Chap 029

Chapter 29 - Aggregate Demand and Aggregate Supply

Chapter 29 Aggregate Demand and Aggregate Supply

Multiple Choice Questions

1. The aggregate demand curve is the relationship between the: A. Price level and the sales of producers B. Price level and the purchasing of real domestic output C. Price level and the distribution of real domestic output D. Real domestic output bought and the real domestic output sold

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Easy Topic: Aggregate demand

2. The aggregate demand curve shows the: A. Inverse relationship between the price level and real GDP purchased B. Direct relationship between the price level and real GDP produced C. Inverse relationship between interest rates and real GDP produced D. Direct relationship between real-balances and real GDP purchased

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Moderate Topic: Aggregate demand

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3. The amount of real domestic output that will be purchased at each possible price level is best shown by the: A. Aggregate supply curve B. Aggregate demand curve C. Aggregate expenditures model D. Difference between real and nominal GDP AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Easy Topic: Aggregate demand

4. The labels for the axes of the aggregate demand graph should be: A. Quantity of a product on the vertical axis and the price of a product on the horizontal axis B. Price of a product on the vertical axis and quantity of a product on the horizontal axis C. Real domestic output on the vertical axis and the price level on the horizontal axis D. Real domestic output on the horizontal axis and the price level on the vertical axis


5. A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n): A. Decrease in the level of income B. Increase in the price level C. Increase in the level of income D. Decrease in the price level


3. The amount of real domestic output that will be purchased at each possible price level is best shown by the: A. Aggregate supply curve B. Aggregate demand curve C. Aggregate expenditures model D. Difference between real and nominal GDP AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Easy Topic: Aggregate demand

4. The labels for the axes of the aggregate demand graph should be: A. Quantity of a product on the vertical axis and the price of a product on the horizontal axis B. Price of a product on the vertical axis and quantity of a product on the horizontal axis C. Real domestic output on the vertical axis and the price level on the horizontal axis D. Real domestic output on the horizontal axis and the price level on the vertical axis


5. A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n): A. Decrease in the level of income B. Increase in the price level C. Increase in the level of income D. Decrease in the price level



6. Which effect best explains the downward slope of the aggregate demand curve? A. A multiplier effect B. An income effect C. A substitution effect D. An interest rate effect AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Easy Topic: Aggregate demand

7. Which effect best explains the downward slope of the aggregate demand curve? A. A multiplier effect B. An income effect C. A substitution effect D. A real-balances effect


8. When the price level decreases: A. The demand for money falls and the interest rate falls B. Holders of financial assets with fixed money values decrease their spending C. Holders of financial assets with fixed money values have less purchasing power D. There is a decrease in consumer con sumer spending that is sensitive to changes in interest rates

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Difficult Topic: Aggregate demand

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9. What is one likely reason the level of domestic output purchased will be higher when the price level is lower? A. The unemployment rate B. The interest-rate effect C. The degree of excess capacity D. A change in consumer expectations AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Moderate Topic: Aggregate demand

10. Other things being equal, the higher the price level, the lower the level of domestic output purchased. This occurs because of: A. Household indebtedness B. The real-balances effect C. A change in business taxes D. Consumer spending on capital goods


11. The foreign purchases effect suggests that a: A. Fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand B. Fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand C. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand D. Rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand



12. The interest rate effect indicates that a(n): A. Decrease in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending B. Decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending C. Increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending D. Increase in the supply of money will increase interest rates and decrease interest-sensitive consumption and investment spending AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Difficult Topic: Aggregate demand

13. The real-balances effect suggests that a: A. Lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending B. Lower price level will decrease the real value of many financial assets and therefore cau se an increase in spending C. Lower price level will increase the real value of many financial assets and therefore cause an increase in spending D. Higher price level will increase the real value of many financial assets and therefore cause an increase in spending


14. The downward slope of the aggregate demand curve is best explained by the: A. Interest rate, real-balances, and foreign purchases effects B. Rate of inflation and the natural rate of unemployment C. Policies to stabilize prices and reduce unemployment D. Household indebtedness, business taxes, and exchange rates


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15. The foreign purchases, interest rate, and real-balances effects explain: A. Why the aggregate demand curve is downsloping B. The horizontal range of the aggregate supply curve C. The classical range of the aggregate supply curve D. Why the consumption schedule remains stable when the price level changes AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Difficult Topic: Aggregate demand

16. The best explanation for why the aggregate demand curve is downsloping is that: A. The supply of money decreases when the price level decreases B. Businesses produce fewer goods and services when the price level increases C. Businesses produce more goods and services when the price level increases D. People gain in purchasing power from financial assets when the price level decreases


17. The foreign purchases effect provides an explanation why the: A. Lower the price level, the higher the level of domestic output purchased B. Higher the price level, the higher the level of domestic output purchased C. Lower the price level, the lower the level of domestic output purchased D. Higher the price level, the lower the level of unemployment



