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1. An aggregate demand (AD) curve shows the
a.
amount of a particular good people are willing and able to buy at a particular price, ceteris paribus.
b.
real output (Real GDP) people are willing and able to sell at different price levels, ceteris paribus.
c.
real output (Real (GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
d.
real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.
2. Aggregate demand curves are
a.
downward sloping.
b.
upward sloping.
c.
horizontal.
d.
vertical.
3. One of the reasons why the AD curve slopes downward is that as the
a.
price level rises, purchasing power rises.
b.
price level falls, purchasing power rises.
c.
nation's income level rises, purchasing power rises.
d.
nation's income level rises, purchasing power falls.
e.
This is a trick question, because the AD curve is upward sloping.
4. If some of a person's wealth is in cash, it follows that
a.
this person's monetary wealth will change as the price level changes.
b.
this person's monetary wealth will not change as the price level changes.
c.
this person is wealthier than a person who holds all his wealth in nonmonetary form.
d.
a and c
e.
b and c
5. The change in the purchasing power of dollar-denominated assets (such as cash holdings) is the
a.
money effect.
b.
interest rate effect.
c.
asset effect.
d.
real balance effect.
e.
none of the above
6. As the price level falls,
a.
the purchasing power of cash holdings rises.
b.
the purchasing power of cash holdings falls.
c.
the purchasing power of cash holdings remains constant.
d.
cash holdings turn into dollar-denominated assets.
e.
none of the above
7. The real balance effect describes the change in
a.
checking account balances that occur when the money supply increases or decreases.
b.
the value of physical assets (e.g., houses) that results from a change in the price level.
c.
the output producers produce as they attempt to balance their production in response to changes in consumers'
demand.
d.
the value of cash holdings that results from a change in the price level.
e.
the balance of cash holdings that results from a change in the amount of income earned.
8. As the price level rises, ceteris paribus, people holding some of their wealth in monetary form become
a.
less wealthy and they buy less.
b.
more wealthy and they buy more.
c.
less wealthy and they buy more.
d.
more wealthy and they buy less.
9. As the price level falls, ceteris paribus, people holding some of their wealth in monetary form become
a.
less wealthy and they buy less.
b.
more wealthy and they buy more.
c.
less wealthy and they buy more.
d.
more wealthy and they buy less.
10. Suppose consumption decreases at each price level. As a result, aggregate demand __________, and the AD curve
shifts __________.
a.
increases; leftward
b.
decreases; leftward
c.
increases; rightward
d.
decreases; rightward
11. Suppose consumption increases at each price level. As a result, aggregate demand __________, and the AD curve
shifts __________.
a.
increases; leftward
b.
decreases; leftward
c.
increases; rightward
d.
decreases; rightward
12. Which of the following will cause a movement from one point on an AD curve to another point on the same AD
curve?
a.
a change in consumption
b.
a change in government expenditures
c.
a change in net exports
d.
a change in the price level
e.
all of the above
13. The real balance effect is one of the
a.
reasons why an AD curve is downward-sloping.
b.
shifters of an AD curve.
c.
reasons why a short-run aggregate supply curve can be derived.
d.
shifters of a short-run aggregate supply curve.
14. The interest rate effect is one of the
a.
reasons why an AD curve is downward-sloping.
b.
shifters of an AD curve.
c.
reasons why a short-run aggregate supply curve can be derived.
d.
shifters of a short-run aggregate supply curve.
15. The real balance effect helps to explain "a change in
a.
aggregate demand."
b.
the quantity demanded of Real GDP."
c.
aggregate supply."
d.
the quantity supplied of Real GDP."
16. Part of the story of the interest rate effect is that a lower price level causes __________ in the demand for credit,
which then causes the interest rate to __________.
a.
a decrease; fall
b.
a decrease; rise
c.
an increase; fall
d.
an increase; rise
17. Which of the following factors can shift the AD curve?
a.
net exports
b.
government purchases
c.
the money supply
d.
b and c
e.
a, b, and c
18. If consumption changes because of a change in a factor other than the price level, then the
a.
economy moves from one point on an AD curve to another point on the same curve.
b.
