregate supply short-term price levels will rise.

True

In the long-run changes in the price level will equalize across all prices, making long-run prices unimportant to understanding economic health

True

Investment is a component of aggregate demand

True

Macroeconomic equilibrium is a condition in the economy in which the quantity of aggregate demand equals the quantity of aggregate supply.

True

Net Exports (X-M) is a component of aggregate demand

True

The determinants of aggregate demand are consumer expectations, changes in wealth, physical capital, fiscal policy and monetary policy.

True

The interest rate effect is caused when consumers and firms respond to raising prices by increasing their demand for money, causing interest rates.

True

The interest rate effect is one reason why the aggregate demand curve slopes downward

True

The wealth effect is caused because a rise in prices makes held wealth lose value and a drop in prices makes held wealth gain value. This causes consumer spending to fall when the aggregate price level rises and rise when the aggregate price level falls.

True

The wealth effect is one reason why the aggregate demand curve slopes downward

True

When the central bank reduces the quantity of money aggregate demand decreases

True

The Streisand effect is one reason why the aggregate demand curve slopes downard

False

When consumers and firms become more optimistic aggregate demand increases

True

When consumers and firms become more pessimistic Aggregate demand decreases

True

When the central bank increases the quantity of money aggregate demand increases

True

When the government reduces spending or raises taxes aggregate demand decreases

True

When the real value of household assets falls aggregate demand decreases

True

A rise in aggregate price decreases the demand for exports.

True

When the existing stock of physical capital is relatively small aggregate demand increases

True

When the government increases spending or cuts taxes aggregate demand increases

True

Net exports have no effect on the downward slope of the aggregate demand curve.

False

Stagflation is a component of aggregate demand

False

Supply shocks are a component of aggregate demand

False

A Negative demand shock shifts the aggregate demand curve rightward.

False

A fall in the real value of household assets will cause an increase in aggregate demand

False

A positive demand shock will decrease the aggregate price level

False

A positive supply shock shifts the short-run aggregate supply curve leftward

False

A positive supply shock will cause stagflation

False

A rise in aggregate price has no effect on net exports.

False

Consumer spending is positively related to the aggregate price level

False

When the existing stock of physical capital is relatively large aggregate demand decreases

True

A Negative supply shock shifts the short-run aggregate supply curve leftward and causes stagflation

True

A demand shock shifts the aggregate demand curve, moving the aggregate price level and aggregate output in the same direction.

True

A rise in aggregate price increases the demand for imports.

True

When the government increases spending or cuts taxes aggregate demand decreases

False

When the government reduces spending or raises taxes aggregate demand increases

False

When the real value of household assets falls aggregate demand increases

False

When the real value of household assets rises aggregate demand decreases

False

When the central bank reduces the quantity of money aggregate demand increases

False

When the existing stock of physical capital is relatively large aggregate demand increases

False

When the existing stock of physical capital is relatively small aggregate demand decreases

False

If Aggregate demand is less than aggregate supply short-term price levels will rise.

False

Long-run changes in the price-level are important to understanding economic health

False

Monetary policy has no affect on aggregate demand

False

The tax multiplier is a component of aggregate demand

False

The wealth effect is cause by the wealthy increasing their consumption.

False

When consumers and firms become more optimistic aggregate demand decreases

False

When consumers and firms become more pessimistic Aggregate demand increases

False

When the central bank increases the quantity of money aggregate demand decreases

False


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