Aggregate Demand and Aggregate Supply 61
45. Other things the same, when the price level falls, interest rates
a. rise, which means consumers will want to spend more on homebuilding.
b. rise, which means consumers will want to spend less on homebuilding.
c. fall, which means consumers will want to spend more on homebuilding.
d. fall, which means consumers will want to spend less on homebuilding.
46. When interest rates fall
a. firms want to borrow more for new plants and equipment and households want to borrow more
for homebuilding.
b. firms want to borrow more for new plants and equipment and households want to borrow less
for homebuilding.
c. firms want to borrow less for new plants and equipment and households want to borrow more
for homebuilding.
d. firms want to borrow less for new plants and equipment and households want to borrow less
for homebuilding.
62 Aggregate Demand and Aggregate Supply
47. When the price level falls
a. households want to lend more, so the interest rate rises making the quantity of goods and
services demanded rise.
b. households want to lend more, so the interest rate falls, making the quantity of goods and
services demanded rise.
c. households want to lend more, so the interest rate rises, making the quantity of goods and
services demanded fall.
d. None of the above are correct.
48. When the price level falls
a. households want to lend less.
b. the interest rate rises.
c. firms want to spend less on investment goods.
d. None of the above are correct.
Aggregate Demand and Aggregate Supply 63
49. Other things the same, as the price level falls, which of the following increases?
a. lending and investment spending
b. lending, but not investment spending
c. investment spending, but not lending
d. neither investment spending nor lending
50. When the price level falls, people want to
a. hold more money and the quantity of aggregate goods and services demanded increases.
b. hold more money and the quantity of aggregate goods and services demanded decreases.
c. hold less money and the quantity of aggregate goods and services demanded increases.
d. hold less money and the quantity of aggregate goods and services demanded decreases.
51. The quantity of aggregate goods and services demanded rises when the
a. price level rises, because the interest rate rises.
b. price level rises, because the interest rate falls.
c. price level falls, because the interest rate rises.
d. price level falls, because the interest rate falls.
64 Aggregate Demand and Aggregate Supply
52. In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that,
when the price level increases,
a. the real value of money decreases; in turn, the real value of the dollar increases in foreign
exchange markets, which decreases net exports.
b. the real value of money decreases; in turn, interest rates increase, which decreases net
exports.
c. households increase their holdings of money; in turn, interest rates decrease, which reduces
spending on investment goods.
d. households increase their holdings of money; in turn, interest rates increase, which reduces
spending on investment goods.
53. As the price level rises, the exchange rate
a. falls, so exports rise and imports fall.
b. falls, so exports fall and imports rise.
c. rises, so exports rise and imports fall.
d. rises, so exports fall and imports rise.
Aggregate Demand and Aggregate Supply 65
54. Other things the same, if the price level rises, then domestic interest rates
a. rise, so domestic residents will want to hold more foreign bonds.
b. rise, so domestic residents will want to hold fewer foreign bonds.
c. fall, so domestic residents will want to hold more foreign bonds.
d. fall, so domestic residents will want to hold fewer foreign bonds.
55. Other things the same, if the price level falls, domestic interest rates
a. rise, so domestic residents will want to hold more foreign bonds.
b. rise, so domestic residents will want to hold fewer foreign bonds.
c. fall, so domestic residents will want to hold more foreign bonds.
d. fall, so domestic residents will want to hold fewer foreign bonds.
56. As the price level rises, the interest rate
a. falls, so the supply of dollars in the market for foreign currency exchange shifts left.
b. falls, so the supply of dollars in the market for foreign currency exchange shifts right.
c. rises, so the supply of dollars in the market for foreign currency exchange shifts left.
d. rises, so the supply of dollars in the market for foreign currency exchange shifts right.
66 Aggregate Demand and Aggregate Supply
57. Other things the same, if the price level falls, people
a. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency
exchange increases.
b. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency
exchange decreases.
c. decrease foreign bond purchases, so the supply of dollars in market for foreign-currency
exchange increases.
d. decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency
exchange decreases.
58. Other things the same, if the price level falls, people
a. increase foreign bond purchases, so the dollar appreciates.
b. increase foreign bond purchases, so the dollar depreciates.
c. increase domestic bond purchases, so the dollar appreciates.
d. increase domestic bond purchases, so the dollar depreciates.
