Download Chapter 29 Aggregate Demand and Aggregate Supply

National Income and Price Determination
AD, SRAS, AND LRAS
Multiple Choice Questions
1. The aggregate demand curve:
A. is upsloping because a higher price level is necessary to make production profitable as
production costs rise.
B. is downsloping because production costs decline as real output increases.
C. shows the amount of expenditures required to induce the production of each possible level
of real output.
D. shows the amount of real output that will be purchased at each possible price level.
2. The interest-rate effect suggests that:
A. a decrease in the supply of money will increase interest rates and reduce interest-sensitive
consumption and investment spending.
B. an increase in the price level will increase the demand for money, reduce interest rates, and
decrease consumption and investment spending.
C. an increase in the price level will increase the demand for money, increase interest rates,
and decrease consumption and investment spending.
D. an increase in the price level will decrease the demand for money, reduce interest rates,
and increase consumption and investment spending.
3. The foreign purchases effect suggests that an increase in the U.S. price level relative to
other countries will:
A. increase the amount of U.S. real output purchased.
B. increase U.S. imports and decrease U.S. exports.
C. increase both U.S. imports and U.S. exports.
D. decrease both U.S. imports and U.S. exports.
4. The foreign purchases effect suggests that a decrease in the U.S. price level relative to other
countries will:
A. shift the aggregate demand curve leftward.
B. shift the aggregate supply curve leftward.
C. decrease U.S. exports and increase U.S. imports.
D. increase U.S. exports and decrease U.S. imports.
5. The factors that affect the amounts that consumers, businesses, government, and foreigners
wish to purchase at each price level are the:
A. real-balances, interest-rate, and foreign purchases effects.
B. determinants of aggregate supply.
C. determinants of aggregate demand.
D. sole determinants of the equilibrium price level and the equilibrium real output.
National Income and Price Determination
6. The determinants of aggregate demand:
A. explain why the aggregate demand curve is downsloping.
B. explain shifts in the aggregate demand curve.
C. demonstrate why real output and the price level are inversely related.
D. include input prices and resource productivity.
7. Other things equal, if the national incomes of the major trading partners of the United
States were to rise, the U.S.:
A. aggregate demand curve would shift to the right.
B. aggregate supply curve would shift to the left.
C. aggregate supply curve would shift to the right.
D. aggregate demand curve would shift to the left.
8. Which one of the following would not shift the aggregate demand curve?
A. a change in the price level
B. depreciation of the international value of the dollar
C. a decline in the interest rate at each possible price level
D. an increase in personal income tax rates
9. Other things equal, a decrease in the real interest rate will:
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.
10. A decline in investment will shift the AD curve to the:
A. left by a multiple of the change in investment.
B. left by the same amount as the change in investment.
C. right by the same amount as the change in investment.
D. right by a multiple of the change in investment.
11. An increase in net exports will shift the AD curve to the:
A. left by a multiple of the change in investment.
B. left by the same amount as the change in investment.
C. right by the same amount as the change in investment.
D. right by a multiple of the change in investment.
12. Which of the following would most likely shift the aggregate demand curve to the right?
A. An increase in stock prices that increases consumer wealth.
B. Increased fear that a recession will cause workers to lose their jobs.
C. An increase in personal income tax rates.
D. A reduction in household borrowing because of tighter lending practices.
National Income and Price Determination
13. Which of the following would most likely reduce aggregate demand (shift the AD curve
to the left)?
A. A reduced amount of excess capacity.
B. Increased government spending on military equipment.
C. An appreciation of the U.S. dollar.
D. Increased consumer optimism regarding future economic conditions.
14. In an effort to avoid recession, the government implements a tax rebate program,
effectively cutting taxes for households. We would expect this to:
A. affect neither aggregate supply nor aggregate demand.
B. increase aggregate demand.
C. reduce aggregate demand.
D. reduce aggregate supply.
15. The immediate-short-run aggregate supply curve represents circumstances where:
A. both input and output prices are fixed.
B. both input and output prices are flexible.
C. input prices are fixed, but output prices are flexible.
D. input prices are flexible, but output prices are fixed.
16. The immediate-short-run aggregate supply curve is:
A. downward sloping.
B. upward sloping.
C. vertical.
D. horizontal.
National Income and Price Determination
17. In the above diagram, the economy's immediate-short-run aggregate supply curve is
shown by line:
A. 1.
B. 2.
C. 3.
D. 4.
18. In the above diagram, the economy's relevant aggregate demand and immediate-short-run
aggregate supply curves, respectively, are lines:
A. 4 and 3.
B. 4 and 1.
C. 2 and 4.
D. 2 and 3.
19. In the above diagram, the economy's immediate-short-run AS curve is line ___, its shortrun AS curve is _____, and its long-run AS curve is line ___.
A. 1; 2; 4
B. 1; 2; 3
C. 2; 3; 4
D. 3; 2; 1
20. The shape of the immediate-short-run aggregate supply curve implies that:
A. total output depends on the volume of spending.
B. increases in aggregate demand are inflationary.
C. output prices are flexible, but input prices are not.
D. government cannot bring an economy out of a recession by increasing spending.
21. The aggregate supply curve:
A. is explained by the interest rate, real-balances, and foreign purchases effects.
B. gets steeper as the economy moves from the top of the curve to the bottom of the curve.
C. shows the various amounts of real output that businesses will produce at each price level.
D. is downsloping because real purchasing power increases as the price level falls.
22. The graphical relationship between the price level and the amount of real GDP that
businesses will offer for sale is known as the:
A. aggregate demand curve.
B. investment supply curve.
C. investment demand curve.
D. aggregate supply curve.
23. The aggregate supply curve (short-run):
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.
