Question 1

If the dollar depreciates in value relative to foreign currencies, then aggregate

Accepted Answer

A)  demand decreases.
B)  demand increases.
C)  supply and aggregate demand increase.
D)  supply and aggregate demand decrease.E) C) and D)
F) None of the above

Question 2

A rightward shift of the AD curve in the very flat part of the short-run AS curve will

Accepted Answer

A)  increase real output by more than the price level.
B)  increase the price level by more than real output.
C)  reduce real output by more than the price level.
D)  reduce the price level by more than real output.E) B) and D)
F) C) and D)

Question 3

Other things equal, a reduction in personal and business taxes can be expected to

Accepted Answer

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.E) A) and C)
F) B) and C)

Question 4

(Advanced analysis)  Assume that the MPS is 0.33 in an economy that has an aggregate supply curve with a slope of 1.An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by

Accepted Answer

A)  $30 billion and increase real GDP by $15 billion.
B)  $30 billion and increase real GDP by $30 billion.
C)  $10 billion and increase real GDP by $30 billion.
D)  $10 billion and increase real GDP by $10 billion.E) B) and C)
F) A) and C)

Question 5

(Last Word)  In response to the Great Recession, the federal government engaged in significant deficit-funded spending, but it did not fully achieve the desired result.Which of the following best explains why the fiscal policy actions fell short of their objective?

Accepted Answer

A)  Monetary policy counteracted fiscal policy, keeping the unemployment rate from falling as much as intended.
B)  Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt.
C)  Although the fiscal stimulus increased consumer spending significantly, it mostly went to purchase foreign-produced goods and services.
D)  The fiscal stimulus caused massive inflation that further disrupted economic activity.E) A) and B)
F) A) and D)

Question 6

Other things equal, a decrease in the real interest rate will

Accepted Answer

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.E) A) and D)
F) C) and D)

Question 7

When there is an increase in aggregate demand in the short run, there will be an increase in the price level but not in the level of output or employment.

Accepted Answer

A) True 
 B)False

Question 8

The real-balances, interest-rate, and foreign purchases effects all help explain

Accepted Answer

A)  why the aggregate demand curve is downsloping.
B)  why the aggregate supply curve is upsloping.
C)  shifts in the aggregate demand curve.
D)  shifts in the aggregate supply curve.E) B) and D)
F) All of the above

Question 9

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of

Accepted Answer

A)  the interest-rate effect.
B)  the real-balances effect.
C)  a change in the degree of excess capacity.
D)  a change in the real value of consumer wealth.E) A) and D)
F) B) and D)

Question 10

An increase in the aggregate expenditures schedule

Accepted Answer

A)  increases aggregate demand by the amount of the increase in aggregate expenditures only.
B)  increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.
C)  decreases aggregate demand by the amount of the increase in aggregate expenditures.
D)  decreases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.E) A) and D)
F) B) and C)

Question 11

Other things equal, appreciation of the dollar

Accepted Answer

A)  increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
B)  increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources.
C)  decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
D)  decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.E) None of the above
F) A) and B)

Question 12

The aggregate supply curve (short run)

Accepted Answer

A)  slopes downward and to the right.
B)  graphs as a vertical line.
C)  slopes upward and to the right.
D)  graphs as a horizontal line.E) None of the above
F) B) and C)

Question 13

Which of the following events would most likely reduce aggregate demand?

Accepted Answer

A)  a reduction in the amount of existing capital stock
B)  a reduction in business and personal tax rates
C)  an increase in expected returns on investment
D)  an increase in real interest ratesE) A) and B)
F) A) and C)

Question 14

Suppose that nominal wages fall and productivity rises in a particular economy.Other things equal, the aggregate

Accepted Answer

A)  demand curve will shift leftward.
B)  supply curve will shift rightward.
C)  supply curve will shift leftward.
D)  expenditures curve will shift downward.E) A) and B)
F) A) and C)

Question 15

In the Great Recession of 2007-2009, stock market values shrank, causing a reverse

Accepted Answer

A)  wealth effect.
B)  real-balances effect.
C)  interest-rate effect.
D)  expectations effect.Difficulty: 02 MediumE) None of the above
F) B) and D)

Question 16

A fall in labor costs will cause aggregate

Accepted Answer

A)  supply to increase.
B)  demand to increase.
C)  supply to decrease.
D)  demand to decrease.E) C) and D)
F) A) and C)

Question 17

An increase in the price level in the aggregate expenditures model would

Accepted Answer

A)  decrease aggregate expenditures and shift the AD curve to the left.
B)  increase aggregate expenditures and shift the AD curve to the right.
C)  decrease aggregate expenditures but would not shift the AD curve.
D)  increase aggregate expenditures but would not shift the AD curve.E) B) and D)
F) C) and D)

Question 18

The greater the upward slope of the AS curve, the larger is the realized multiplier effect of a change in investment spending.

Accepted Answer

A) True 
 B)False

Question 19

The aggregate demand curve shows that when the price level rises, the quantity of real output demanded decreases.

Accepted Answer

A) True 
 B)False

Question 20

If the price level decreases, then the aggregate expenditures schedule will shift.This translates into a

Accepted Answer

A)  movement down along the aggregate demand curve.
B)  shift in aggregate demand to the right.
C)  shift in aggregate demand to the left.
D)  movement up along the aggregate demand curve.E) A) and C)
F) None of the above

Exam 32: Aggregate Demand and Aggregate Supply

The greater the upward slope of the AS curve, the larger is the realized multiplier effect of a change in investment spending.

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The aggregate supply curve (short run)

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Other things equal, a reduction in personal and business taxes can be expected to

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If the dollar depreciates in value relative to foreign currencies, then aggregate

Correct AnswerverifiedShow Answer

Other things equal, appreciation of the dollar

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Suppose that nominal wages fall and productivity rises in a particular economy.Other things equal, the aggregate

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If the price level decreases, then the aggregate expenditures schedule will shift.This translates into a

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An increase in the aggregate expenditures schedule

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An increase in the price level in the aggregate expenditures model would

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The real-balances, interest-rate, and foreign purchases effects all help explain

Correct AnswerverifiedShow Answer

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of

Correct AnswerverifiedShow Answer

A fall in labor costs will cause aggregate

Correct AnswerverifiedShow Answer

In the Great Recession of 2007-2009, stock market values shrank, causing a reverse

Correct AnswerverifiedShow Answer

(Last Word) In response to the Great Recession, the federal government engaged in significant deficit-funded spending, but it did not fully achieve the desired result.Which of the following best explains why the fiscal policy actions fell short of their objective?

Correct AnswerverifiedShow Answer

(Advanced analysis) Assume that the MPS is 0.33 in an economy that has an aggregate supply curve with a slope of 1.An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by

Correct AnswerverifiedShow Answer

Which of the following events would most likely reduce aggregate demand?

Correct AnswerverifiedShow Answer

A rightward shift of the AD curve in the very flat part of the short-run AS curve will

Correct AnswerverifiedShow Answer

The aggregate demand curve shows that when the price level rises, the quantity of real output demanded decreases.

Correct AnswerverifiedShow Answer

When there is an increase in aggregate demand in the short run, there will be an increase in the price level but not in the level of output or employment.

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Other things equal, a decrease in the real interest rate will

Correct AnswerverifiedShow Answer

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