Question 1

1 shifts to AD2, the economy would move to point b B)  If AD1 shifts to AD2, the economy would move to point c C)  If AD2 shifts to AD1, the economy would move to point c D)  If AD2 shifts to AD1, the economy would move to point b" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. The ratchet effect would suggest that:

Accepted Answer

A)   If AD1 shifts to AD2, the economy would move to point b
B)   If AD1 shifts to AD2, the economy would move to point c
C)   If AD2 shifts to AD1, the economy would move to point c
D)   If AD2 shifts to AD1, the economy would move to point bE) A) and B)
F) A) and C)

Question 2

Disinflation refers to a situation where:

Accepted Answer

A)   Price level falls, but the rate inflation does not
B)   Price level rises, but the rate of inflation does not
C)   The rate of inflation falls, but the price level does not
D)   The rate of inflation rises, but the price level does notE) None of the above
F) B) and C)

Question 3

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

Accepted Answer

A)   An increase in real interest rates
B)   A decrease in government spending
C)   A decrease in expected returns on investment
D)   A decrease in the tax rates on household incomeE) A) and B)
F) A) and C)

Question 4

1 to AD2? A)  A cut in personal and business taxes B)  An increase in the value of the dollar relative to other currencies C)  A shrinkage in the value of stocks and other financial assets D)  An increase in real interest rates" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Which of the following changes will shift AD1 to AD2?

Accepted Answer

A)   A cut in personal and business taxes
B)   An increase in the value of the dollar relative to other currencies
C)   A shrinkage in the value of stocks and other financial assets
D)   An increase in real interest ratesE) A) and C)
F) All of the above

Question 5

The real-balances effect on aggregate demand suggests that a:

Accepted Answer

A)   Lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending
B)   Lower price level will decrease the real value of many financial assets and therefore cause an increase in spending
C)   Lower price level will increase the real value of many financial assets and therefore cause an increase in spending
D)   Higher price level will increase the real value of many financial assets and therefore cause an increase in spendingE) A) and C)
F) All of the above

Question 6

Which of the following effects best explains the downward slope of the aggregate demand curve?

Accepted Answer

A)   A multiplier effect
B)   An expectations effect
C)   A substitution effect
D)   An interest-rate effectE) A) and C)
F) A) and B)

Question 7

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

Accepted Answer

A)   Productivity has increased
B)   Input prices have increased
C)   There has been an increase in government spending
D)   Government regulations have been reducedE) All of the above
F) A) and C)

Question 8

In an economy it costs $1,500 to produce 2,000 units of output. If the costs increase to $2,500, then the per unit cost of production will have increased from:

Accepted Answer

A)   $0.75 to $1.25
B)   $0.75 to $1.00
C)   $1.33 to $1.75
D)   $0.80 to $1.33E) A) and B)
F) All of the above

Question 9

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that:

Accepted Answer

A)   A decrease in the price level shifts the aggregate expenditures schedule downward and decreases equilibrium GDP
B)   A decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP
C)   An increase in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP
D)   An increase in the price level shifts the aggregate expenditures schedule downward and increases equilibrium GDPE) A) and B)
F) All of the above

Question 10

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 C)
F) B) and C)

Question 11

1 to AS2? A)  An increase in real interest rates B)  A decrease in business subsidies C)  An increase in input prices D)  A decrease in business taxes" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Which of the following factors will shift AS1 to AS2?

Accepted Answer

A)   An increase in real interest rates
B)   A decrease in business subsidies
C)   An increase in input prices
D)   A decrease in business taxesE) C) and D)
F) All of the above

Question 12

1 shifts to AD2, then the equilibrium output: A)  Increases from Q1 to Q3 while the price level falls from P2 to P1 B)  Increases from Q1 to Q2 while the price level falls from P2 to P1 C)  Increases from Q1 to Q3 while the price level rises from P1 to P2 D)  Increases from Q1 to Q2 while the price level rises from P1 to P2" class="answers-bank-image d-inline" rel="preload" > Refer to the figure above. If AD1 shifts to AD2, then the equilibrium output:

