Macroeconomics Unit 4 Aggregate Demand and Aggregate Supply

Under which of the following conditions would consumer spending increase? a.Consumers have large unpaid balances on credit cards b. Consumers wealth is increased by changes in the stock market c. Social Security taxes are increased

b. Consumers wealth is increased by changes in the stock market

Which of the following events will most likely cause an increase in both the price level and real gross domestic product? a. The prime rate increases b. Exports increase c. Income taxes increase d. Crude oil prices decrease e. Inflationary expectations decrease

b. Exports increase

An increase in which of the following will increase A.D.? a. Taxes b. Government spending c. Federal funds rate d. RR e. Discount rate

b. Government spending

The natural rate hypothesis says that the unemployment rate should be: a. Below the NAIRU b. High enough that the actual rate of inflation equals the expected right c. As close to zero as possible d. 5% e. left wherever the economy sets it

b. High enough that the actual rate of inflation equals the expected right

A favorable supply shock such as a decrease in energy prices is most likely to have which of the following short run effects on the price level and output? Price Level: Output: a. decrease, no effect b. decrease, increase c. increase, increase d. increase, decrease e. no effect, no effect

b. decrease, increase

And increase in which of the following will lead to lower inflation and lower unemployment? a. Exports b. A.D. c. Labor productivity d. Government spending

c. Labor productivity

If an economy with a horizontal A.S. curve, an increase in government spending will cause output and price levels to change in which ways? Output: Price Level: a. decrease, increase b. Increase, increase c. increase, no change d. No change, increase e. No change, no change

c. increase, no change

There are (3/4) AED shifters that have nothing to do with price level

4

(A change in price level/ A decline in the interest rate at each possible price level) will cause a shift in the A.D. curve to the (right/ left).

A decline in the interest rate at each possible price level, right

If the national incomes of our major trading partners were to decrease, our (A.D./ A.S.) curve would shift to the (right/left).

A.D., left

And increase in consumption will shift the (A.D./A. S.) curve to the (right/left).

A.D., right

If the "G" decides to spend $60 billion on the infrastructure, this will shift the (A.D./ A.S.) curve to the (right/left).

A.D., right

An increase in the price of imported resources would increase per unit production cost and shift the (A.D./ A.S.) curve to the (right/left).

A.S., left

An increase in the price of imported resources which cause the (A.D./ A.S.) curve to shift (rightward/ leftward).

A.S., leftward

An improvement in productivity will shift the (A.D./ A.S.) curve to the (right/left).

A.S., right

A rightward shift of the PPC will shift the (A.D./ A.S.) curve to the (right/left)

A.S.,right

The process of combining all individual product prices and quantities into a single unit is:

Aggregation

(An increase in the price level/ a decline in business taxes) would not shift the A.S. curve.

An increase in the price level

Range three of the A.S. curve is called

Classical

The foreign purchases effect suggests that an increase in our price level relative to other countries (increase/ decrease) our exports and (increase/decrease) our imports which would (increase/decrease) (A.D./ A.Q.D.).

Decrease decrease increase a QD

And increase in the price level will cause a (shift in the A.D. curve to the left, shift in the A.D. curve to the right, decrease in A.Q.D.)

Decrease in A.Q.D.

A decrease in the price level will cause a (shift to the left of the A.S. curve/ shift to the right of the A.S. curve/ decrease in the AQS).

Decrease in the A.Q.S.

The wealth effect indicates that a higher price level will (increase/decrease) the real value of money, (increase/ decrease) consumption, and therefore (increase/ decrease) (A.D./ A.Q.D.).

Decrease, increase, decrease, A.Q.D.

The income and substitution effects (do/ do not) apply to the A.D. curve. The three explanations for the down-sloping A.D. curve are the interest rate effect, foreign purchase effect, and the (economic/ wealth) effect.

Do not, wealth

The A.D. curve is always (up-sloping/ down-sloping) and shows a (direct/ inverse) relationship between output and (price/ price level).

Down-sloping, inverse, price level

A change in which of the following will cause the short run A.S. curve to shift? I. The price level II. Government spending III. The cost of all inputs

I., II.

