304 Miller Economics Today, 16th Edition
81) The aggregate demand curve shows
A) a direct relationship between changes in the price level and changes in real GDP.
B) real GDP does not change as the price level changes.
C) an inverse relationship between the price level and real GDP.
D) an inverse relationship between changes in the price level and changes in nominal GDP.
82) Which of the following is NOT an explanation for the shape of the aggregate demand curve?
A) real balance effect B) interest rate effect
C) open economy effect D) investment effect
83) The downward slope of the aggregate demand curve shows that
A) an increase in aggregate demand reduces the long run aggregate supply.
B) an increase in aggregate demand increases the long run aggregate supply.
C) a higher price level will cause planned purchase rates for final goods and services to be
higher.
D) a lower price level will cause planned purchase rates for final goods and services to be
higher.
84) What is one implication of the real
b
alance effect?
A) The part of your wealth that you hold in the form of cash loses some of its value as the
price level rises.
B) When the price level rises, people have an incentive to work harder in order to earn a
higher income.
C) When the price level falls, most consumers reallocate their spending so as to have an equal
balance between necessities and luxuries.
D) Aggregate demand and aggregate supply can never reach long run equilibrium.
85) The open economy effect and interest rate effect are two of the reasons why
A) higher price levels increase long run aggregate supply.
B) the aggregate demand curve slopes downward.
C) capital formation does not contribute to economic growth in poor countries.
D) growth of the labor force does not contribute to economic growth in wealthy countries.
86) The aggregate demand curve shows the
A) total amount of planned expenditures on goods and services at each possible price level.
B) total amount of nominal goods that the participants in the economy want to purchase.
C) total amount of real goods that foreigners want to purchase.
D) amount of goods producers will produce as production costs fall.
87) The aggregate demand curve is
A) downward sloping. B) vertical.
C) horizontal. D) U shaped.
88) The aggregate demand curve is
A) horizontal if full employment exists in the economy.
B) vertical if full employment exists in the economy.
C) downward sloping because of the real
b
alance, interest rate, and open economy effects.
D) downward sloping because more goods are produced as per unit cost of producing each
item falls.
89) The real
b
alance effect indicates that at higher price levels
A) the real value of money holdings fall, resulting in decreased spending.
B) the real value of money holdings increase, resulting in increased saving.
C) the purchasing power of money will increase.
D) the value of the dollar will increase.
90) Which of the following will occur when an economy s price level increases?
A) Aggregate demand will increase.
B) The purchasing power of money will increase.
C) The purchasing power of money will decrease.
D) The real value of wealth will increase.
91) The interest rate effect shows that if the price level increases,
A) consumers and businesses will increase their spending to buy the same amount of goods
as before to make up for the higher interest rates.
B) consumers and businesses will decrease their spending as the interest rate increases,
thereby pushing up the cost of acquiring funds.
C) U.S. exports and imports will both decrease.
D) the real value of financial assets will increase.
92) A decrease in U.S. prices relative to European prices
A) will decrease European exports to the United States.
B) will increase U.S. imports from Europe.
C) will decrease U.S. exports to Europe.
D) will not affect U.S. trade with Europe.
93) An increase in U.S. prices relative to Japanese prices will
A) increase total planned spending on U.S. goods and services.
B) increase U.S. imports and decrease U.S. exports.
C) decrease U.S. imports and increase U.S. exports.
D) decrease both U.S. exports and imports.
94) When the price level declines,
A) the interest rate rises, and consumers borrow fewer funds, which causes a movement up
the aggregate demand curve.
B) the interest rate falls, and consumers borrow more funds, which causes a movement down
along the aggregate demand curve.
C) the interest rate is not affected, so there is no movement along the aggregate demand
curve.
D) interest rates fall, and consumers borrow more funds, which causes the aggregate demand
curve to shift to the left.
95) When the price level falls,
A) imports increase, and exports decrease, which causes a movement up along the aggregate
demand curve.
B) there is no impact on imports or exports, so there is no associated movement along the
aggregate demand curve.
C) imports decrease and exports increase, which cause a movement down along the
aggregate demand curve.
D) imports decrease and exports increase, which cause a movement up along the aggregate
demand curve.
96) The curve that displays total planned real spending on goods and services at each price level by
households, businesses, the government, and foreign residents is called
A) the aggregate supply curve. B) the aggregate demand curve.