AD curve shifts.
c.
economy moves from one point on a short-run aggregate supply (SRAS) curve to another point on the same
curve.
d.
SRAS curve shifts.
e.
none of the above
19. If investment changes because of a change in a factor other than the price level, then the
a.
economy moves from one point on an AD curve to another point on the same curve.
b.
AD curve shifts.
c.
economy moves from one point on a short-run aggregate supply (SRAS) curve to another point on the same
curve.
d.
SRAS curve shifts.
e.
none of the above
20. If consumption changes because of a change in the price level, then the
a.
economy moves from one point on an AD curve to another point on the same curve.
b.
AD curve shifts.
c.
economy moves from one point on a SRAS curve to another point on the same curve.
d.
SRAS curve shifts.
e.
none of the above
21. If investment changes because of a change in the price level, then the
a.
economy moves from one point on an AD curve to another point on the same curve.
b.
AD curve shifts.
c.
economy moves from one point on a SRAS curve to another point on the same curve.
d.
SRAS curve shifts.
e.
none of the above
22. Suppose a drop in prices in the stock market makes people feel less financially secure. This would cause __________
the economy's AD curve.
a.
movement down along
b.
movement up along
c.
a rightward shift of
d.
a leftward shift of
23. Greater wealth makes people _____________ willing to spend on consumption, causing __________ the economy's
AD curve.
a.
more; movement down along
b.
more; a rightward shift of
c.
less; movement up along
d.
less; a rightward shift of
24. Individuals' expectations of lower future prices is a
a.
rightward shifter of the AD curve.
b.
leftward shifter of the AD curve.
c.
reason for moving up along a given AD curve.
d.
reason for moving down along a given AD curve.
25. Individuals' expectations of higher future income is a
a.
rightward shifter of the AD curve.
b.
leftward shifter of the AD curve.
c.
reason for moving up along a given AD curve.
d.
reason for moving down along a given AD curve.
26. An economic policy initiative results in the AD curve shifting to the right. As a result,
a.
the price level will rise.
b.
the price level will stay constant.
c.
the price level will fall.
d.
Real GDP will rise in the short run.
e.
a and d
27. Suppose the price level is rising and it is widely forecast to rise even further. This forecast might cause __________ of
some consumption plans, resulting in __________ the AD curve.
a.
postponement; a rightward shift of
b.
postponement; a leftward shift of
c.
acceleration; a rightward shift of
d.
acceleration; movement down along
28. An increase in the interest rate __________ purchases of consumer __________.
a.
increases; durables
b.
increases; nondurables
c.
reduces; durables
d.
reduces; nondurables
29. A falling interest rate affects the demand for consumer __________ and shifts the AD curve to the __________.
a.
nondurables; right
b.
nondurables; left
c.
durables; right
d.
durables; left
30. As the interest rate rises, the cost of a given investment project __________ and businesses invest __________.
a.
rises; more
b.
rises; less
c.
falls; more
d.
falls; less
31. As the interest rate rises, businesses invest __________ and the AD curve shifts to the __________.
a.
more; right
b.
more; left
c.
less; right
d.
less; left
32. As income taxes rise, disposable income __________, causing __________ the AD curve.
a.
increases; movement down along
b.
increases; a rightward shift of
c.
decreases; movement up along
d.
decreases; a leftward shift of
33. When the government lowers income taxes, consumption is ______________, causing a __________ the AD curve.
a.
stimulated; rightward shift of
b.
stimulated; movement down along
c.
reduced; leftward shift of
d.
reduced; movement up along
34. Business optimism about future sales tends to __________ investment expenditures, shifting the AD curve to the
__________.
a.
increase; left
b.
increase; right
c.
decrease; left
d.
decrease; right
35. A decrease in business taxes, causes the expected profitability of investment projects to __________, which then shifts
the AD curve to the __________.
a.
rise; right
b.
rise; left
c.
decline; right
d.
decline; left
36. A rise in foreign real national income tends to raise U.S. __________, shifting the U.S. AD curve to the __________.
a.
