Which of the following events would cause the aggregate demand curve to shift from AD1 to AD2, as illustrated in the graph below?AD1 shifts left
  • the AD curve illustrates the relationship between the price level and the combined value of products and services desired by the different sectors of the economy.
  • a decrease in foreign incomes, which leads to decreased exports.
  • All of the above are included in aggregate demand.
  • the government decides to cut spending in order to decrease the national debt.
In the above PPF, which point (A, B, or C) might mark full capacity?
  • a vertical line.
  • improving expectations about the future of the economy.
  • the quantity of goods and services demanded will fall.
  • Point A
Let's assume that recent oil prices are higher than normal. What effect will this have on AS?
  • a rightward shift in the AD curve.
  • The AS curve to shift to the right.
  • the AS curve will shift to the left.
  • the AD curve illustrates the relationship between the price level and the combined value of products and services desired by the different sectors of the economy.
An increase in the price level of an economy causes:
  • movement upward along the AS curve.
  • an increase in aggregate demand.
  • price level and total quantity of all goods and services demanded.
  • The economy is well below full capacity.
Real GDP is:
  • the total value of production using prices fixed in some base year.
  • as the price level increases, the quantity of goods and services demanded falls.
  • the government decides to cut spending in order to decrease the national debt.
  • there are lots of unused resources AND the aggregate supply curve is fairly flat.
Changes in all the following except one will shift aggregate demand. Which one will not cause a shift in aggregate demand?
  • Prices.
  • production costs decreases.
  • A small increase.
  • Point A
Full capacity is:
  • the total value of production using prices fixed in some base year.
  • the maximum value of goods that can be produced in an economy.
  • The AS curve to shift to the right.
  • it assumes that people in the economy pursue their own goals.
High price levels are associated with high levels of real GDP along an aggregate supply curve because:
  • an increase in cost decreases aggregate supply, which is a shift to the left.
  • firms generally face increasing costs, and producing large amounts of additional output is only worthwhile when prices are high.
  • as firms produce more, their costs of increasing output by a small amount will rise, even if wages and input prices remain the same.
  • when the price level increases, interest rates increase, so people are less willing to borrow money to make purchases.
When an economy is operating at full capacity:
  • it is producing the output with the highest value possible.
  • changes in the price level will have very little effect on output.
  • price level and total quantity of all goods and services demanded.
  • there are lots of unused resources AND the aggregate supply curve is fairly flat.
The upward slope of the AS curve means:
  • at higher price levels, ceteris paribus, firms will choose to produce and sell more.
  • as the price level increases, the quantity of goods and services demanded falls.
  • when the price level increases, interest rates increase, so people are less willing to borrow money to make purchases.
  • there are lots of unused resources AND the aggregate supply curve is fairly flat.
To measure changes in RGDP, the ceteris paribus assumption of the aggregate demand/aggregate supply model says:
  • when the price level increases, the real value of cash holdings and income falls. This decreases the purchasing power of peoples assets, and they're able to purchase less.
  • All of the above are included in aggregate demand.
  • when the price level increases, interest rates increase, so people are less willing to borrow money to make purchases.
  • everything except prices must remain the same.
One reason the aggregate demand curve is downward sloping is the real balances effect, also called the income effect. This means:
  • the AD curve illustrates the relationship between the price level and the combined value of products and services desired by the different sectors of the economy.
  • when the price level increases, interest rates increase, so people are less willing to borrow money to make purchases.
  • when the price level increases, the real value of cash holdings and income falls. This decreases the purchasing power of peoples assets, and they're able to purchase less.
  • at higher price levels, ceteris paribus, firms will choose to produce and sell more.
Which of the following is not one of the pieces of the AS curve of an economy?
  • a decrease in the level of technology in an economy.
  • a decrease in foreign incomes, which leads to decreased exports.
  • a downward-sloping section connecting the flat and steep sections.
  • an increase in foreign incomes, which increases exports.