18. When the price level falls: A. The demand for money rises B. There is a decrease in spending that is sensitive to interest-rate changes C. There is an increase in the quantity of goods demanded as net exports D. Holders of financial assets with fixed money values increase their spending AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Easy Topic: Aggregate demand

19. One explanation for the downward slope of the aggregate demand curve is that a change in the price level results in: A. A multiplier effect B. An income effect C. A substitution effect D. A real-balances effect


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20. Refer to the above graph. Which factor explains the downward slope? A. Real interest rates B. Household indebtedness C. The real-balances effect D. The degree of excess capacity

AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Easy Topic: Aggregate demand

21. Refer to the above graph. Which factor explains the downward slope? A. Changes in nominal wages B. The foreign purchases effect C. Expected returns on investment D. The real value of consumer wealth


22. Refer to the above graph. Which factor explains the downward slope? A. Market power B. The interest-rate effect C. Government regulation D. Domestic resource prices



23. Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the price level is 200, the quantity of real GDP demanded is: A. $500 billion B. $600 billion C. $700 billion D. $800 billion


24. Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the price level is 150, the quantity of real GDP demanded is: A. $500 billion B. $600 billion C. $700 billion D. $800 billion


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25. Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the economy is at point C and the price level increases by 100 points, the wealth, interest-rate, and foreign purchases effects will: A. Move the economy to point A B. Move the economy to point C C. Move the economy to point D D. Move the economy to point B AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Easy Topic: Aggregate demand

26. Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the economy is at point B and the domestic price level declines by 50 points, then the: A. Real-balances effect would keep the economy at point B B. Interest rate effect would move the economy to point A C. Foreign purchases effect would move the economy to point A D. Foreign purchases effect would move the economy to point C

AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Moderate Topic: Aggregate demand

27. A decrease in interest rates caused by a change in the price level would cause a(n): A. Decrease in aggregate demand B. Increase in aggregate demand C. Decrease in the quantity of real domestic output demanded D. Increase in the quantity of real domestic output demanded



28. An increase in personal income tax rates will cause a(n): A. Decrease in the quantity of real domestic output demanded B. Increase in the quantity of real domestic output demanded C. Decrease in aggregate demand D. Increase in aggregate demand AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Easy Topic: Aggregate demand

29. An expected decline in the prices of consumer goods will: A. Decrease aggregate demand B. Increase the quantity of real domestic output demanded C. Increase aggregate demand D. Decrease the quantity of real domestic output demanded

AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: Aggregate demand

30. An increase in taxes on consumers will most likely cause a(n): A. Decrease in aggregate supply B. Increase in aggregate supply C. Decrease in aggregate demand D. Increase in aggregate demand


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31. An expected rise in the rate of inflation for consumer goods will: A. Decrease aggregate demand B. Increase aggregate supply C. Increase aggregate demand D. Decrease aggregate supply AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Moderate Topic: Aggregate demand

32. An increase in expected future income will: A. Increase aggregate demand and aggregate supply B. Decrease aggregate demand and aggregate supply C. Increase aggregate supply D. Increase aggregate demand


33. An increase in aggregate demand is most likely to be caused by a decrease in: A. The wealth of consumers B. Consumer confidence C. Interest rates for home mortgages D. The tax rates on household income



34. An increase in the real value of stock prices, which is independent of a change in the price level, would best be an example of the: A. Foreign purchases effect B. Real-balances effect C. Interest-rate effect D. Wealth effect AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Moderate Topic: Aggregate demand

35. Which set of events would most likely decrease aggregate demand? A. A reduction in the excess capital of the existing capital stock B. A reduction in business and personal tax rates C. An increase in investment spending D. An increase in personal income tax rates


36. Which would be one of the factors that shift the aggregate demand curve? A change in: A. Productivity B. Prices of imported resources C. Domestic resource availability D. Profit expectations on investment projects


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37. When the excess capacity of business rises, aggregate: A. Demand increases B. Demand decreases C. Supply increases D. Supply decreases AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: Aggregate demand

38. A decrease in government spending will cause a(n): A. Increase in the quantity of real domestic output demanded B. Decrease in the quantity of real domestic output demanded C. Decrease in aggregate demand D. Increase in aggregate demand


39. An increase in government spending will cause a(n): A. Increase in aggregate supply B. Decrease in aggregate supply C. Decrease in aggregate demand D. Increase in aggregate demand



40. If the dollar appreciates in value relative to foreign currencies: A. Aggregate demand decreases B. Aggregate demand increases C. The quantity of real domestic output demanded increases D. The quantity of real domestic output demanded decreases AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: Aggregate demand

41. When national income in other nations increases: A. Aggregate demand increases B. Aggregate demand decreases C. The quantity of real domestic output demanded decreases D. The quantity of real domestic output demanded increases


42. A decrease in net exports will cause a(n): A. Decrease in aggregate demand B. Increase in aggregate demand C. Increase in aggregate supply D. Decrease in aggregate supply


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43. If the dollar depreciates in value relative to foreign currencies, aggregate: A. Demand decreases B. Demand increases C. Supply and aggregate demand increase D. Supply and aggregate demand decrease AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: Aggregate demand