exports; left
b.
exports; right
c.
imports; left
d.
imports; right
37. Suppose the real exchange rate of 105 Japanese yen to the dollar changes to 115 yen to the dollar. In this situation, the
dollar has _________________, making Japanese goods __________ expensive for Americans.
a.
appreciated; less
b.
appreciated; more
c.
depreciated; less
d.
depreciated; more
38. Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar. In this situation, the
dollar has __________________, making American goods __________ expensive for Mexicans.
a.
appreciated; less
b.
appreciated; more
c.
depreciated; less
d.
depreciated; more
39. Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar. In this situation, the
dollar has ________________, making Mexican goods __________ expensive for Americans.
a.
appreciated; less
b.
appreciated; more
c.
depreciated; less
d.
depreciated; more
40. Suppose the real exchange rate of 115 Japanese yen to the dollar changes to 105 yen to the dollar. In this situation, the
dollar has __________, making Japanese goods __________ expensive for Americans.
a.
appreciated; less
b.
appreciated; more
c.
depreciated; less
d.
depreciated; more
41. An appreciation of the U.S. dollar against foreign currencies tends to __________ U.S. net exports and shift the U.S.
AD curve to the __________.
a.
raise; right
b.
raise; left
c.
lower; right
d.
lower; left
42. A depreciation of the U.S. dollar against foreign currencies tends to __________ U.S. net exports and shift the U.S.
AD curve to the __________.
a.
raise; right
b.
raise; left
c.
lower; right
d.
lower; left
43. An increase in the money supply may __________ total expenditures, leading to a __________ shift of the AD curve.
a.
increase; rightward
b.
increase; leftward
c.
decrease; rightward
d.
decrease; leftward
44. A decrease in the money supply may __________ total expenditures and thus __________ aggregate demand.
a.
raise; raise
b.
raise; lower
c.
lower; raise
d.
lower; lower
45. A short-run aggregate supply curve shows the
a.
amount of a particular good producers are willing and able to buy at a particular price, ceteris paribus.
b.
real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.
c.
real output (Real GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
d.
real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.
46. The short-run aggregate supply curve is
a.
downward sloping.
b.
upward sloping.
c.
vertical.
d.
horizontal.
47. A rise in wage rates
a.
causes the AD curve to shift leftward.
b.
causes the short-run aggregate supply (SRAS) curve to shift rightward.
c.
does not affect the present position of the SRAS curve.
d.
causes the AD curve to shift rightward.
e.
causes the SRAS curve to shift leftward.
48. Changes in which of the following will not cause the SRAS curve to shift?
a.
the wage rate
b.
prices of nonlabor inputs
c.
the price level
d.
productivity
e.
All of the above will cause the SRAS curve to shift.
49. Which of the following statements is false?
a.
An increase in wage rates causes producers to move up along the SRAS curve.
b.
An increase in the price level causes producers to move up along the SRAS curve.
c.
The short-run aggregate supply (SRAS) curve is upward sloping.
d.
The long-run aggregate supply (LRAS) curve is vertical.
50. An increase in the price of nonlabor inputs
a.
shifts the AD curve leftward.
b.
shifts the SRAS curve leftward.
c.
is the same thing as a beneficial supply shock.
d.
shifts the AD curve rightward.
e.
shifts the SRAS curve rightward.
51. If the price level remains constant but the wage rate increases, then there will be __________ in production and the
SRAS curve will shift __________.
a.
an increase; rightward
b.
a decrease; rightward
c.
an increase; leftward
d.
a decrease; leftward
52. A decrease in the price of a nonlabor input such as electricity will cause
a.
a movement down the SRAS curve.
b.
a movement up the SRAS curve.
c.
a leftward shift in the SRAS curve.
d.
a rightward shift in the SRAS curve.
e.
no change regarding the SRAS curve.
53. An increase in the price of a nonlabor input such as oil will cause
a.
a movement down the SRAS curve.
b.
a movement up the SRAS curve.
c.
a leftward shift in the SRAS curve.
d.
a rightward shift in the SRAS curve.
e.
no change regarding the SRAS curve.
