Question 1

When taxes decrease, consumption

Accepted Answer

A)   increases, so aggregate demand shifts right.
B)   increases, so aggregate supply shifts right.
C)   decreases, so aggregate demand shifts left.
D)   decreases, so aggregate supply shifts left.E) A) and D)
F) A) and C)

Question 2

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will

Accepted Answer

A)   rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.
B)   fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.
C)   rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.
D)   fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.E) B) and D)
F) A) and C)

Question 3

Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?

Accepted Answer

When the price level increases, the purc...

Question 4

Refer to Financial Crisis. If nominal wages are sticky, which of the following helps explains the change in output?

Accepted Answer

A)   real wages fall, so firms choose to produce less
B)   real wages fall, so firms choose to produce more
C)   real wages rise, so firms choose to produce less
D)   real wages rise, so firms choose to produce moreE) B) and C)
F) A) and D)

Question 5

According to classical macroeconomic theory, changes in the money supply change real GDP but not the price level.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following lists includes only changes that shift aggregate demand to the right?

Accepted Answer

A)   repeal of an investment tax credit, an increase in the money supply
B)   repeal of an investment tax credit, a decrease in the money supply
C)   passing of an investment tax credit, an increase in the money supply
D)   passing of an investment tax credit, a decrease in the money supplyE) A) and B)
F) All of the above

Question 7

Which of the following rises during recessions?

Accepted Answer

A)   layoffs and consumer spending
B)   layoffs but not consumer spending
C)   consumer spending but not layoffs
D)   neither layoffs nor consumer spendingE) B) and C)
F) All of the above

Question 8

Changes in the price level affect which components of aggregate demand?

Accepted Answer

A)   only consumption and investment
B)   only consumption and net exports
C)   only investment
D)   consumption, investment, and net exportsE) C) and D)
F) B) and C)

Question 9

Which of the following both shift aggregate demand right?

Accepted Answer

A)   net exports rise for some reason other than a price change and government purchases rise.
B)   net exports rise for some reason other than a price change and taxes increase.
C)   net exports fall for some reason other than a price change and government purchases fall.
D)   net exports fall for some reason other than a price change and taxes fall.E) B) and D)
F) All of the above

Question 10

In which case can we be sure aggregate demand shifts left overall?

Accepted Answer

A)   people want to save more for retirement and the Fed increases the money supply.
B)   people want to save more for retirement and the Fed decreases the money supply.
C)   people want to save less for retirement and the Fed increases the money supply.
D)   people want to save less for retirement and the Fed decreases the money supply.E) B) and C)
F) None of the above

Question 11

List the three reasons for why the aggregate-demand curve slopes downward.

Accepted Answer

The wealth effect, t...

Question 12

Most economists believe that in the long run, changes in the money supply

Accepted Answer

A)   affect nominal but not real variables. This view that money is ultimately neutral is consistent with classical theory.
B)   affect nominal but not real variables. This view that money is ultimately neutral is inconsistent with classical theory.
C)   affect real but not nominal variables. This view that money is ultimately neutral is consistent with classical theory.
D)   affect real but not nominal variables. This view that money is ultimately neutral is inconsistent with classical theory.E) None of the above
F) B) and C)

Question 13

Which of the following affected aggregate demand during the recession of 2008-2009?

Accepted Answer

A)   a decline in residential construction and a decrease in lending
B)   a decline in residential construction but not a decrease in lending
C)   a decrease in lending but not a decline in residential construction
D)   neither a decrease in residential construction nor a decrease in lendingE) A) and B)
F) All of the above

Question 14

Other things the same, as the price level rises, the real value of a dollar

Accepted Answer

A)   rises, and interest rates rise.
B)   rises, and interest rates fall.
C)   falls, and interest rates rise.
D)   falls, and interest rates fall.E) All of the above
F) B) and D)

Question 15

According to the classical model, an increase in the money supply causes

Accepted Answer

A)   output to increase in the long run.
B)   the unemployment rate to fall in the long run.
C)   prices to rise in the long run.
D)   interest rates to fall in the long run.E) C) and D)
F) A) and C)

Question 16

Compare changes in the price level for a recession resulting from a shift in aggregate demand to that of a recession resulting from a shift in short run aggregate supply.

Accepted Answer

the price level decreases when...

Question 17

Which of the following alone can explain the change in the price level and output during World War II?

Accepted Answer

A)   aggregate demand shifted right
B)   aggregate demand shifted left
C)   aggregate supply shifted right
D)   aggregate supply shifted leftE) A) and B)
F) A) and C)

Question 18

Refer to Pessimism. In the short run what happens to the price level and real GDP?

Accepted Answer

A)   Both the price level and real GDP rise.
B)   Both the price level and real GDP fall.
C)   The price level rises and real GDP falls.
D)   The price level falls and real GDP rises.E) B) and C)
F) None of the above

Question 19

Other things the same, an increase in the amount of capital firms wish to purchase would initially shift

Accepted Answer

A)   aggregate demand right.
B)   aggregate demand left.
C)   aggregate supply right.
D)   aggregate supply left.E) B) and C)
F) A) and D)

Question 20

Aggregate demand shifts right if at a given price level

Accepted Answer

A)   taxes rise and shifts left if the money supply increases.
B)   taxes rise and shifts right if the money supply increases.
C)   taxes fall and shifts left if the money supply increases.
D)   taxes fall and shifts right if the money supply increases.E) None of the above
F) B) and D)

Exam 33: Aggregate Demand and Aggregate Supply

According to classical macroeconomic theory, changes in the money supply change real GDP but not the price level.

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Compare changes in the price level for a recession resulting from a shift in aggregate demand to that of a recession resulting from a shift in short run aggregate supply.

Correct Answerverifiedthe price level decreases when...View AnswerShow Answer

Which of the following both shift aggregate demand right?

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According to the classical model, an increase in the money supply causes

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Which of the following alone can explain the change in the price level and output during World War II?

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When taxes decrease, consumption

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Which of the following rises during recessions?

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Aggregate demand shifts right if at a given price level

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Refer to Pessimism. In the short run what happens to the price level and real GDP?

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In which case can we be sure aggregate demand shifts left overall?

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will

Correct AnswerverifiedShow Answer

Which of the following affected aggregate demand during the recession of 2008-2009?

Correct AnswerverifiedShow Answer

Changes in the price level affect which components of aggregate demand?

Correct AnswerverifiedShow Answer

Most economists believe that in the long run, changes in the money supply

Correct AnswerverifiedShow Answer

Other things the same, an increase in the amount of capital firms wish to purchase would initially shift

Correct AnswerverifiedShow Answer

List the three reasons for why the aggregate-demand curve slopes downward.

Correct AnswerverifiedThe wealth effect, t...View AnswerShow Answer

Refer to Financial Crisis. If nominal wages are sticky, which of the following helps explains the change in output?

Correct AnswerverifiedShow Answer

Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?

Correct AnswerverifiedWhen the price level increases, the purc...View AnswerShow Answer

Which of the following lists includes only changes that shift aggregate demand to the right?

Correct AnswerverifiedShow Answer

Other things the same, as the price level rises, the real value of a dollar

Correct AnswerverifiedShow Answer

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the price level decreases when...
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The wealth effect, t...
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When the price level increases, the purc...
View Answer

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