Aggregate Demand and Aggregate Supply 67
59. Other things the same, if the price level rises, people
a. increase foreign bond purchases, so the dollar appreciates.
b. increase foreign bond purchases, so the dollar depreciates.
c. increase domestic bond purchases, so the dollar appreciates.
d. increase domestic bond purchases, so the dollar depreciates.
60. Other things the same, if the price level rises, people
a. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency
exchange increases.
b. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency
exchange decreases.
c. decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency
exchange increases.
d. decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency
exchange decreases.
68 Aggregate Demand and Aggregate Supply
61. Other things the same, if the U.S. price level rises, then
a. the supply of dollars in the market for foreign-currency exchange increases, so the exchange
rate rises.
b. the supply of dollars in the market for foreign-currency exchange increases, so the exchange
rate falls.
c. the supply of dollars in the market for foreign-currency exchange decreases, so the exchange
rate rises.
d. the supply of dollars in the market for foreign-currency exchange decreases, so the exchange
rate falls.
62. Other things the same, if the U.S. price level falls, then
a. U.S. residents want to buy more foreign bonds. The real exchange rate rises.
b. U.S. residents want to buy more foreign bonds. The real exchange rate falls.
c. U.S. residents want to buy fewer foreign bonds. The real exchange rate rises.
d. U.S. residents want to buy fewer foreign bonds. The real exchange rate falls.
Aggregate Demand and Aggregate Supply 69
63. Other things the same, if the U.S. price level rises, then
a. the supply of dollars in the market for foreign-currency exchange increases, and net exports
fall.
b. the supply of dollars in the market for foreign-currency exchange increases, and net exports
rise.
c. the supply of dollars in the market for foreign-currency exchange decreases, and net exports
fall.
d. the supply of dollars in the market for foreign-currency exchange decreases, and net exports
rise.
64. When the dollar depreciates, each dollar buys
a. more foreign currency, and so buys more foreign goods.
b. more foreign currency, and so buys fewer foreign goods.
c. less foreign currency, and so buys more foreign goods.
d. less foreign currency, and so buys fewer foreign goods.
70 Aggregate Demand and Aggregate Supply
65. When the dollar depreciates, U.S.
a. net exports rise, which increases the aggregate quantity of goods and services demanded.
b. net exports rise, which decreases the aggregate quantity of goods and services demanded.
c. net exports fall, which increases the aggregate quantity of goods and services demanded.
d. net exports fall, which decreases the aggregate quantity of goods and services demanded.
66. When the dollar depreciates, U.S.
a. exports and imports increase.
b. exports increase, while imports decrease.
c. exports decrease, while imports increase.
d. exports and imports decrease.
Aggregate Demand and Aggregate Supply 71
67. When the dollar appreciates, U.S.
a. net exports rise, which increases the aggregate quantity of goods and services demanded.
b. net exports rise, which decreases the aggregate quantity of goods and services demanded.
c. net exports fall, which increases the aggregate quantity of goods and services demanded.
d. net exports fall, which decreases the aggregate quantity of goods and services demanded.
68. When the dollar appreciates, U.S.
a. exports decrease, while imports increase.
b. exports and imports decrease.
c. exports and imports increase.
d. exports increase, while imports decrease.
72 Aggregate Demand and Aggregate Supply
69. As the price level rises,
a. the exchange rate falls, so net exports fall.
b. the exchange rate falls, so net exports rise.
c. the exchange rate rises, so net exports fall.
d. the exchange rate rises, so net exports rise.
70. As the price level falls,
a. the exchange rate falls, so net exports fall.
b. the exchange rate falls, so net exports rise.
c. the exchange rate rises, so net exports fall.
d. the exchange rate rises, so net exports rise.
71. A decrease in U.S. interest rates leads to
a. a depreciation of the dollar that leads to greater net exports.
b. a depreciation of the dollar that leads to smaller net exports.
c. an appreciation of the dollar that leads to greater net exports.
d. an appreciation of the dollar that leads to smaller net exports.