54. An increase in labor's productivity will cause the SRAS curve to shift __________ and the price level to __________.
a.
leftward; increase
b.
rightward; decrease
c.
rightward; increase
d.
leftward; decrease
55. Which of the following is an example of an adverse supply shock?
a.
a nationwide drought lasting for many months
b.
an outbreak of war among several of the Middle Eastern oil-producing countries
c.
an influenza virus that affects 50 percent of the labor force over a two month period
d.
a, b, and c
e.
a and c
56. An increase in labor productivity shifts the
a.
AD curve rightward.
b.
AD curve leftward.
c.
short-run aggregate supply (SRAS) curve leftward.
d.
SRAS curve rightward.
e.
none of the above
57. If aggregate quantity supplied is greater than aggregate quantity demanded at a particular price level, then a
a.
shortage exists and consumers will bid the price level up.
b.
surplus exists and consumers will bid the price level up.
c.
surplus exists and the price level will decline.
d.
shortage exists and the price level will decline.
e.
c and d
58. If aggregate quantity demanded is greater than aggregate quantity supplied at a particular price level, then
a.
consumers will bid prices upward, and a greater quantity of output will be supplied.
b.
the shortage will likely be eliminated.
c.
a and b
d.
none of the above
59. A simultaneous rise in aggregate demand and fall in short-run aggregate supply will definitely
a.
raise the price level, but there is not enough information to know how Real GDP will change.
b.
lower Real GDP, but there is not enough information to know how the price level will change.
c.
raise the price level and Real GDP.
d.
raise Real GDP, but there is not enough information to know how the price level will change.
e.
raise the price level and lower Real GDP.
60. If consumption increases,
a.
the SRAS curve will shift rightward, which will push the price level up.
b.
the SRAS curve will shift leftward, which will push the price level up.
c.
the AD curve will shift leftward, which will push the price level down.
d.
the AD curve will shift rightward, which will push the price level up.
61. A simultaneous rise in both aggregate demand and short-run aggregate supply will definitely
a.
raise the price level, but there is not enough information provided to know how Real GDP will change.
b.
lower Real GDP, but there is not enough information provided to know how the price level will change.
c.
raise the price level and Real GDP.
d.
raise Real GDP, but there is not enough information provided to know how the price level will change.
e.
raise the price level and lower Real GDP.
62. Short-run equilibrium exists
a.
where the AD curve intersects the short-run aggregate supply (SRAS) curve.
b.
where the AD curve intersects the long-run aggregate supply (LRAS) curve.
c.
on the AD curve only.
d.
on the SRAS curve only.
63. An increase in the price level
a.
shifts the AD curve to the right.
b.
shifts the AD curve to the left.
c.
causes an upward movement along the existing AD curve.
d.
causes a downward movement along the existing AD curve.
e.
a and c
64. A decrease in the price level
a.
shifts the AD curve to the right.
b.
shifts the AD curve to the left.
c.
causes an upward movement along the existing AD curve.
d.
causes a downward movement along the existing AD curve.
e.
none of the above
65. An increase in investment caused by a factor other than a change in the price level
a.
shifts the AD curve to the right.
b.
shifts the AD curve to the left.
c.
causes an upward movement along the existing AD curve.
d.
causes a downward movement along the existing AD curve.
e.
none of the above
66. A decrease in consumption caused by a factor other than a change in the price level
a.
shifts the AD curve to the right.
b.
shifts the AD curve to the left.
c.
causes an upward movement along the existing AD curve.
d.
causes a downward movement along the existing AD curve.
e.
none of the above.
67. The AD curve shows the various amounts of real output that people are willing and able to
a.
buy at different income levels.
b.
buy at different price levels.
c.
sell at different profit levels.
d.
sell at different price levels.
e.
none of the above
68. The real balance effect is the change in
a.
purchasing power that results from a change in income.
b.
the amount of money one has that results from a change in income.
c.
purchasing power that results from a change in the price level.
d.
the amount of money one has that results from a change in the price level.
e.
none of the above
