1. Aggregate demand tells us
a. the amount of goods and services being purchased in an economy.
b. the amount of goods and services being produced in an economy.
c. the total demand for labor in an economy.
d. the total demand for capital in an economy.
2. Aggregate supply tells us
a. the amount of goods and services being purchased in an economy.
b. the amount of goods and services being produced in an economy.
c. the total amount of physical capital in an economy.
d. the total amount of investments in an economy.
3. The largest component of aggregate demand is
a. net exports.
b. government spending.
c. investment.
d. consumption.
4. Purchases of new houses are part of
a. net exports.
b. government spending.
c. investment.
d. consumption.
5. Consumption spending is about of aggregate demand.
a. 2/3
b. 1/2
c. 3/4
d. 5/6
6. A rise in income will cause consumer spending to
a. decline.
b. not change.
c. rise.
d. fall at first, then rise later.
7. A rise in the real interest rate will cause consumer spending to
a. decline.
b. not change.
c. rise.
d. rise at first, then decline later.
8. Investment spending on physical capital is about of aggregate demand.
a. 1/10
b. 1/6
c. 1/4
d. 1/2
9. The total amount of physical capital in all firms and households is called the
a. human capital.
b. capital stock.
c. household income.
d. physical product.
10. Which of the following is an investment spending?
a. Purchase of stocks
b. Purchase of bonds
c. Purchase of office building
d. Purchase of refrigerator by a household
11. A rise in future consumption spending, everything else remaining unchanged, will cause business investment spending
to
a. decline.
b. not change.
c. rise.
d. fall at first, then rise later.
12. A rise in the real interest rate, everything else remaining unchanged, will cause business investment spending to
a. decline.
b. not change.
c. rise.
d. rise at first, then decline later.
13. A rise in wealth, everything else remaining unchanged, will cause household investment in housing to
a. decline.
b. not change.
c. rise.
d. fall at first, then rise later.
14. A rise in the real interest rate, everything else remaining unchanged, will cause household investment in housing to
a. decline.
b. not change.
c. rise.
d. rise at first, then decline later.
15. A rise in the incomes of foreign consumers, everything else remaining unchanged, causes net exports to
a. decline.
b. not change.
c. rise.
d. rise at first, then decline later.
16. A rise in the incomes of domestic consumers causes net exports to
a. decline.
b. not change.
c. rise.
d. rise at first, then decline later.
17. Government spending consitutues about of U.S. economy’s aggregate demand.
a. 1/10
b. 1/6
c. 1/4
d. 1/2
18. The aggregate-demand curve shows the combinations of
market for goods and services and the market for money.
a. the price level; output
b. the price level; the real interest rate
c. the real interest rate; the money supply
d. the money supply; output
and that are consistent with equilibrium in the
19. Which of the following equations is true of aggregate demand?
a. Aggregate demand = consumption + investment – government spending – net exports
b. Aggregate demand = consumption – investment – government spending – net exports
c. Aggregate demand = consumption + investment + government spending + net exports
d. Aggregate demand = consumption – investment + government spending + net exports
20. With the price level measured on the vertical axis and output measured on the horizontal axis, the aggregate-demand
curve
a. is vertical.
b. is downward-sloping.
c. is horizontal.
d. is upward-sloping.
21. When the price level in an economy declines
a. the demand for money in the economy increases.
b. the nominal interest rate in the economy increases.
c. the total consumption in the economy reduces.
d. the aggregate demand in the economy increases.
22. The nominal interest rate in an economy decreases when
a. the aggregate demand curve shifts to the left.
b. the money supply curve shifts to the left.
c. the aggregate supply curve shifts to the right.
d. the money demand curve shifts to the left.
23. When all capital and labor are fully utilized, the economy is said to be
a. at the peak of the business cycle.
b. experiencing an expansion.
c. at full employment.
d. sustainable.
24. The unemployment rate reflecting normal job turnover is called
a. the natural rate of unemployment.
b. the non-accelerating investment rate of unemployment (NAIRU).
c. frictional unemployment.
d. structural unemployment.
25. Which of the following is true of an economy at full employment?
a. There is no job turnover in the economy.
b. The unemployment rate in the economy is equal to the natural rate of unemployment.
c. The economy‘s labor and capital are not fully utilized.
d. An increase in price level increases the full-employment level of output.
26. The amount of output produced when the unemployment rate equals the natural rate of employment in an economy
is called output.
a. natural
b. aggregate
c. full-employment
d. long-run
27. Full–employment output is the amount of output produced when the economy is
a. in recession.
b. above the natural rate of unemployment.
c. utilizing all of its labor and capital.
d. in equilibrium.
28. Which of the following is an assumption of the aggregate demand-aggregate supply model?
a. Capital stock cannot be varied in the short run.
b. An economy is always at full-employment level in the short run.
c. Producers are reluctant to change prices of their products even in the long run.
d. Long-run aggregate supply curve slopes upward.
29. With the price level measured on the vertical axis and output measured on the horizontal axis, the long-run
aggregate-supply curve
a. is vertical.
b. is upward-sloping.
c. is horizontal.
d. is downward-sloping.
30. A rise in the price level in an economy
a. shifts its long–run aggregate supply curve to the right.
b. shifts its long-run aggregate supply curve to the left.
c. does not have any effect on its long-run aggregate supply.
d. does not have any effect on its aggregate demand.
31. With the price level on the vertical axis and output on the horizontal axis, the short-run aggregate-supply curve
a. is vertical.
b. is downward-sloping.
c. is horizontal.
d. is upward-sloping.
32. A rise in the price level, everything else remaining unchanged, causes short-run aggregate supply to
a. decline.
b. not change.
c. increase.
d. rise at first, then decline later.
33. In the aggregate demand-aggregate supply model, everything else remaining unchanged, an increase in taxes causes
the curve to shift .
a. short-run aggregate-supply; right
b. short-run aggregate-supply; left
c. aggregate-demand; left
d. aggregate-demand; right
34. In the aggregate demand-aggregate supply model, everything else remaining unchanged, an increase in taxes causes
to in the short run.
a. output; increase
b. output; decline
c. output; remain unchanged
d. government spending; increase
35. In the aggregate demand-aggregate supply model, everything else remaining unchanged, an increase in capital stock
shifts the to the .
a. long–run aggregate supply; right
b. aggregate demand; right
c. short-run aggregate supply; left
d. aggregate demand; left
36. In the aggregate demand-aggregate supply model, everything else remaining unchanged, a decrease in labor force
shifts the to the .
a. long–run aggregate supply; right
b. aggregate demand; right
c. short-run aggregate supply; left
d. aggregate demand; left
37. If there is a significant drop in business optimism in an economy
a. the economy‘s long–run aggregate supply curve shifts to the right.
b. the economy’s aggregate demand curve shifts to the left.
c. the labor supply in the economy increases in the long run.
d. the capital stock in the economy increases in the long run.