Aggregate Demand and Aggregate Supply 73
72. Other things the same, a decrease in the price level causes the interest rate to
a. increase, the dollar to appreciate, and net exports to increase.
b. increase, the dollar to depreciate, and net exports to decrease.
c. decrease, the dollar to depreciate, and net exports to increase.
d. decrease, the dollar to appreciate, and net exports to decrease.
73. Other things the same, an increase in the price level causes the interest rate to
a. increase, the dollar to depreciate, and net exports to increase.
b. increase, the dollar to appreciate, and net exports to decrease.
c. decrease, the dollar to depreciate, and net exports to increase.
d. decrease, the dollar to appreciate, and net exports to decrease.
74. Other things the same, as the price level falls, the real value of a dollar
a. rises, and interest rates rise.
b. rises, and interest rates fall.
c. falls, and interest rates rise.
d. falls, and interest rates fall.
74 Aggregate Demand and Aggregate Supply
75. Other things the same, as the price level rises, the real value of a dollar
a. rises, and interest rates rise.
b. rises, and interest rates fall.
c. falls, and interest rates rise.
d. falls, and interest rates fall.
76. Other things the same, as the price level falls, a country’s exchange rate
a. and interest rates rise.
b. and interest rates fall.
c. falls and interest rates rise.
d. rises and interest rates fall.
77. Other things the same, as the price level rises, exchange rates
a. and interest rates rise.
b. and interest rates fall.
c. fall and interest rates rise.
d. rise and interest rates fall.
Aggregate Demand and Aggregate Supply 75
78. Other things the same, as the price level rises, the real value of money
a. and the exchange rate rise.
b. and the exchange rate fall.
c. rises and the exchange rate falls.
d. falls and the exchange rate rises.
79. Other things the same, as the price level falls,
a. the dollar depreciates.
b. the interest rate rises.
c. people feel less wealthy.
d. All of the above are correct.
80. Other things the same, as the price level rises,
a. the dollar depreciates.
b. the interest rate falls.
c. people feel less wealthy.
d. All of the above are correct.
76 Aggregate Demand and Aggregate Supply
81. Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
a. real wealth falls.
b. the interest rate rises.
c. the dollar depreciates.
d. None of the above is correct.
82. Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
a. real wealth rises.
b. the interest rate rises.
c. the dollar appreciates.
d. All of the above are correct.
Aggregate Demand and Aggregate Supply 77
83. Other things the same, the aggregate quantity of goods demanded decreases if
a. real wealth falls.
b. the interest rate rises.
c. the dollar appreciates.
d. All of the above are correct.
84. Which of the following will both make people buy more?
a. wealth and interest rates rise.
b. wealth rises and interest rates fall.
c. wealth falls and interest rates rise.
d. wealth falls and interest rates fall.
78 Aggregate Demand and Aggregate Supply
85. Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease
in the price level
a. decreases the real value of money.
b. increases the real value of the dollar in foreign exchange markets.
c. decreases the interest rate.
d. All of the above are correct.
86. Which of the following does not help explain the direction the quantity of aggregate goods
demanded changes when the price level decreases?
a. consumer wealth rises
b. borrowing rises
c. each dollar is worth more domestic goods
d. the dollar appreciates relative to other currencies
Aggregate Demand and Aggregate Supply 79
87. Which of the following effects provide incentives for consumers to spend less when the price
level rises?
a. the wealth effect and the interest-rate effect
b. the wealth effect but not the interest-rate effect
c. the interest–rate effect but not the wealth effect
d. neither the wealth-effect nor the interest rate effect
88. Other things the same, a decrease in the price level causes real wealth to
a. fall, interest rates to fall, and the dollar to appreciate.
b. fall, interest rates to rise, and the dollar to depreciate.
c. rise, interest rates to rise, and the dollar to appreciate.
d. rise, interest rates to fall, and the dollar to depreciate.
80 Aggregate Demand and Aggregate Supply
89. An increase in the interest rate causes investment to
a. rise and the exchange rate to appreciate.
b. fall and the exchange rate to depreciate.
c. rise and the exchange rate to depreciate.
d. fall and the exchange rate to appreciate.
90. Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause
people to desire
a. increased consumption, which shifts the aggregate-demand curve right.
b. increased consumption, which shifts the aggregate-demand curve left.
c. decreased consumption, which shifts the aggregate-demand curve right.
d. decreased consumption, which shifts the aggregate-demand curve left.