44. If the U.S. dollar depreciates in value relative to foreign currencies, then this will: A. Increase aggregate demand B. Decrease aggregate demand C. Cause a movement along the aggregate demand curve D. Cause a movement along the aggregate supply curve


45. If the U.S. dollar appreciates in value relative to foreign currencies, then this will: A. Increase aggregate demand B. Decrease aggregate demand C. Cause a movement downward along the aggregate demand curve D. Cause a movement upward along the aggregate demand curve



46. When national income in other nations decreases, aggregate: A. Demand increases B. Demand decreases C. Supply increases D. Supply decreases AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: Aggregate demand

47. Which would shift the aggregate demand curve? A change in: A. Input prices B. Net export spending C. The prices of imported resources D. The legal-institutional environment


48. A decrease in aggregate demand is likely to result from: A. A decrease in the price level B. An increase in the price level C. An appreciation in the value of the U.S. dollar D. A decrease in the excess capacity of factories


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49. Which set of events would most likely increase aggregate demand? A. An increase in incomes in foreign nations and a depreciation of the dollar B. An increase in incomes in foreign nations and an appreciation of the dollar C. A decrease in incomes in foreign nations and an appreciation of the dollar D. A decrease in incomes in foreign nations and a depreciation of the dollar AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Moderate Topic: Aggregate demand

50. Which combination of factors would most likely increase aggregate demand? A. An increase in household indebtedness and a decrease in foreign demand for products B. An increase in consumer wealth and a decrease in interest rates C. An increase in personal taxes and a decrease in government spending D. An increase in business taxes and a decrease in profit expectations


51. A shift in the aggregate demand curve would be caused by a change in: A. The quantity of real output demanded B. The price level C. An aggregate demand determinant D. An appreciation in the value of the U.S. dollar E. Aggregate supply



52. Refer to the above graph. Which factor will shift AD1 to AD2? A. An increase in business taxes B. An increase in real interest rates C. An increase in national income abroad D. An increase in household indebtedness


53. Refer to the above graph. Which factor will shift AD1 to AD3? A. An increase in real wages B. An increase in productivity C. An increase in real interest rates D. An decrease in consumer wealth


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54. Refer to the above graph. Which factor will shift AD1 to AD2? A. The real-balances effect B. An increase in productivity C. The foreign purchase effect D. An increase in investment spending AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Moderate Topic: Aggregate demand

55. A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of: A. The interest-rate effect B. The real-balances effect C. A change in the degree of excess capacity D. A change in real value of consumer wealth


56. Which of the following will cause the aggregate demand curve to shift to the left? A. A decrease in the price level B. An increase in the price level C. An increase in national incomes abroad D. An appreciation in the value of the U.S. dollar



57. Which of the following will lead to an increase in aggregate demand? A. A decrease in the price level B. An increase in the price level C. An increase in national incomes abroad D. An appreciation in the value of the U.S. dollar AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Moderate Topic: Aggregate demand

58. Which would be one of the factors that increase aggregate demand? A. An increase in personal income tax rates B. An increase in the productivity of labor C. An increase in consumer wealth D. An increase in real interest rates


59. Which event would most likely increase aggregate demand? A. A depreciation of the dollar B. An appreciation of the dollar C. A decrease in the national incomes in foreign nations D. A decrease in the price level that results in a foreign purchases effect


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Answer the next question(s) based on the following list of factors that are related to the aggregate demand curve.

60. Which of the above factors best explain the downward slope of aggregate demand curve? A. 2, 4, and 6 B. 7, 9, and 10 C. 1, 3, and 8 D. 4, 6, and 7


61. Changes in which two of the above factors would most likely cause a change in consumer spending? A. 1 and 3 B. 2 and 4 C. 5 and 10 D. 8 and 9



62. Refer to the above information. Investment spending would most likely be influenced by changes in: A. 1 and 3 B. 4 and 6 C. 5 and 10 D. 8 and 9 AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: Aggregate demand

63. Refer to the above information. A change in net export spending would most likely be caused by changes in: A. 2 and 3 B. 5 and 6 C. 7 and 8 D. 6 and 9


64. An aggregate supply curve shows the: A. Level of real domestic output which will be produced at each possible price level B. Level of real domestic output which will be purchased at each possible price level C. Price level at which real domestic output will be purchased D. Price level at which real domestic output will be in equilibrium

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Easy Topic: Aggregate supply (short-run)

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65. An aggregate supply curve represents the relationship between the: A. Price level and the buying of real domestic output B. Price level and the production of real domestic output C. Real domestic output bought and the real domestic output sold D. Price level that producers are willing to accept and the price level buyers are willing to pay AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Easy Topic: Aggregate supply (short-run)

66. The labels for the axes of an aggregate supply curve should be: A. Real domestic output for the vertical axis and price level for the horizontal axis B. Real domestic output for the horizontal axis and price level for the vertical axis C. Real employment for the vertical axis and price level for the horizontal axis D. Aggregate demand for the vertical axis and real national output for the horizontal axis


