Download File

AP ECONOMICS CHAPTER 11 STUDY GUIDE
1. 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.
6. If the U.S. dollar appreciates in value relative to foreign
currencies, then this will:
A) increase aggregate demand.
B) decrease aggregate demand.
C) cause a movement downward along the aggregate
demand curve.
D) cause a movement upward along the aggregate demand
curve.
7. Which set of events would most likely increase
aggregate demand?
A) an increase in incomes in foreign nations and a
depreciation of the dollar
B) an increase in incomes in foreign nations and an
appreciation of the dollar
C) a decrease in incomes in foreign nations and an
appreciation of the dollar
D) a decrease in incomes in foreign nations and a
depreciation of the dollar
2. Which effect best explains the downward slope of the
aggregate demand curve?
A) a multiplier effect
B) an income effect
C) a substitution effect
D) an interest rate effect
3. The interest rate effect indicates that a(n):
A) decrease in the price level will increase the demand for
money, increase interest rates, and decrease
consumption and investment spending.
B) decrease in the price level will decrease the demand for
money, decrease interest rates, and increase
consumption and investment spending.
C) increase in the price level will increase the demand for
money, reduce interest rates, and decrease consumption
and investment spending.
D) increase in the supply of money will increase interest
rates and decrease interest-sensitive consumption and
investment spending.
8. The relationship between the aggregate demand curve
and the aggregate expenditures model is shown in the
fact that:
A) a decrease in the price level shifts the aggregate
expenditures schedule downward and decreases real
GDP.
B) a decrease in the price level shifts the aggregate
expenditures schedule upward and increases real GDP.
C) an increase in the price level shifts the aggregate
expenditures schedule upward and increases real GDP.
D) an increase in the price level shifts the aggregate
expenditures schedule downward and increases real
GDP.
4. The real-balances effect suggests that a:
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
spending.
9. In the expenditures-output model, the price level is held
constant and the aggregate expenditures schedule (C +
Ig+ Xn) shifts upward. In the aggregate demandaggregate supply model this change would be
equivalent to a(n):
A) decrease in aggregate demand in the horizontal range of
the aggregate supply curve.
B) increase in aggregate demand in the horizontal range of
the aggregate supply curve.
C) increase in aggregate demand in the vertical range of
the aggregate supply curve.
D) decrease in aggregate demand in the vertical range of
the aggregate supply curve.
5. The best explanation for why the aggregate demand
curve is downsloping is that:
A) the supply of money decreases when the price level
decreases.
B) businesses produce fewer goods and services when the
price level increases.
C) businesses produce more goods and services when the
price level increases.
D) people gain in purchasing power from financial assets
when the price level decreases.
10. An increase in the price level in the aggregate
expenditures model would:
A) decrease aggregate expenditures and real GDP.
B) increase aggregate expenditures and real GDP.
C) increase aggregate expenditures and decrease real GDP.
D) decrease aggregate expenditures and increase real GDP.
Page 1
11. An increase in investment spending can be expected to
shift the:
A) aggregate expenditures curve downward and the
aggregate demand curve leftward.
B) aggregate expenditures curve upward and the aggregate
demand curve leftward.
C) aggregate expenditures curve downward and the
aggregate demand curve rightward.
D) aggregate expenditures curve upward and the aggregate
demand curve rightward.
15. If the prices of imported resources decrease, then this
event would most likely:
A) decrease aggregate supply.
B) increase aggregate supply.
C) increase aggregate demand.
D) decrease aggregate demand.
16. If the U.S. dollar appreciates in value relative to foreign
currencies, then this will:
A) increase aggregate supply.
B) decrease aggregate supply.
C) increase aggregate demand.
D) cause a movement along the aggregate supply curve.
12. A decrease in consumer spending can be expected to
shift the:
A) aggregate expenditures curve downward and the
aggregate demand curve leftward.
B) aggregate expenditures curve upward and the aggregate
demand curve leftward.
C) aggregate expenditures curve downward and the
aggregate demand curve rightward.
D) aggregate expenditures curve upward and the aggregate
demand curve rightward.
17. If personal income taxes and business taxes decrease,
then this will:
A) increase aggregate demand and aggregate supply.
B) decrease aggregate demand and aggregate supply.
C) decrease aggregate demand and increase aggregate
supply.
D) increase aggregate demand and decrease aggregate
supply.
