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Other things being equal, the economy's aggregate demand curve shows that


A) as the price level falls, total planned expenditures fall as well.
B) a change in the general price level causes the curve to shift.
C) a change in the general price level causes a change in the quantity of final goods and services purchased.
D) real Gross Domestic Product (GDP) and the price level are not related.

E) B) and C)
F) A) and D)

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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.

E) A) and D)
F) None of the above

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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

E) None of the above
F) All of the above

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When the price level increases, total planned real expenditures on goods and services falls. All of the following are responsible EXCEPT


A) the substitution effect.
B) the real-balance effect.
C) the interest rate effect.
D) the open economy effect.

E) C) and D)
F) None of the above

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Other things being equal, the lower planned real expenditures along an aggregate demand curve are, the


A) more the production possibilities cure shifts to the left.
B) lower the price level.
C) higher the price level.
D) lower the level of endowments.

E) B) and D)
F) A) and B)

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If the price level increases,


A) the buying power of your checking account falls.
B) the buying power of your checking accounts rises with it.
C) there is no effect on buying power.
D) the economy tends to grow faster.

E) None of the above
F) All of the above

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The aggregate supply curve shows


A) the total of all planned production for an economy.
B) the various quantities of goods consumers will purchase.
C) that real GDP can only increase when the price level increases.
D) what an economy can produce if resource prices are constant.

E) B) and C)
F) C) and D)

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The interest rate effect is part of the reason


A) the short-run aggregate supply curve is upward sloping.
B) the long-run aggregate supply curve is vertical.
C) the aggregate demand curve is upward sloping.
D) the aggregate demand curve is downward sloping.

E) A) and B)
F) A) and C)

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Which of the following is NOT a reason for the slope of the aggregate demand curve?


A) the substitution effect
B) the real balance effect
C) the interest rate effect
D) the open-economy effect

E) B) and C)
F) All of the above

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Decreases in interest rates have made it less costly to finance purchases of new houses. What impact will this have on U.S. aggregate demand?


A) None. A nation's aggregate demand is not affected by changes in interest rates.
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.

E) B) and C)
F) C) and D)

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If there are steady decreases in aggregate supply, the economy will experience


A) a slow decrease in price levels.
B) demand-side inflation.
C) an expansionary gap.
D) supply-side inflation.

E) C) and D)
F) All of the above

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The long-run aggregate supply curve is


A) horizontal.
B) vertical.
C) upward sloping.
D) downward sloping.

E) B) and D)
F) B) and C)

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Supply-side inflation could be caused by which of the following?


A) an increase in aggregate demand
B) a decrease in aggregate demand
C) an increase in long-run aggregate supply
D) a decrease in long-run aggregate supply

E) None of the above
F) A) and D)

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The interest rate effect that helps explain the slope of the aggregate demand curve arises because


A) interest rates and total planned real expenditures are unrelated.
B) an increase in the price level lead to decreases in interest rates, which induces more borrowing and hence raises planned real expenditures.
C) an increase in the price level boosts interest rates, which discourages borrowing and hence reduces planned real expenditures.
D) a decrease in the price level boosts interest rates, which discourages borrowing and hence frees up income for more planned real expenditures.

E) C) and D)
F) B) and C)

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The long run aggregate supply curve is vertical because


A) the production possibilities curve is vertical.
B) the aggregate demand curve is downward sloping.
C) technology increases at a constant rate.
D) a change in the level of prices will have no effect on real output in the long-run.

E) All of the above
F) A) and B)

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Which of these questions does aggregate demand help us answer? I. What determines the total amount of our output that individuals, firms, governments and foreigners want to buy? II. What is the economy's long-run real Gross Domestic Product (GDP) ? III. What determines the economy's equilibrium price level and the rate of inflation?


A) I only
B) I and II
C) II and III
D) I and III

E) A) and D)
F) A) and C)

Correct Answer

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Which of the following explains why the aggregate demand curve is downward sloping?


A) the interest rate effect
B) the real-balance effect
C) the open economy effect
D) all of the above

E) None of the above
F) All of the above

Correct Answer

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As the capital stock grows and technology improves, we would expect the long-run aggregate supply curve to


A) shift right.
B) shift left.
C) remain the same.
D) first shift right, then shift left.

E) None of the above
F) All of the above

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All of the following are components of aggregate demand EXCEPT


A) consumption spending.
B) government purchases.
C) the level of technology.
D) net foreign spending on domestic production.

E) B) and C)
F) B) and D)

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Demand-side inflation occurs when


A) increases in aggregate demand are not matched by increases in aggregate supply.
B) increases in aggregate supply outstrip increases in aggregate demand.
C) aggregate demand falls more rapidly than aggregate supply.
D) long-run aggregate demand rises faster than short-run aggregate supply.

E) All of the above
F) B) and C)

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