67. The slope of the immediate-short-run aggregate supply curve is based on the assumption that: A. Both input and output prices are fixed B. Neither input nor output prices are fixed C. Input prices are flexible but output prices are fixed D. Input prices are fixed but output prices are flexible



68. The immediate-short-run aggregate supply curve is: A. Vertical B. Horizontal C. Upward sloping D. Downward sloping AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Easy Topic: Aggregate supply (short-run)

69. The upward slope of the short-run aggregate supply curve is based on the assumption that: A. Nominal wages and other resource costs do not respond to price level changes B. Nominal wages and other resource costs do respond to price level changes C. Nominal wages are greater than real wages D. Nominal wages are less than real wages


70. The short-run aggregate supply curve shows the: A. Inverse relationship between the price level and real GDP purchased B. Inverse relationship between the price level and real GDP produced C. Direct relationship between the price level and real GDP produced D. Direct relationship between the price level and real GDP purchased

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

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71. A change in aggregate supply would be caused by a change in: A. The price level B. Aggregate demand C. An aggregate supply determinant D. The quantity of real output supplied AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Easy Topic: Aggregate supply (short-run)

72. A fall in the price of capital goods will shift the aggregate: A. Demand curve leftward B. Demand curve rightward C. Supply curve rightward D. Supply curve leftward

AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Easy Topic: Aggregate supply (short-run)

73. Which would most likely shift the aggregate supply curve? A change in: A. Consumer expectations B. Government spending C. Excess capacity in business D. Prices of imported resources



74. A fall in prices of imported resources will cause aggregate: A. Supply to increase B. Demand to increase C. Supply to decrease D. Demand to decrease AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Easy Topic: Aggregate supply (short-run)

75. An increase in productivity will: A. Increase aggregate demand B. Increase aggregate supply C. Increase aggregate supply and aggregate demand D. Decrease aggregate supply and aggregate demand


76. Which would most likely increase aggregate supply? A. An increase in the prices of imported products B. An increase in productivity C. A decrease in business subsidies D. A decrease in net exports


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77. If the price per barrel of Crude decreases in the international market, then this event would most likely: A. Decrease aggregate supply in the United States B. Increase aggregate supply in the United States C. Increase aggregate demand in the United States D. Decrease aggregate demand AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

78. Refer to the above graph. Which factor will shift AS1 to AS2? A. An increase in real interest rates B. A decrease in business subsidies C. An increase in input prices D. A decrease in business taxes



79. Refer to the above graph. Which factor will shift AS1 to AS3? A. An increase in productivity B. An increase in input prices C. A decrease in business taxes D. A decrease in household indebtedness AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Easy Topic: Aggregate supply (short-run)

80. Refer to the above graph. Which factor will shift AS1 to AS2? A. A rise in national income abroad B. An increase in government spending C. A reduction in business taxes D. A decline in consumer confidence


81. Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this output. The per unit cost of production is: A. $1.42 B. $1.24 C. $0.70 D. $0.40

AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Difficult Topic: Aggregate supply (short-run)

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82. In an economy it costs $1,500 to produce 2,000 units of output. If the costs increase to $2,500, then the per unit cost of production will have increased from: A. $0.75 to $1.25 B. $0.75 to $1.00 C. $1.33 to $1.75 D. $0.80 to $1.33 AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Difficult Topic: Aggregate supply (short-run)

83. Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50 and the price of each input is $9. The level of productivity in this economy is: A. 5 B. 6 C. 9 D. 50

AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

84. Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50 and the price of each input is $9. The per-unit cost of production is: A. $0.67 B. $1.50 C. $33.33 D. $55.00



85. Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50 and the price of each input is $9. If productivity increased such that 400 units are now produced with the quantity of inputs still equal to 50, then per-unit production costs would: A. Increase and aggregate demand would decrease B. Decrease and aggregate demand would increase C. Decrease and aggregate supply would decrease D. Decrease and aggregate supply would increase AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30.

86. Refer to the above information. The level of productivity in this economy is: A. 20 B. 30 C. 40 D. 50


87. Refer to the above information. The per-unit cost of production is: A. $0.25 B. $0.50 C. $0.75 D. $2.00


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88. Refer to the above information. If productivity increased such that 3000 units are now produced with the quantity of inputs still equal to 60, then per-unit production costs would: A. Decrease and aggregate supply would decrease B. Decrease and aggregate supply would increase C. Increase and aggregate supply would decrease D. Remain unchanged and aggregate supply would remain unchanged AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

89. Refer to the above information. All else equal, if the price of each input decreased from $30 to $20, productivity would: A. Increase from $40 to $90 and aggregate supply would decrease B. Increase from $50 to $60 and aggregate supply would decrease C. Increase from $60 to $70 and aggregate supply would increase D. Remain unchanged and aggregate supply would increase