National Income and Price Determination
24. In the above diagram, a shift from AS1 to AS3 might be caused by a(n):
A. increase in productivity.
B. increase in the prices of imported resources.
C. decrease in the prices of domestic resources.
D. decrease in business taxes.
25. In the above diagram, a shift from AS1 to AS2 might be caused by a(n):
A. stricter government regulations.
B. increase in the prices of imported resources.
C. decrease in the prices of domestic resources.
D. increase in business taxes.
26. In the above diagram, a shift from AS3 to AS2might be caused by an increase in:
A. business taxes and government regulation.
B. the prices of imported resources.
C. the prices of domestic resources.
D. productivity.
27. In the above diagram, a shift from AS2 to AS3might be caused by a(n):
A. decrease in interest rates.
B. increase in business taxes and costly government regulation.
C. decrease in the prices of domestic resources.
D. decrease in the price level.
National Income and Price Determination
28. In the above diagram, the most favorable shift of the aggregate supply curve for the
economy would be from:
A. AS1 to AS2.
B. AS1 to AS3.
C. AS2 to AS3.
D. AS3 to AS2.
29. In the above diagram, a substantial appreciation of the U.S. dollar with no immediate
change in the U.S. price level would result in a:
A. movement upward along an existing aggregate supply curve such as AS1.
B. movement downward along an existing aggregate supply curve such as AS1.
C. rightward shift of the aggregate supply curve, such as from AS1 to AS2.
D. leftward shift of the aggregate supply curve, such as from AS1 to AS3.
30. Other things equal, an improvement in productivity will:
A. shift the aggregate demand curve to the left.
B. shift the aggregate supply curve to the left.
C. shift the aggregate supply curve to the right.
D. increase the price level.
31. A rightward shift in the aggregate supply curve is best explained by an increase in:
A. business taxes.
B. productivity.
C. nominal wages.
D. the price of imported resources.
32. Other things equal, if the U.S. dollar were to depreciate, the:
A. aggregate demand curve would remain fixed in place.
B. aggregate supply curve would shift to the left.
C. aggregate supply curve would shift to the right.
D. aggregate demand curve would shift to the left.
33. Shifts in the aggregate supply curve are caused by changes in:
A. consumption spending.
B. the quantity of real output demanded.
C. the quantity of real output supplied.
D. one or more of the determinants of aggregate supply.
34. The determinants of aggregate supply:
A. are consumption, investment, government, and net export spending.
B. explain why real domestic output and the price level are directly related.
C. explain the three distinct ranges of the aggregate supply curve.
D. include resource prices and resource productivity.
National Income and Price Determination
35. Which of the following would not shift the aggregate supply curve?
A. an increase in labor productivity
B. a decline in the price of imported oil
C. a decline in business taxes
D. an increase in the price level
36. Productivity measures:
A. real output per unit of input.
B. per unit production costs.
C. the changes in real wealth caused by price level changes.
D. the amount of capital goods used per worker.
37. Suppose that nominal wages fall and productivity rises in a particular economy. Other
things equal, the aggregate:
A. demand curve will shift leftward.
B. supply curve will shift rightward.
C. supply curve will shift leftward.
D. expenditures curve will shift downward.
38. Other things equal, appreciation of the dollar:
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.
39. Other things equal, a reduction in personal and business taxes can be expected to:
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.
40. Other things equal, an improvement in productivity will:
A. increase the equilibrium price level.
B. shift the aggregate supply curve to the left.
C. shift the aggregate supply curve to the right.
D. shift the aggregate demand curve to the left.
National Income and Price Determination
41. The short-run aggregate supply curve represents circumstances where:
A. both input and output prices are fixed.
B. both input and output prices are flexible.
C. input prices are fixed, but output prices are flexible.
D. input prices are flexible, but output prices are fixed.
42. The economy's long-run aggregate supply curve:
A. slopes upward and to the right.
B. is vertical.
C. is horizontal.
D. slopes downward and to the right.
43. The economy's long-run AS curve assumes that wages and other resource prices:
A. eventually rise and fall to match upward or downward changes in the price level.
B. are flexible upward but inflexible downward.
C. rise and fall more rapidly than the price level.
D. are relatively inflexible both upward and downward.
44. In the above diagram, the economy's long-run aggregate supply curve is shown by line:
A. 1.
B. 2.
C. 3.
D. 4.
45. In the above diagram, the economy's relevant aggregate demand and long-run aggregate
supply curves, respectively, are lines:
A. 4 and 2.
B. 4 and 1.
C. 2 and 4.
D. 2 and 3.
National Income and Price Determination
46. In the above diagram, the economy's short-run AS curve is line ___ and its long-run AS
curve is line ___.
A. 1; 3
B. 2; 4
C. 3; 4
D. 2; 1
47. The equilibrium price level and level of real output occur where:
A. real output is at its highest possible level.
B. export equal imports.
C. the price level is at its lowest level.
D. the aggregate demand and supply curves intersect.
48. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and
AS2 are the "after" curves. A recession is depicted by:
A. panel (A) only.
B. panel (B) only.
C. panel (C) only.
D. panels (A) and (B).
49. Refer to the above diagrams, in which AD1 and AS1are the "before" curves and AD2 and
AS2 are the "after" curves. Growth, full-employment and price stability is depicted by:
A. panel (A) only.
B. panel (B) only.
C. panel (C) only.
D. panels (B) and (C).
50. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and
AS2 are the "after" curves. Other things equal, inflation is absent in:
A. panel (A) only.
B. panel (B) only.
C. panel (C) only.
D. panels (A) and (C).
National Income and Price Determination