978-1259723223 Test Bank TBChap032 Part 1

Chapter 32 Aggregate Demand and Aggregate Supply Answer Key

Multiple Choice Questions

1.

The aggregate demand curve

2.

The aggregate demand curve is

3.

The interest-rate effect suggests that

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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.

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

Blooms: Remember

Dif f i c u l t y: 01 Easy

Learning Objective: 32-01 Define aggregate demand AD and explain how its downward

slope is the result of the real-balances effect, the interest-rate effect, and the foreign

purchases effect.

Test Bank: I

To pi c : Aggregate Demand

4.

The real-balances effect indicates that

5.

The foreign purchases effect suggests that an increase in the U.S. price level relative to

other countries will

32-3

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AACSB: Knowledge Application

Accessibility: Keyboard Navigation

Blooms: Remember

Dif f i c u l t y: 01 Easy

Learning Objective: 32-01 Define aggregate demand AD and explain how its downward

slope is the result of the real-balances effect, the interest-rate effect, and the foreign

purchases effect.

Test Bank: I

To pi c : Aggregate Demand

6.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to

other countries will

7.

The foreign purchases effect

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To pi c : Aggregate Demand

8.

If the price level increases in the United States relative to foreign countries, then

American consumers will purchase more foreign goods and fewer U.S. goods. This

statement

describes

9.

The real-balances, interest-rate, and foreign purchases effects all help explain

10.

Which of the following is incorrect?

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C.

When the price level increases, real balances increase and businesses and households

find themselves wealthier and therefore increase their spending.

D. Given aggregate demand, an increase in aggregate supply increases real output and,

assuming downward-flexible prices, reduces the price level.

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

Blooms: Remember

Dif f i c u l t y: 01 Easy

Learning Objective: 32-01 Define aggregate demand AD and explain how its downward

slope is the result of the real-balances effect, the interest-rate effect, and the foreign

purchases effect.

Test Bank: I

To pi c : Aggregate Demand

11.

The factors that affect the amounts that consumers, businesses, government, and

foreigners wish to purchase at each price level are the

12.

The determinants of aggregate demand

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To pi c : Changes in Aggregate Demand

13.

Other things equal, if the national incomes of the major trading partners of the United

States were to rise, the U.S.

14.

Which one of the following would not shift the aggregate demand curve?

15.

Other things equal, a decrease in the real interest rate will

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Learning Objective: 32-02 Explain the factors that cause changes shifts in AD.

Test Bank: I

To pi c : Changes in Aggregate Demand

16.

A decline in investment will shift the AD curve to the

17.

An increase in net exports will shift the AD curve to the

18.

If investment increases by $10 billion and the economy’s MPC is 0.8, the aggregate

demand curve will shift

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written consent of McGraw-Hill Education.

Blooms: Understand

Di ffi culty: 02 Medium

Learning Objective: 32-02 Explain the factors that cause changes shifts in AD.

Test Bank: I

To pi c : Changes in Aggregate Demand

19.

If investment decreases by $20 billion and the economy’s MPC is 0.5, the aggregate

demand curve will shift

20.

An economy’s aggregate demand curve shifts leftward or rightward by more than

changes in initial spending because of the

21.

Which of the following would most likely shift the aggregate demand curve to the right?

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written consent of McGraw-Hill Education.

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

Blooms: Understand

Di ffi culty: 02 Medium

Learning Objective: 32-02 Explain the factors that cause changes shifts in AD.

Test Bank: I

To pi c : Changes in Aggregate Demand

22.

Which of the following would most likely reduce aggregate demand (shift the AD curve

to the left)?

23.

Suppose that technological advancements stimulate $20 billion in additional investment

spending. If the MPC = 0.6, how much will the change in investment increase aggregate

demand?

24.

In an effort to avoid recession, the government implements a tax rebate program,

effectively cutting taxes for households. We would expect this to

25.

The immediate-short-run aggregate supply curve represents circumstances where

26.

The immediate-short-run aggregate supply curve is

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To pi c : Aggregate Supply

27.

In the diagram, the economy‘s immediate-short-run aggregate supply curve is shown by line

28.

In the diagram, the economy‘s relevant aggregate demand and immediate-short-run aggregate

supply curves, respectively, are lines

29.

In the diagram, the economy’s immediate-short-run AS curve is line _, its short-run AS

curve is , and its long-run AS curve is line .

30.

The shape of the immediate-short-run aggregate supply curve implies that

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Blooms: Remember

Dif f i c u l t y: 01 Easy

Learning Objective: 32-03 Define aggregate supply AS and explain how it differs in the

immediate short run, the short run, and the long run.

Test Bank: I

To pi c : Aggregate Supply

31.

What percentage of the average U.S. firm‘s costs is accounted for by wages and salaries?

32.

The aggregate supply curve

33.

The aggregate supply curve (short run)

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C.

slopes upward and to the right.

D. graphs as a horizontal line.

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

Blooms: Remember

Dif f i c u l t y: 01 Easy

Learning Objective: 32-03 Define aggregate supply AS and explain how it differs in the

immediate short run, the short run, and the long run.

Test Bank: I

To pi c : Aggregate Supply

34.

The aggregate supply curve (short run)

35.

The aggregate supply curve (short run) is upsloping because

32–16

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To pi c : Aggregate Supply

36.

In the diagram, a shift from AS1 to AS3 might be caused by a(n)

37.

In the diagram, a shift from AS1 to AS2 might be caused by

38.

In the diagram, a shift from AS3 to AS2 might be caused by an increase in

39.

In the diagram, a shift from AS2 to AS3 might be caused by a(n)

40.

Other things equal, an improvement in productivity will

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written consent of McGraw-Hill Education.

Di ffi culty: 02 Medium

Learning Objective: 32-04 Explain the factors that cause changes shifts in AS.

Test Bank: I

To pi c : Changes in Aggregate Supply

41.

A rightward shift in the aggregate supply curve is best explained by an increase in

42.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10,

and the price of each input is $4. The level of productivity is

43.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10,

and the price of each input is $4. The per-unit cost of production in the economy described

is