90. If Congress passed new laws significantly increasing the regulation o f business, this action would tend to: A. Increase per-unit production costs and shift the aggregate supply curve to the left B. Increase per-unit production costs and shift the aggregate supply curve to the right C. Increase per-unit production costs and shift the aggregate demand curve to the left D. Decrease per-unit production costs and shift the aggregate supply curve to the left



91. Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50 and the price of each input is $9. If the price of each input decreased from $9 to $7, productivity would: A. Decrease and aggregate supply would decrease B. Increase and aggregate supply would increase C. Remain unchanged and aggregate supply would increase D. Remain unchanged and aggregate supply would decrease AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

92. If the prices of imported resources decrease, then this event would most likely: A. Decrease aggregate supply B. Increase aggregate supply C. Increase aggregate demand D. Decrease aggregate demand


93. If Congress raised taxes on businesses, this action w ould: A. Increase per-unit production costs and thus increase aggregate demand B. Increase per-unit production costs and thus increase aggregate supply C. Increase per-unit production costs and thus decrease aggregate supply D. Increase aggregate demand and increase aggregate supply


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94. The passage of new legislation requiring more extensive government regulation of business will most likely: A. Increase aggregate demand B. Increase aggregate supply C. Decrease aggregate demand D. Decrease aggregate supply AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

95. An increase in business taxes would wou ld tend to: A. Increase aggregate demand and decrease aggregate supply B. Increase aggregate demand and increase aggregate supply C. Decrease aggregate demand and increase aggregate supply D. Decrease aggregate demand and decrease aggregate supply


96. A decrease in business taxes will tend to: A. Increase aggregate demand but not change aggregate supply B. Increase aggregate supply but not change aggregate demand C. Increase aggregate demand and increase aggregate supply D. Decrease aggregate supply and decrease aggregate demand



97. Which would most likely increase aggregate supply? A. An increase in the degree of excess capacity B. A decrease in the prices of resources C. A decrease in subsidies for businesses D. A decrease in net exports AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

98. A rise in prices of imported resources will cause aggregate: A. Supply to increase B. Demand to increase C. Supply to decrease D. Demand to decrease


99. Which would be considered con sidered to be one of the factors that shift the aggregate supply curve? A change in: A. Consumer spending B. Net export spending C. Government regulation D. Profit expectations on investment projects


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100. Which would increase aggregate supply? A. An increase in business regulation B. A decline in productivity C. An increase in business subsidies D. A decrease in the capital stock AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

101. If the U.S. dollar depreciates in value relative to foreign currencies, then this will: A. Increase aggregate supply B. Decrease aggregate supply C. Decrease aggregate demand D. Cause a movement along the aggregate supply curve


102. If the U.S. dollar appreciates in value relative to foreign currencies, then this will: A. Increase aggregate supply B. Decrease aggregate supply C. Increase aggregate demand D. Cause a movement along the aggregate supply curve



103. If the U.S. dollar appreciates in value relative to foreign currencies, then this will: A. Increase aggregate demand and aggregate supply B. Decrease aggregate demand and aggregate supply C. Decrease aggregate demand and increase aggregate supply D. Increase aggregate demand and decrease aggregate supply AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

104. If the U.S. dollar depreciates in value relative to foreign currencies, then this will: A. Increase aggregate demand and aggregate supply B. Decrease aggregate demand and aggregate supply C. Decrease aggregate demand and increase aggregate supply D. Increase aggregate demand and decrease aggregate supply


105. If personal income taxes and business taxes increase, then this will: A. Increase aggregate demand and aggregate supply B. Decrease aggregate demand and aggregate supply C. Decrease aggregate demand and increase aggregate supply D. Increase aggregate demand and decrease aggregate supply


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106. If personal income taxes and business taxes decrease, then this will: A. Increase aggregate demand and aggregate supply B. Decrease aggregate demand and aggregate supply C. Decrease aggregate demand and increase aggregate supply D. Increase aggregate demand and decrease aggregate supply AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

107. A decrease in business taxes will most likely result in a(n): A. Decrease in aggregate demand and aggregate supply B. Increase in aggregate demand and aggregate supply C. Decrease in aggregate demand and increase in aggregate supply D. Increase in aggregate demand and decrease in aggregate supply


Answer the next question(s) based on the following list of items that are related to aggregate demand and/or aggregate supply.


108. Refer to the above list. Changes in which combination of factors best explain why the aggregate supply curve would shift? A. 1 and 2 B. 2 and 10 C. 3 and 6 D. 7 and 8


109. Refer to the above list. Changes in which of the above two factors would most likely cause a change in aggregate demand? A. 1 and 5 B. 3 and 10 C. 5 and 7 D. 8 and 9


110. Refer to the above list. A change in which factor is most likely to change both aggregate demand and aggregate supply? A. 3 B. 5 C. 7 D. 9


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111. The long run in macroeconomics is a period in which nominal wages: A. Do not respond as the price level stays constant B. Change as the price level stays constant C. Do not respond as the price level changes D. Change as the price level changes AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Moderate Topic: Long-run aggregate supply

