14.4 The AD Curve and Equilibrium Expenditure
1) When the price level ________, equilibrium expenditure ________ and the quantity of real
GDP demanded ________.
A) falls; increases; increases
B) rises; increases; decreases
C) falls; increases; decreases
D) rises; decreases; increases
E) rises; increases; increases
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
2) The level of equilibrium expenditure at each price level determines
A) the points on the AD curve.
B) aggregate planned production.
C) the price level.
D) full employment.
E) the points on the AE curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Relective thinking
3) The quantity of real GDP demanded on the AD curve is the equilibrium real GDP when
A) aggregate planned expenditure equals real GDP.
B) the price level equals the equilibrium price level.
C) aggregate planned expenditure is greater than real GDP.
D) aggregate planned expenditure is less than real GDP.
E) equilibrium expenditure is greater than real GDP.
Skill: Level 1: Deinition
Section: Checkpoint 14.4
Status: Old
AACSB: Relective thinking
81
4) An increase in the price level shifts the AE curve
A) upward and shifts the AD curve leftward.
B) upward and shifts the AD curve rightward.
C) downward and does not shift the AD curve.
D) downward and shifts the AD curve leftward.
E) downward and shifts the AD curve rightward.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
5) A change in the price level ________ the AE curve and ________ the AD curve.
A) shifts; shifts
B) shifts; results in a movement along
C) results in a movement along; shifts
D) results in a movement along; results in a movement along
E) has no efect on; results in a movement along
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
6) An increase in the price level leads to
A) a downward shift in the AE curve and a movement upward along the AD curve.
B) a downward shift in both the AE and AD curves.
C) a downward shift in the AD curve and a movement downward along the AE curve.
D) a leftward movement along both the AE and AD curves.
E) an upward shift in the AE curve and a movement upward along the AD curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
82
7) If the price level increases, the AE curve shifts
A) upward and the AD curve shifts leftward.
B) downward and the AD curve shifts rightward.
C) upward and there is a movement along the AD curve.
D) downward and there is a movement along the AD curve.
E) upward and the AD curve shifts rightward.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
8) When the AE curve shifts upward because the price level falls, the corresponding efect
on the aggregate demand curve is
A) a movement upward along the aggregate demand curve.
B) a movement downward along the aggregate demand curve.
C) a shift rightward of the aggregate demand curve.
D) a shift leftward of the aggregate demand curve.
E) nothing because aggregate demand does respond to changes in the price level.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
9) A shift in the aggregate planned expenditure curve as a result of an increase in the price
level results in
A) a leftward shift in the aggregate demand curve.
B) a downward movement along the aggregate demand curve.
C) a rightward shift in the aggregate demand curve.
D) an upward movement along the aggregate demand curve.
E) no movement along the aggregate demand curve and no shift in the aggregate demand
curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
83
10) When the price level increases, aggregate planned expenditure decreases, which leads
to
A) a rightward shift of the aggregate demand curve.
B) a leftward shift of the aggregate demand curve.
C) an upward movement along the aggregate demand curve.
D) a downward movement along the aggregate demand curve.
E) neither a movement along nor a shift of the aggregate demand curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
11) When the price level falls, the aggregate planned expenditure curve shifts ________,
equilibrium expenditure ________ and there is a movement ________ along the aggregate
demand curve.
A) upward; increases; upward
B) downward; decreases; downward
C) upward; increases; downward
D) downward; increases; upward
E) upward; decreases; downward
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
12) When the price level increases, aggregate planned expenditure ________ and
equilibrium real GDP ________. As a result, in the AS-AD model, the aggregate demand
curve has a ________ slope.
A) increases; increases; positive
B) decreases; decreases; negative
C) decreases; decreases; positive
D) increases; decreases; negative
E) decreases; increases; negative
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
84
13) A movement along the AE curve arises from a change in ________, and a movement
along the AD curve arises from a change in ________.
A) real GDP; the price level
B) real GDP; investment
C) the price level; the price level
D) the price level; investment
E) investment; the price level
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
14) A change in the price level
A) shifts the AE curve and creates a movement along the AD curve.