C) the price level curve. D) the employment curve.
97) Which of the following cause the aggregate demand curve to slope downward and to the right?
A) the prices of key goods
B) the interest rate effect
C) military expenditures of the government
D) the demand shock effect
98) When a higher price level generates an increase in the interest rate that induces consumers to
borrow less and buy less, this chain of events is referred to as
A) the real
b
alance effect. B) the interest rate effect.
C) the open economy effect. D) the price level effect.
99) Total planned real expenditures measured along the aggregate demand curve are made up of
A) consumption spending, investment spending, government spending, and net export
spending.
B) consumption spending, income, government spending, and net export spending.
C) consumption spending, saving, investment spending, and government spending.
D) consumption spending, factor payments, investment spending, and net export spending.
100) What is measured on the vertical axis of the aggregate demand graph?
A) nominal income B) real GDP per year
C) the price level D) unemployment
101) What is measured on the horizontal axis on the aggregate demand graph?
A) nominal income B) real GDP per year
C) the price level D) unemployment
102) When expenditures change due to changes in the real value of money caused by variations in
the price level, this is known as the
A) interest rate effect. B) real
b
alance effect.
C) open economy effect. D) aggregate balances effect.
103) When total planned real expenditures change due to changes in the cost of borrowing that result
from variations in the price level, this is known as the
A) interest rate effect. B) real
b
alance effect.
C) open economy effect. D) aggregate balances effect.
104) When total planned real expenditures change due to the changes in net exports, this is known as
the
A) interest rate effect. B) real
b
alance effect.
C) open economy effect. D) aggregate balances effect.
105) If your income stays the same and the price level increases, you will buy fewer goods and
services due to the
A) interest rate effect. B) real
b
alance effect.
C) open economy effect. D) aggregate balances effect.
106) If the dollar appreciates and foreign goods become less expensive, the total planned
expenditures on domestic goods and services will
A) fall due to the open economy effect.
B) fall due to the interest rate effect.
C) increase due to the open economy effect.
D) increase due to the interest rate effect.
107) What is the aggregate demand curve and what does it represent?
108) The aggregate demand curve slopes down for the same reason that the individual demand
curve for a good slopes down. Do you agree or disagree with this statement? Why?
109) What is the interest rate effect of an increase in the price level?
110) What information is provided by the aggregate demand curve?
111) What is the real
b
alance effect of an increase in the price level?
b
112) What are the three forces that cause the aggregate demand curve to slope down? Explain.
10.3 Shifts in the Aggregate Demand Curve
1) Which of the following would cause aggregate demand to decrease?
A) The government increases taxes on both business and personal income.
B) A drop in the foreign exchange value of the dollar
C) The Fed increases the amount of money in circulation.
D) Businesses and households believe that the economy is headed for good times, so they
begin to feel increased security about their jobs.
2) An aggregate demand curve
A) shifts to the right when the price level increases and to the left when the price level falls.
B) shifts to the right when any non price level factor increases total planned real spending.
C) shifts to the right when population decreases and shifts to the left when population
increases.
D) does not shift, unlike individual or market demand curves.
3) Which of the following statements is correct?
I. When economists derive the aggregate demand curve, they are looking at the effect of the
price level on one commodity only.
II. Any non price level change that increases total planned real spending on domestic goods
shifts the AD curve to the right.
A) I only B) II only C) Both I and II D) Neither I nor II
4) Europe and Asia both fall into deep economic recessions. What impact will this have on U.S.
aggregate demand?
A) None. A nation s aggregate demand is only affected by its own economic conditions.
B) U.S. aggregate demand will remain unchanged.
C) U.S. aggregate demand will decrease.
D) The U.S. aggregate demand curve will shift to the right.
5) An aggregate demand curve
A) shifts to the right when a non price level change increases total planned real expenditures.
B) shifts to the right when a non price level change decreases total planned real
expenditures.
C) shifts to the right when the price level falls.
D) does not shift to the right or to the left.
6) An increase in total planned real expenditures that is caused by a factor other than the price
level will lead to the
A) aggregate supply curve shifting to the right.
B) aggregate demand curve shifting to the right.
C) aggregate supply curve shifting to the left.
D) aggregate demand curve shifting to the left.
7) An increase in the money supply will cause which of the following to occur?