112. The short run in macroeconomics is a period in which nominal wages: A. Do not respond as the price level stays constant B. Change as the price level stays constant C. Do not respond as the price level changes D. Change as the price level changes

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Moderate Topic: Long-run aggregate supply

113. The long-run aggregate supply curve is: A. Vertical B. Horizontal C. Upsloping D. Downsloping

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Easy Topic: Long-run aggregate supply


114. Refer to the above graph. The long-run aggregate supply curve would be represented by which line? A. 1 B. 2 C. 3 D. 4

AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Easy Topic: Long-run aggregate supply

115. Refer to the above graph. Which line shows the full-employment output for the economy? A. 1 B. 2 C. 3 D. 4

AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Easy Topic: Long-run aggregate supply

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116. Refer to the above graph. As the price level changes, real domestic output remains constant with which line? A. 1 B. 2 C. 3 D. 4 AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Moderate Topic: Long-run aggregate supply

117. A graph of the long-run aggregate supply curve is: A. Horizontal, and a graph of the short-run aggregate supply is upsloping B. Upsloping, and a graph of the short-run aggregate supply is vertical C. Upsloping, and a graph of the short-run aggregate supply is horizontal D. Vertical, and a graph of the short-run aggregate supply is upsloping

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Moderate Topic: Long-run aggregate supply

118. The vertical slope of the long-run aggregate supply curve is based on the assumption that: A. Nominal wages and other resource costs do not respond to price level changes B. Nominal wages and other resource costs do respond to price level changes C. Nominal wages are greater than real wages D. Nominal wages are less than real wages

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Easy Topic: Long-run aggregate supply


119. The intersection of the aggregate demand and aggregate supply curves determines the: A. Shape of the aggregate supply curve B. Shape of the aggregate demand curve C. Per-unit cost of production in the economy D. Equilibrium level of real domestic output and prices AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-3 Level: Easy Topic: Equilibrium; changes in equilibrium

120. Refer to the above graph. This economy is at equilibrium: A. At point a B. At point b C. Price level P2 and output Q2 D. Price level P1 and output Q1

AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Easy Topic: Equilibrium; changes in equilibrium

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121. Refer to the above graph. At price level P2: A. The quantity of output is constant B. The quantity of output is equal to the quantity of output demanded C. The quantity of output is greater than the quantity of output demanded D. The quantity of output is less than the quantity of output demanded AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Easy Topic: Equilibrium; changes in equilibrium

122. Refer to the above graph. At price level P1: A. The quantity of output is constant B. The quantity of output is equal to the quantity of output demanded C. The quantity of output is greater than the quantity of output demanded D. The quantity of output is less than the quantity of output demanded


123. If at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a: A. Surplus and the price level will rise B. Surplus and the price level will fall C. Shortage and the price level will rise D. Shortage and the price level will fall

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-3 Level: Moderate Topic: Equilibrium; changes in equilibrium


It shows the aggregate demand-aggregate supply schedule for a hypothetical economy.

124. Refer to the above table. The equilibrium price level and quantity of real domestic output will be: A. 200 and $5000 B. 200 and $6000 C. 250 and $7000 D. 300 and $8000


125. Refer to the above table. If the quantity of real domestic output demanded increased by $2000 at each price level, the new equilibrium price level and quantity of real domestic output would be: A. 350 and $8000 B. 300 and $8000 C. 250 and $7000 D. 200 and $6000

AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Moderate Topic: Equilibrium; changes in equilibrium

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126. Refer to the above table. Using the original data from the table, if the quantity of real domestic output demanded increased by $3000 and the quantity of real domestic output supplied increased by $1000 at each price level, the new equilibrium price level and quantity of real domestic output would be: A. 350 and $8000 B. 300 and $9000 C. 250 and $8000 D. 200 and $7000 AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Difficult Topic: Equilibrium; changes in equilibrium

127. A decrease in aggregate demand will decrease: A. Both real output and the price level B. The price level and increase the real domestic output C. The real domestic output and have no effect on the price level D. The price level and have no effect on real domestic output


128. Demand-pull inflation will: A. Increase productivity B. Decrease input prices C. Increase the strength of the multiplier D. Decrease the strength of the multiplier



129. Refer to the above diagram. If AD1 shifts to AD2, then the equilibrium output and price level are: A. P 1Q3 B. P 2Q3 C. P 1Q2 D. P 2Q2


130. Refer to the above diagram. When AD1 shifts to AD2, then at P 1Q3 output demanded will: A. Equal output supplied B. Exceed output supplied C. Be less than output supplied D. Be at stable full-employment GDP


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131. Refer to the above diagram. When AD1 shifts to AD2, real output: A. Increases from Q1 to Q2, but the price level stays the same B. Increases from Q1 to Q3, but the price level declines C. Increases from Q1 to Q2, but the price level rises D. Stays the same, but the price level rises AACSB: Analytic Bloom's: Application Learning Objective: 29-4 Level: Moderate Topic: Equilibrium; changes in equilibrium

132. Refer to the above diagram. A shift from AD1 shifts to AD2, would be consistent with what economic event in U.S. history? A. Demand-pull inflation in the late 1960s B. Cost-push inflation in the mid-1970s C. Full-employment in the late 1990s D. Recession in 2001


Answer the next question(s) on the basis of the following aggregate demand and supply schedules for a hypothetical economy.