Use the following to answer question 13:
Use the following to answer questions 18-19:
13. Refer to the above diagram. The intermediate, vertical,
and horizontal ranges of the aggregate supply curve are,
respectively, ranges:
A) 1, 2, and 3.
B) 2, 1, and 3.
C) 3, 2, and 1.
D) 2, 3, and 1.
18. Refer to the above diagram. If AD1 shifts to AD2 , then
the equilibrium output and price level are:
A) P1Q3. B) P2Q3. C) P1Q2. D) P2Q2.
19. Refer to the above diagram. When AD1 shifts to AD2 ,
then at P1Q3 output demanded will:
A) equal output supplied.
B) exceed output supplied.
C) be less than output supplied.
D) be at stable full-employment GDP.
14. Suppose that an economy produces 500 units of output.
It takes 10 units of labor at $15 a unit and 4 units of
capital at $50 a unit to produce this output. The per unit
cost of production is:
A) $1.42. B) $1.24. C) $0.70. D) $0.40.
Page 2
Use the following to answer questions 20-23:
Use the following to answer question 24:
Answer the next question(s) on the basis of the following
aggregate demand and supply schedules for a hypothetical
economy.
Amount of real
output demanded
$ 1000
1500
2000
2500
3000
3000
Price level
(index value)
225
200
175
150
125
125
Amount of real
output supplied
$2500
2500
2000
1500
1000
500
20. Refer to the above table. What price level would be
associated with the horizontal range of the aggregate
supply curve?
A) 225
B) 200
C) 150
D) 125
21. Refer to the above table. What price levels would be
associated with the vertical range of the aggregate
supply curve?
A) 225 and 200
B) 200 and 175
C) 175 and 150
D) 150 and 125
24. The equilibrium price and output level for each diagram
(A, B, and C) above after a shift in aggregate demand
will be, respectively:
A) P1Q1, P6Qf, and P4Q4 .
B) P1Q2, P5Qf, and P4Q3 .
C) P1Q2, P6Qf, and P4Q4 .
D) P1Q1, P5Qf, and P3Q3 .
22. Refer to the above table. The equilibrium price level
will be:
A) 125.
B) 150.
C) 175.
D) 200.
25. The economy experiences a decrease in the price level
and an increase in real domestic output. Which is a
likely explanation?
A) consumer incomes and the quantity of labor have
decreased
B) interest rates and wage rates have decreased
C) the prices of imported resources have increased
D) national income abroad has increased
23. Refer to the above table. If the price level is 200, then
based on the aggregate demand and supply schedule,
there will be a:
A) shortage of real output of $1500.
B) shortage of real output of $1000.
C) surplus of real output of $1000.
D) surplus of real output of $1500.
Page 3
Use the following to answer question 26:
Use the following to answer question 28:
28. Refer to the above graph. When AD2 shifts to AD3 :
A) output increases from GDP2 to GDP3 , but the
multiplier is not at full strength.
B) output increases from GDP2 to GDP' and the
multiplier is at full strength.
C) the price level increases from P1 to P2, but the
multiplier is at full strength.
D) the price level increases from P1 to P2, but the
multiplier is not at full strength.
26. Refer to the above diagram. Cost-push inflation can be
illustrated by a:
A) shift in the aggregate supply curve from AS1 to AS2 .
B) shift in the aggregate supply curve from AS1 to AS3 .
C) shift in the aggregate supply curve from AS2 to AS3 .
D) movement along the aggregate demand curve from e1
to e3.
27. Collective bargaining agreements that prohibit wage
cuts for the duration of the contract contribute to:
A) a wealth effect
B) a multiplier effect.
C) an increase in aggregate supply.
D) a price level that is inflexible downward.
29. Suppose an economy which has a MPC of .75 is
experiencing a $10 billion inflationary gap (aggregate
expenditures model) and is operating in the vertical
range of its aggregate supply curve (AD-AS model).
To return this economy to its previous price level, it
must shift its aggregate demand curve:
A) leftward by $10 billion
B) leftward by $20 billion.
C) rightward by $40 billion.
D) leftward by $40 billion.
30. Assume that the MPC is .75 in an economy operating in
the horizontal range of its aggregate supply curve. If the
aggregate demand curve shifts right and increases GDP
by $80 billion, we can conclude that the initial change
in spending was:
A) $10 billion.
B) $20 billion.
C) $50 billion.
D) $80 billion.
Page 4