A) a rightward shift of the aggregate supply curve
B) a leftward shift of the aggregate demand curve
C) a leftward shift of the aggregate supply curve
D) a rightward shift of the aggregate demand curve
8) The aggregate demand curve would shift to the right as a result of
A) a drop in the price level.
B) tax increases.
C) an increase in the U.S. real interest rate.
D) a decrease in the amount of money in circulation.
9) Which of the following will cause a leftward shift in the aggregate demand curve?
A) a reduction in the money supply B) an increase in taxes
C) a reduction in government spending D) all of the above
10) Which one of the following would NOT increase aggregate demand?
A) an increase in long run aggregate supply
B) a reduction in real interest rates
C) tax decreases
D) an increase in the amount of money in circulation
11) All of the following would cause the aggregate demand curve to shift EXCEPT
A) a rise in real interest rates.
B) an increase in taxes.
C) improvements in economic conditions in other countries.
D) a decrease in the price level.
12) Which of the following will NOT shift the aggregate demand curve?
A) a change in the domestic marginal tax rates
B) a change in government expenditures
C) a change in the domestic price level
D) depreciation in the value of the national currency
13) The aggregate demand curve will shift to the left if
A) people are more optimistic about their future.
B) a reduction in the price level pushes down borrowing costs.
C) government expenditures increase.
D) the national incomes of our trading partners decrease.
14) A weakening in consumer confidence causes a
A) shift of the aggregate demand curve to the right.
B) shift of the aggregate demand curve to the left.
C) movement up along the aggregate demand curve.
D) movement down along the aggregate demand curve.
15) Which of the following will NOT shift the aggregate demand curve?
A) a change in the price level
B) a change in tax rates
C) a change in the amount of money in circulation
D) a change in real interest rates
16) An increase in the amount of money in circulation would cause a
A) shift of the aggregate demand curve to the right.
B) shift of the aggregate demand curve to the left.
C) movement up the aggregate demand curve.
D) movement down the aggregate demand curve.
17) An increase in the U.S. price level causes a
A) shift of the U.S. aggregate demand curve to the right.
B) shift of the U.S. aggregate demand curve to the left.
C) movement up the U.S. aggregate demand curve.
D) movement down the U.S. aggregate demand curve.
18) Which of the following would likely result in a shift of the aggregate demand curve to the right?
A) a tax cut
B) a decrease in job security
C) a rise in the real interest rate
D) a decrease in the quantity of money in circulation
19) An increase in aggregate demand is shown by
A) a rightward shift in the aggregate demand curve.
B) a leftward shift in the aggregate demand curve.
C) a movement up along the aggregate demand curve.
D) the movement down along the aggregate demand curve.
20) Which of the following would likely result in a decrease in aggregate demand?
A) tax increases
B) a reduction in the real interest rate
C) increased job and future income security
D) a rise in the quantity of money in circulation
21) Other things being equal, appreciation of the dollar
A) increases aggregate demand in the United States, and may increase aggregate supply by
reducing the prices of imported resources.
B) increases aggregate demand in the United States, and may decrease aggregate supply by
reducing the prices of imported resources.
C) decreases aggregate demand in the United States, and may increase aggregate supply by
reducing the prices of imported resources.
D) decreases aggregate demand in the United States, and may decrease aggregate supply by
increasing the prices of imported resources.
22) Other things being equal, a depreciation of the dollar
A) increases aggregate demand in the United States, and may increase aggregate supply by
reducing the prices of imported resources.
B) increases aggregate demand in the United States, and may decrease aggregate supply by
increasing the prices of imported resources.
C) decreases aggregate demand in the United States, and may increase aggregate supply by
reducing the prices of imported resources.
D) decreases aggregate demand in the United States, and may decrease aggregate supply by
increasing the prices of imported resources.
23) When investors buy more capital goods because the interest rates have fallen, the aggregate
demand curve
A) shifts right. B) shifts left. C) does not shift. D) stays the same.
24) In the above figure, a movement from point B to point C could be explained by
A) an increase in the price level.
B) a decrease in the quantity of money in circulation.
C) increased government spending.
D) the real
b
alance effect.
25) Which of the following would cause an increase in aggregate demand (AD)?
A) A decrease in price levels
B) An increase in interest rates
C) A decrease in taxes
D) A rise in the foreign exchange value of the dollar
26) Which of the following statements is correct?