133. Refer to the above table. What price level would be associated with a shortage of real output? A. 225 B. 200 C. 175 D. 125


134. Refer to the above table. What price levels would be associated with a surplus of real output? A. 200 B. 175 C. 125 D. 120


135. Refer to the above table. The equilibrium price level will be: A. 125 B. 150 C. 175 D. 200


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136. Refer to the above table. If the price level is 200, then based on the aggregate demand and supply schedule, there will be a: A. Shortage of real output of $1500 B. Shortage of real output of $1000 C. Surplus of real output of $1000 D. Surplus of real output of $1500 AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Difficult Topic: Equilibrium; changes in equilibrium

It shows the aggregate demand and aggregate supply schedule for a hypothetical economy.

137. Refer to the above table. The equilibrium price level and quantity of real domestic output will be: A. 150 and $1000 B. 150 and $1500 C. 200 and $2000 D. 250 and $2500



138. Refer to the above table. If the quantity of real domestic output demanded increased by $1000 at each price level, the new equilibrium price level and quantity of real domestic output would be: A. 150 and $2500 B. 250 and $2500 C. 200 and $2000 D. 300 and $3000 AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Moderate Topic: Equilibrium; changes in equilibrium

139. Refer to the above table. If the quantity of real domestic output demanded decreased by $500 and the quantity of real domestic output supplied increased by $500 at each price level, the new equilibrium price level and quantity of real domestic output would be: A. 150 and $1500 B. 150 and $2000 C. 200 and $2000 D. 250 and $2000

AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Difficult Topic: Equilibrium; changes in equilibrium

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140. Refer to the above graph. If an increase in government spending shifts the aggregate demand curve from AD1 to AD2, there will be: A. Cost-push inflation, and the new equilibrium price and quantity will be P 2 and Q2 B. Demand-pull inflation, and the new equilibrium price and quantity will be P 2 and Q2 C. Demand-pull inflation, the new equilibrium price and quantity will be P 2 and Q4 D. Cost-push inflation, and the new equilibrium price and quantity will be P 1 and Q3


141. Refer to the above graph. If a recession shifts the aggregate demand curve from AD2 to AD1, but the aggregate supply curve is horizontal below output level Q2, what will be the output and price level in the economy? A. P 1 and Q1 B. P 1 and Q2 C. P 2 and Q4 D. P 2 and Q2


142. The massive increase in government spending during World War II moved the economy in the span of a few short years from mass unemployment and price stability to "overfull" employment and severe demand-pull inflation. This situation can be best characterized by: A. A decrease in aggregate supply B. An increase in aggregate supply C. An increase in aggregate demand D. A decrease in aggregate demand



143. Demand-pull inflation is associated with a(n): A. Decrease in aggregate demand B. Increase in aggregate demand C. Increase in aggregate supply D. Decrease in aggregate supply AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Easy Topic: Equilibrium; changes in equilibrium

144. A decrease in aggregate supply means: A. Both the real domestic output and the price level would decrease B. The real domestic output would increase and rises in the price level would become smaller C. The real domestic output would decrease and the price level would rise D. Both the real domestic output and rises in the price level would become greater


145. One reason why the aggregate supply curve might shift to the left is that: A. Consumer incomes have increased B. Per unit production costs have increased C. Government spending has increased D. Businesses have become more optimistic


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146. Cost-push inflation arises from: A. A decrease in aggregate demand B. A decrease in aggregate supply C. An increase in aggregate demand D. An increase in aggregate supply AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Moderate Topic: Equilibrium; changes in equilibrium

147. Cost-push inflation is characterized by a(n): A. Increase in aggregate supply and a decrease in aggregate demand B. Increase in aggregate demand and no change in aggregate supply C. Decrease in aggregate supply and no change in aggregate demand D. Decrease in both aggregate supply and aggregate demand

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Difficult Topic: Equilibrium; changes in equilibrium

148. Cost-push inflation occurs because of a: A. Rightward shift in the aggregate demand curve B. Leftward shift in the aggregate demand curve C. Rightward shift in the aggregate supply curve D. Leftward shift in the aggregate supply curve

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Easy Topic: Equilibrium; changes in equilibrium


149. The economy experiences an increase in the price level and a decrease in real domestic output. Which is a likely explanation? A. Productivity has increased B. Input prices have increased C. Excess capacity has decreased D. Government regulations have been reduced AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Moderate Topic: Equilibrium; changes in equilibrium

150. The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation? A. Interest rates have increased B. The stock of capital has increased C. Wage rates have fallen D. Net exports have increased


151. The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation? A. Consumer incomes and the quantity of labor have decreased B. Interest rates and wage rates have decreased C. The prices of imported resources have increased D. National income abroad has increased