Accepted Answer

A)   Increases from Q1 to Q3 while the price level falls from P2 to P1
B)   Increases from Q1 to Q2 while the price level falls from P2 to P1
C)   Increases from Q1 to Q3 while the price level rises from P1 to P2
D)   Increases from Q1 to Q2 while the price level rises from P1 to P2E) None of the above
F) C) and D)

Question 13

The so-called ratchet effect refers to the characteristic in the economy where product prices, wages, and per-unit production cost are flexible when:

Accepted Answer

A)   AD decreases but not when AD increases
B)   AD increases but not when AD decreases
C)   AS increases but not when AS decreases
D)   AD shifts but not when AS shiftsE) B) and D)
F) All of the above

Question 14

The expenditure multiplier concept of the aggregate-expenditures model:

Accepted Answer

A)   Is not at all relevant in the AD-AS model
B)   Magnifies the shifts of the aggregate demand curve
C)   Explains movement up or down the aggregate demand curve
D)   Reverses the shift of the aggregate demand curveE) A) and B)
F) None of the above

Question 15

If the price level decreases, then the aggregate expenditures schedule will shift and 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 curveE) A) and B)
F) A) and C)

Question 16

The upward slope of the short-run aggregate supply curve is based on the assumption that:

Accepted Answer

A)   Wages and other resource prices do not respond to price level changes
B)   Wages and other resource prices do respond to price level changes
C)   Prices of output do not respond to price level changes
D)   Prices of inputs flexible while prices of outputs are fixedE) C) and D)
F) A) and B)

Question 17

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

Accepted Answer

A)   Wealth effect
B)   Real-balances effect
C)   Interest-rate effect
D)   Expectations effectE) All of the above
F) A) and C)

Question 18

An expected increase in the prices of consumer goods in the near future will:

Accepted Answer

A)   Decrease (or shift left)  in aggregate demand now
B)   Increase (or shift right)  in aggregate demand now
C)   Decrease in the quantity of real output demanded (or movement up along A
D)  
D)   Increase in the quantity of real output demanded (or movement down along A
D)  E) None of the above
F) B) and C)

Question 19

A decrease in business taxes will tend to:

Accepted Answer

A)   Increase aggregate demand but not change aggregate supply
B)   Increase aggregate supply but not change aggregate demand
C)   Increase aggregate demand and increase aggregate supply
D)   Decrease aggregate supply and decrease aggregate demandE) All of the above
F) B) and C)

Question 20

Refer to the graph above, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will:

Accepted Answer

A)   Increase by $800 billion
B)   Increase by $200 billion
C)   Decrease by $600 billion
D)   Decrease by $200 billionE) None of the above
F) A) and D)

Exam 12: Aggregate Demand and Aggregate Supply

Refer to the graph above. Which of the following changes will shift AD1 to AD2?

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Refer to the graph above. Which of the following factors will shift AS1 to AS2?

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Refer to the graph above, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will:

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In an economy it costs $1,500 to produce 2,000 units of output. If the costs increase to $2,500, then the per unit cost of production will have increased from:

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The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

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The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that:

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The expenditure multiplier concept of the aggregate-expenditures model:

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

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The upward slope of the short-run aggregate supply curve is based on the assumption that:

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If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a:

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The real-balances effect on aggregate demand suggests that a:

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The so-called ratchet effect refers to the characteristic in the economy where product prices, wages, and per-unit production cost are flexible when:

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An expected increase in the prices of consumer goods in the near future will:

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Disinflation refers to a situation where:

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Refer to the figure above. If AD1 shifts to AD2, then the equilibrium output:

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Refer to the graph above. The ratchet effect would suggest that:

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A decrease in business taxes will tend to:

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Which of the following effects best explains the downward slope of the aggregate demand curve?

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

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

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Refer to the graph above. Which of the following changes will shift AD₁ to AD₂?

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Refer to the graph above. Which of the following factors will shift AS₁ to AS₂?

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Refer to the figure above. If AD₁ shifts to AD₂, then the equilibrium output:

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