I. A drop in the foreign exchange value of the dollar would decrease aggregate demand
II. A decrease in the amount of money in circulation would increase aggregate demand
A) I only B) II only C) Both I and II D) Neither I nor II
27) What causes the aggregate demand curve to shift?
28) How can the long run equilibrium level of real Gross Domestic Product (GDP) increase without
the price level changing?
10.4 Long Run Equilibrium and the Price Level
1) The shape of the aggregate demand curve does not tell us anything about how the total dollar
value of spending will ultimately be divided between output and prices. For this we need
A) information about the standard of living in the country.
B) information that only the Consumers Price Index can provide.
C) an aggregate supply curve.
D) to know how far from the origin the aggregate demand curve is.
2) To find an economy s long run equilibrium price level, locate the point where ________ and
________ cross and look to the left.
A) demand; supply
B) aggregate demand; short run aggregate supply
C) aggregate demand; price level
D) long run aggregate supply; aggregate demand
3) Suppose total planned expenditures equal $14.4 trillion when the value of the price level is 95. If
the price level dropped to 90, total planned real expenditures will equal
A) less than $14.4 trillion but more than $1 trillion.
B) less than $14.4 trillion.
C) more than $14.4 trillion.
D) $14.4 trillion.
4) If you have $1,000 and the Gross Domestic Product (GDP) deflator increases from 100 to 120,
then
A) the $1,000 will buy 20 percent less of the goods and services produced by society.
B) the $1,000 will buy 20 percent more of the goods and services produced by society.
C) the value of the $1,000 increases.
D) you will be able to buy fewer goods, but the real value of those goods will increase.
5) A persistently declining price level resulting from economic growth and unchanged aggregate
demand is called
A) demand side deflation. B) supply side deflation.
C) ozian deflation. D) secular deflation.
6) How is economic growth graphically depicted?
A) The aggregate demand curve shifts to the left.
B) Aggregate demand shifts to the right.
C) Short run aggregate supply shifts left.
D) The long run aggregate supply curve shifts right.
7) Which of the following will result in secular deflation?
A) A one time rightward shift of the aggregate demand curve.
B) Continuous rightward shifts of the aggregate demand curve.
C) A one time rightward shift of the long run aggregate supply curve.
D) Continuous rightward shifts of the long run aggregate supply curve.
8) Secular deflation occurs when
A) there is no economic growth and aggregate demand falls.
B) aggregate demand increases at the same time there is no economic growth.
C) aggregate demand remains unchanged while economic growth increases long run
aggregate supply.
D)
b
oth aggregate demand and aggregate supply are shifting left.
9) An increase in the amount of physical capital will cause
A) an increase in both aggregate demand and real GDP, but have no effect on the price level.
B) aggregate demand and aggregate supply to increase by the same amounts, causing real
GDP to increase and the price level to remain constant.
C) an increase in both aggregate supply and real GDP, but have no effect on the price level.
D) an increase in both aggregate supply and real GDP and a reduction in the price level.
10) The U. S. has experienced inflation every year since 1959 due to
A) a sustained decrease in aggregate demand.
B) a sustained increase in aggregate demand accompanied by an even larger decrease in
LRAS.
C) a sustained decrease in aggregate supply.
D) a sustained increase in aggregate supply accompanied by an even larger increase in
aggregate demand.
11) Supply side inflation is caused by
A) a decrease in aggregate supply and no change in aggregate demand.
B) a decrease in aggregate demand and no change in aggregate supply.
C) an increase in aggregate supply and no change in aggregate demand.
D) an increase in aggregate supply and no change in aggregate demand.
12) If the economy grows steadily over several years and at the same time maintains the aggregate
demand curve in its present position, then the economy will experience which of the following?
A) inflation
B) a stable price level
C) secular deflation
D) The price level cannot be determined without more information.
13) Suppose the Federal Reserve implements expansionary monetary policy where the money
supply increases. Which of the following will tend to occur in the long run as a result of this
monetary policy action?
A) Output and the price level will both increase.
B) Output will increase with no change in the price level.
C) An increase in the price level and no change in output.
D) No change in either the price level or output.
14) When the price level is below the level at which the aggregate demand curve crosses the long
run aggregate supply curve
A) there will be no price level change.
B) there will be pressures that will lead to a shift of either the aggregate demand or the long
run aggregate supply curves.
C) total planned real expenditures will exceed actual real GDP, and the price level will
increase.
D) total planned real expenditure will be lower than actual real GDP, and the price level will
increase.