Which of the following was an important point emphasized in Keynes's influential work? I. In the short run, shift in aggregate demand affect aggregate output II. Animal spirits are an important determinant of business cycles III. In the long run we are all dead

I., II., III.

Which of the following causes a negative supply shock? I. A technological advance II. Increasing productivity III. An increase in oil prices

III.

A shift in the price level will cause (a shift to the right of the A.S. curve/ shift to the left of the AES curve/ increase in the AQS)

Increase in the AQS

The interest rate effect suggests that an increase in the price level will (increase/ decrease) the demand for money (increase/ decrease), interest rates, and (increase/ decrease) consumption and investment which would cause an (increase/ decrease) in (A.D./ A.Q.D.).

Increase, increase, decrease, decrease, A.Q.D.

Range two of the A.S. curve is called

Intermediate

Range one of the A.S. curve is called

Keynesian

A depreciation of the dollar would cause imported inputs to be more expensive and shift the A.S. curve to the (right/left) however, the cost of our products would decrease so it would shift the A.D. curve (right/left).

Left, right

The A.D. curve shows the amount of (deduction/conglomeration/aggregation) domestic output which will be purchased at each possible (price/price level).

Real, Price level

And increase in investment caused by a decline in the interest rate will (cause a movement along a stable/ shift the) A.D. curve to the (right/left).

Shift the, right

Which of the following causes a positive demand shock? a. An increase in wealth b. Pessimistic consumer expectations c. A decrease in government spending d. An increase in taxes e. An increase in the existing stock of capital

a. An increase in wealth

The A.D. curve is downward slope in because as the price level increases the a. Purchasing power of wealth decreases b. Demand for imports decreases c. Demand for interest sensitive expenditures increases d. Demand for domestically produced substitute goods increases e. Real value of fixed assets increases

a. Purchasing power of wealth decreases

The main difference between the classical model of the price level and the Keynesian economics is that: a. the classical model assumes a vertical short run aggregate supply curve b. Keynesian economics assumes a vertical short run aggregate supply curve c. The classical model assumes an upward sloping long run aggregate supply curve d. Keynesian economics assumes a vertical long run aggregate supply curve e. the classical model assumes aggregate demand cana not change in the long run

a. the classical model assumes a vertical short run aggregate supply curve

Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation? a. A decrease involuntary unemployment b. A decrease in the natural rate of unemployment c. A decrease in A.S. d. An increase in unplanned inventories e. An increase in the rate of inflation

d. An increase in unplanned inventories

During stagflation what happens to the aggregate price level and real GDP? Aggregate Price Level: Real GDP: a. Decreases, increases b. Decreases, decreases c. Increases, increases d. Increases, decreases e. Stays the same, stays the same

d. Increases, decreases

A contractionary supply shop would most likely result in a. Inflation had been underpredicted b.The real interest rate had exceeded the nominal interest rate c. The real interest rate had been negative d. People who borrowed funds at the nominal interest rate during this time would lose

d. People who borrowed funds at the nominal interest rate during this time would lose

The fluctuations in total factor productivity growth cause business cycles in the main tenant of which theory? a. Keynesian b. Classical c. Rational expectations d. Real Business cycle e. natural rate

d. Real Business cycle

Which of the following is a central point of monetarism? a. Business cycles are associated with fluctuations in money demand b. Activist monetary policy is the best way to address business cycles c. Discretionary monetary policy is effective while discretionary fiscal policy is not d. The Fed should follow a monetary policy rule e. All of the above

d. The Fed should follow a monetary policy rule

If an economy's A.S. curve is upward sloping, an increase in government spending will most likely result in a decrease in the a. Real output b. Price levels c. Interest rate d. Unemployment rate e. budget deficit

d. Unemployment rate

If the economy is operating in the intermediate range of the A.S. curve and if A.D. increases due to an increase in net exports, then the price level, output, and the unemployment rate are most likely to change in which of the following ways? a. an increase in A.D. b. an increase in national income c. an increase in GDP d. a decrease in the general price level e. a decrease in unemployment

e. a decrease in unemployment