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Exhibit 17-2 Aggregate demand and aggregate supply curves
As shown in Exhibit 17-2, if
people behave according to rational expectations theory, an increase in the aggregate
demand curve from AD1 to AD2 will cause the price level to move:
a. directly from 100 to 105 and then remain at 105.
b. directly from 100 to 110 and then remain at 110.
c. from 100 to 105 initially and then eventually move back to 100.
d. from 100 to 105 initially and then eventually move to 110.
If a government-imposed price floor legally sets the price of milk above market
equilibrium, which of the following will most likely happen?
a. The quantity of milk demanded will increase.
b. The quantity of milk supplied will decrease.
c. There will be a surplus of milk.
d. There will be a shortage of milk.
Which nation achieved the ideal communist society as described by Marx?
a. Castro's Cuba.
b. Mao's China.
c. Stalin's Soviet Union.
d. No nation has achieved Marx's vision of communist society.
The economic system that answers the What, How and For Whom questions by central
authority is a:
a. market economy.
b. command economy
c. traditional economy.
d. any of these
Why is it important to use real GDP rather than nominal GDP figures when making
comparisons of output across time periods?
a. The real GDP figures are a better measure of changes in the general level of prices.
b. The real figures will reflect changes in the quantity of output and not changes in the
general level of prices.
c. The real figures will reflect changes in the general level of prices as well as changes
in the quantity of output.
d. The real GDP figures adjust for changes in the level of employment.
In the short-run Keynesian model, investment is:
a. autonomous in relation to the interest rate.
b. upward sloping in relation to the price level.
c. downward sloping in relation to disposable income.
d. autonomous in relation to real GDP.
One reason that people hold money is to pay for unexpected car repairs and other
unpredictable expenses. This motive for holding money is called:
a. transactions demand.
b. precautionary demand.
c. speculative demand.
d. noncyclical demand.
Many economists argue that, in the long run, the economy self-corrects and achieves
full employment. This argument is known as the:
a. natural rate hypothesis.
b. incomes policy approach.
c. political business cycle theory.
d. Keynesian cross model.
The Federal Reserve System was founded in:
a. 1913.
b. 1929.
c. 1933.
d. 1935.
In the simple Keynesian Cross model, the equilibrium level of real disposable income is
determined by:
a. the real interest rate.
b. prices.
c. aggregate expenditures.
d. aggregate supply.
Seller A, has an upward-sloping supply curve, and is willing to supply 400 units of a
commodity at a price of $5 per unit. Seller A is now willing to supply 500 units at a
price of $5 per unit. Evidently, seller A has experienced a(n):
a. increase in supply.
b. decrease in supply.
c. increase in quantity supplied.
d. decrease in the quantity supplied.
e. decrease in demand.