One reason the aggregate curve is downward sloping is the net exports effect. This means:
  • at higher price levels, ceteris paribus, firms will choose to produce and sell more.
  • the AD curve illustrates the relationship between the price level and the combined value of products and services desired by the different sectors of the economy.
  • when the price level increases, the real value of cash holdings and income falls. This decreases the purchasing power of peoples assets, and they're able to purchase less.
  • at higher price levels, prices for domestic goods rise relative to prices for imported goods, so people decrease the quantity of domestic goods and services they demand.
An increase in aggregate demand is:
  • a rightward shift in the AD curve.
  • changes in the price level will have very little effect on output.
  • The AS curve to shift to the right.
  • can produce more of each good.
Moving from A to B on the graph represents:(B higher, A lower)
  • a lower price level increases aggregate demand.
  • a decrease in foreign incomes, which leads to decreased exports.
  • an increase in cost decreases aggregate supply, which is a shift to the left.
  • a decrease in the aggregate quantity demanded.
As the price level rises:
  • as the price level increases, the quantity of goods and services demanded falls.
  • at higher price levels, ceteris paribus, firms will choose to produce and sell more.
  • real GDP rises, eventually getting very close to the full-capacity level of RGDP.
  • changes in the price level will have very little effect on output.
The vertical line at full capacity indicates:
  • as the price level increases, the quantity of goods and services demanded falls.
  • the maximum value of goods and services that can be produced in an economy.
  • the maximum value of goods that can be produced in an economy.
  • the quantity of goods and services demanded will fall.
Aggregate demand uses real GDP instead of GDP because:
  • there are lots of unused resources AND the aggregate supply curve is fairly flat.
  • as firms produce more, their costs of increasing output by a small amount will rise, even if wages and input prices remain the same.
  • households, firms, the government, and the rest of the world.
  • RGDP allows us to easily determine if the quantity of goods and services produced has changed.
C + I + G + NX is the equation for determining aggregate demand. The letters stand for:
  • an increase in foreign incomes, which increases exports.
  • households, firms, the government, and the rest of the world.
  • consumption, investment, government expenditures on goods and services, and net exports.
  • when the price level increases, interest rates increase, so people are less willing to borrow money to make purchases.
One reason the aggregate curve is downward sloping is the interest-rate effect. This means:
  • at higher price levels, prices for domestic goods rise relative to prices for imported goods, so people decrease the quantity of domestic goods and services they demand.
  • the AD curve illustrates the relationship between the price level and the combined value of products and services desired by the different sectors of the economy.
  • when the price level increases, interest rates increase, so people are less willing to borrow money to make purchases.
  • at higher price levels, ceteris paribus, firms will choose to produce and sell more.
Aggregate demand is the total quantity of goods and services demanded by:
  • consumption, investment, government expenditures on goods and services, and net exports.
  • an increase in foreign incomes, which increases exports.
  • households, firms, the government, and the rest of the world.
  • price level and total quantity of all goods and services demanded.
On an aggregate supply curve, as real GDP rises, an increase in the price level:
  • has a smaller and smaller effect on the aggregate quantity of goods and services supplied.
  • RGDP allows us to easily determine if the quantity of goods and services produced has changed.
  • when the price level increases, interest rates increase, so people are less willing to borrow money to make purchases.
  • as firms produce more, their costs of increasing output by a small amount will rise, even if wages and input prices remain the same.
Let's say that consumer confidence hits its highest level in thirty years. This means consumers expect good economic times in the future. What effect will this have on aggregate demand?
  • a rightward shift in the AD curve.
  • An unknown change in AD.
  • the AS curve will shift to the left.
  • a downward-sloping section connecting the flat and steep sections.
As the economy approaches full capacity:
  • changes in the price level will have very little effect on output.
  • the quantity of goods and services demanded will fall.
  • The economy is well below full capacity.
  • it is producing the output with the highest value possible.
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