B) creates a movement along the AE curve and shifts the AD curve.
C) shifts the AE curve and the AD curve in the same direction.
D) shifts the AE curve and the AD curve in opposite directions.
E) creates a movement along both the AE curve and the AD curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
15) The AD curve is the relationship between
A) aggregate planned expenditure and the price level.
B) aggregate planned expenditure and the quantity of real GDP demanded.
C) the quantity of real GDP demanded and the quantity of real GDP supplied.
D) the quantity of real GDP demanded and the unemployment rate.
E) aggregate planned expenditure and real GDP when the price level is ixed.
Skill: Level 1: Deinition
Section: Checkpoint 14.4
Status: Old
AACSB: Relective thinking
85
14.5 Chapter Figures
The above igure shows a nation’s consumption function.
1) Using this consumption function, autonomous consumption is
A) $0.
B) between $1 and $2 trillion.
C) more than $2 trillion and less that $5 trillion.
D) more than $5 trillion and less than $8 trillion.
E) more than $8 trillion.
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
2) Using this consumption function, the marginal propensity to consume is
A) 0.
B) $1.5 trillion.
C) $2 trillion.
D) 1.33.
E) 0.75.
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
86
The igure above shows three diferent consumption functions for a nation.
3) Which of the following events could result in the consumption function shifting from CF0
to CF1?
A) an increase in disposable income
B) a decrease in disposable income
C) an increase in the real interest rate
D) a decrease in wealth
E) an increase in expected future income
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
4) Which of the following events could result in the consumption function shifting from CF0
to CF2?
A) an increase in disposable income
B) a decrease in disposable income
C) an increase in the real interest rate
D) an increase in wealth
E) an increase in expected future income
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
87
5) Which of the following events could result in the consumption function shifting from CF0
to CF2?
A) an increase in disposable income
B) a decrease in disposable income
C) a decrease in the real interest rate
D) a decrease in wealth
E) an increase in expected future income
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
The igure above shows two aggregate expenditure lines.
6) In the igure above, what is the size of the multiplier?
A) 0.25
B) 4.0
C) $2 trillion
D) $0.5 trillion
E) More information is needed to determine the size of the multiplier.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
7) In the igure above, what would happen to the size of the multiplier if marginal income
tax rates were increased?
A) The multiplier would rise in value.
B) The multiplier would fall in value but would not become negative.
C) The multiplier would not change in value.
88
D) The multiplier would fall in value and might become negative.
E) More information is needed to determine the efect on the size of the multiplier.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
8) In the igure above, if the MPC increased, the aggregate expenditure lines would
________ and the multiplier would ________ in value.
A) become steeper; rise
B) become steeper; fall
C) become less steep; rise
D) not change; rise
E) not change; fall
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
9) In the igure above, if the marginal propensity to import increased, the aggregate
expenditure lines would ________ and the multiplier would ________ in value.
A) become steeper; rise
B) become less steep; fall
C) become less steep; rise
D) not change; rise
E) not change; fall
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
89
14.6 Integrative Questions
1) The aggregate expenditure model predicts a business cycle expansion occurs when
A) autonomous expenditure increases.
B) aggregate supply increases.
C) potential GDP increases.
D) induced expenditure decreases.
E) the aggregate planned expenditure curve shifts downward.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Relective thinking
2) Using the aggregate expenditure model, the equilibrium level of the aggregate
expenditure can occur when the economy is producing
A) only at full employment.
B) only at above full employment.
C) only at below full employment.
D) at full employment, above full employment, or below full employment.
E) at either below full employment or at full employment but never at above full
employment.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Relective thinking
3) In the midst of the Great Depression, President Roosevelt in a radio address to the
nation encouraged everyone to “spend ourselves into prosperity.” His advice relected
A) Say’s Law.
B) the expenditure multiplier efect.
C) his view that there should be no saving and no dissaving.
D) the diference between actual aggregate expenditure and planned aggregate
expenditure.
E) his view that induced expenditure was less important than autonomous expenditure.
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Relective thinking
90