Multiple Choice Questions

Which of the following will shift the aggregate demand curve to the left?
  • The interest-rate effect, the real balances effect, and the foreign purchases effect
  • 1. Interest rates rise.2. There is an economic boom overseas that raises the incomes of foreign households.
  • 1. Business Taxes fall2. A new networking technology increases productivity all over the economy.
  • The real-balances effect explains the shape of the aggregate demand curve, whereas the wealth effect causes shifts of the aggregate demand curve.
Assume that (a) the price level is flexible upward but not downward and (b) the economy is currently operating at its full-employment output. Other things equal, how will each of the following affect the equilibrium price level and equilibrium level of real output in the short run?a. An increase in aggregate demand.
  • The price level does not change, but real output declines
  • The price level rises rapidly and there is little change in real output.
  • The price level does not change, but real output increases
  • The price level increases somewhat, with a relatively large change in output
A reduction in aggregate demand likely causes a decline in real output rather than the price level because
  • prices are inflexible downward.
  • Aggregate supply will decrease
  • Aggregate demand will increase
  • Aggregate supply wil increase
True or False. If the price of oil suddenly increases by a large amount, AS will shift left but the price level will not rise thanks to price inflexibility
  • True
  • False
Which of the following explain why the aggregate demand curve slopes downward?
  • The real-balances effect explains the shape of the aggregate demand curve, whereas the wealth effect causes shifts of the aggregate demand curve.
  • The interest-rate effect, the real balances effect, and the foreign purchases effect
  • 1. Business Taxes fall2. A new networking technology increases productivity all over the economy.
  • 1. Interest rates rise.2. There is an economic boom overseas that raises the incomes of foreign households.
b. Short run
  • • Output prices are flexible but input prices are fixed.• An upsloping curve.
  • The price level increases somewhat, with a relatively large change in output
  • there are large amounts of unused capacity and idle human resources.
  • • Vertical line• Output is fixed
g. A 10 percent across-the-board reduction in personal income tax rates.
  • Aggregate supply wil increase
  • Aggregate supply will decrease
  • Aggregate demand will increase
  • aggregate demand will decrease
The U.S. experience of strong economic growth, full employment, and price stability in the late 1990s and early 2000s can be explained by a
  • rightward shift of aggregate demand and a rightward shift of aggregate supply.
  • The price level increases somewhat, with a relatively large change in output
  • there are large amounts of unused capacity and idle human resources.
  • Aggregate supply will decrease
What effects would each of the following have on aggregate demand or aggregate supply, other things equal?a. A widespread fear by consumers of an impending economic depression.
  • Aggregate supply wil increase
  • aggregate demand will decrease
  • Aggregate supply will decrease
  • Aggregate demand will increase
True or False. In the real world, decreases in AD normally lead to decreases in both output and the price level
  • True
  • False
h. A sizable increase in labor productivity (with no change in nominal wages).
  • aggregate demand will decrease
  • Aggregate supply will decrease
  • Aggregate demand will increase
  • Aggregate supply wil increase
Match the following descriptions with the correct aggregate supply curve.a. Immediate short run
  • The price level rises and real output decreases
  • The price level does not change, but real output declines
  • The price level does not change, but real output increases
  • • The price level is fixed.• A horizontal line
d. A decrease in aggregate demand.
  • The price level does not change, but real output increases
  • The price level rises and real output decreases
  • The price level does not change, but real output declines
  • The price level increases somewhat, with a relatively large change in output
b. A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output.
  • Aggregate supply will decrease
  • prices are inflexible downward.
  • Aggregate demand will increase
  • aggregate demand will decrease
i. A 12 percent increase in nominal wages (with no change in productivity).
  • Aggregate supply wil increase
  • Aggregate demand will increase
  • aggregate demand will decrease
  • Aggregate supply will decrease
c. Long run
  • • Vertical line• Output is fixed
  • • Output prices are flexible but input prices are fixed.• An upsloping curve.
  • Aggregate demand will increase
  • Aggregate supply will decrease
Which of the following statements is true concerning the real-balances effect and the wealth effect?
  • The interest-rate effect, the real balances effect, and the foreign purchases effect
  • The real-balances effect explains the shape of the aggregate demand curve, whereas the wealth effect causes shifts of the aggregate demand curve.
  • 1. Interest rates rise.2. There is an economic boom overseas that raises the incomes of foreign households.
  • When the domestic price level rises, our goods and services become more expensive to foreigners.A: When the price level rises, the real value of financial assets (like stocks, bonds, and savings account balances) declines.
c. Equal increases in aggregate demand and aggregate supply
  • The price level increases somewhat, with a relatively large change in output
  • The price level rises and real output decreases
  • The price level does not change, but real output declines
  • The price level does not change, but real output increases
A strong negative wealth effect from, say, a precipitous drop in the stock market could cause a recession even though productivity is surging if aggregate demand shifts
  • aggregate demand will decrease
  • left while aggregate supply shifts right.
  • Aggregate supply will decrease
  • • The price level is fixed.• A horizontal line
d. A major increase in spending for health care by the Federal government.
  • aggregate demand will decrease
  • Aggregate supply wil increase
  • Aggregate demand will increase
  • Aggregate supply will decrease
e. The general expectation of coming rapid inflation.
  • The price level rises and real output decreases
  • aggregate demand will decrease
  • Aggregate demand will increase
  • Aggregate supply will decrease
According to the "wealth effect," a change in consumer wealth causes a
  • shift in consumer spending and the aggregate expenditures curve
  • The price level does not change, but real output increases
  • upsloping because wages adjust more slowly than the price level, increasing profits and output
  • The price level increases somewhat, with a relatively large change in output
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Multiple Choice Questions
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