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152. Other things being equal, a reorganization of the OPEC cartel to permit it to increase world oil prices by 70 percent would most likely have which effect? A. It would shift the aggregate demand curve right B. It would shift the aggregate supply curve right C. It would shift the aggregate supply curve left D. It would shift the aggregate demand curve right and the aggregate supply curve left AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Moderate Topic: Equilibrium; changes in equilibrium

153. Refer to the above diagram. If aggregate supply shifts from AS1 to AS3, then real domestic output will: A. Increase and the price level will increase B. Increase and the price level will decrease C. Decrease and the price level will increase D. Decrease and the price level will decrease



154. Refer to the above diagram. If aggregate supply shifts from AS1 to AS2, then the price level will: A. Increase and real domestic output will increase B. Decrease and real domestic output will increase C. Increase and real domestic output will decrease D. Decrease and real domestic output will decrease AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Easy Topic: Equilibrium; changes in equilibrium

155. Refer to the above diagram. When output increases from Q1 and the price level decreases from P 1, this change will: A. Be caused by a shift in the aggregate supply curve from AS1 to AS2 B. Be caused by a shift in the aggregate supply curve from AS 1 to AS3 C. Result in a movement along the aggregate demand curve from e1 to e2 D. Result in a movement along the aggregate demand curve from e3 to e1


156. Refer to the above diagram. When output decreases from Q1 and the price level increases from P 1, then this change will: A. Be caused by a shift in the aggregate supply curve from AS1 to AS3 B. Be caused by a shift in the aggregate supply curve from AS 2 to AS1 C. Result in a movement along the aggregate demand curve from e2 to e1 D. Result in a movement along the aggregate demand curve from e1 to e2


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157. Refer to the above diagram. Cost-push inflation can be illustrated by a: A. Shift in the aggregate supply curve from AS1 to AS2 B. Shift in the aggregate supply curve from AS1 to AS3 C. Shift in the aggregate supply curve from AS2 to AS3 D. Movement along the aggregate demand curve from e1 to e3 AACSB: Analytic Bloom's: Application Learning Objective: 29-3 Level: Difficult Topic: Equilibrium; changes in equilibrium

158. Refer to the above diagram. A shift from AS1 to AS2 would be consistent with what economic event in U.S. history? A. Demand-pull inflation in the late 1960s B. Cost-push inflation in the mid-1970s C. Full-employment in the late 1990s D. Recession in 2001


159. The U.S. economy was able to achieve full employment with relative price level stability in the 1990s and 2000 because aggregate: A. Demand increased B. Supply decreased C. Demand increased and aggregate supply increased D. Demand decreased and aggregate supply increased

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-3 Level: Difficult Topic: Equilibrium; changes in equilibrium


160. Deflation refers to a situation where: A. Price level falls B. Price level rises C. The rate of inflation falls D. The rate of inflation rises AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Moderate Topic: Downward price and wage inflexibility

161. Disinflation refers to a situation where: A. Price level falls, but the rate inflation does not B. Price level rises, but the rate of inflation does not C. The rate of inflation falls, but the price level does not D. The rate of inflation rises, but the price level does not

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Moderate Topic: Downward price and wage inflexibility

162. Aggregate demand decreases and real output falls but the price level remains the same. Which factor most likely contributes to downward price inflexibility? A. The multiplier effect B. The wealth effect C. Fear of price wars D. Business taxes


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163. Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to: A. A wealth effect B. A multiplier effect C. An increase in aggregate supply D. A price level that is inflexible downward AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Moderate Topic: Downward price and wage inflexibility

164. Efficiency wages will: A. Make wages inflexible downward B. Elicit minimum work effort from workers C. Impose a legal price floor on wages D. Increase the number of strikes

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Easy Topic: Downward price and wage inflexibility

165. Menu costs will: A. Increase the amount of training of workers B. Result in price wars between businesses C. Increase the legal minimum wage D. Make prices inflexible downward



166. Wage contracts, efficiency wages, and the minimum wage are explanations for why: A. Competition results in price wars B. Wages tend to be inflexible downward C. The aggregate demand curve slopes downward D. There is little support for the existence of a real-balances effect AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Moderate Topic: Downward price and wage inflexibility

167. Aggregate demand decreases and real output falls but the price level remains the same. Which factor would most likely contribute to downward price inflexibility? A. Menu cost B. Lower interest rates C. The real-balances effect D. An increase in aggregate supply


168. Efficiency wages are associated with: A. A price level that is inflexible upward B. A price level that is inflexible downward C. A domestic output that cannot be increased D. A domestic output that cannot be decreased


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169. When aggregate demand decreases, product prices, wage rates, and per-unit production costs are inflexible downward because of a: A. Ratchet effect B. Interest-rate effect C. Real-balances effect D. Foreign-purchases effect AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Easy Topic: Downward price and wage inflexibility

170. The ratchet effect means that: A. When aggregate supply increases, the price level decreases B. When aggregate supply decreases, the price level increases C. When aggregate demand decreases, the price level remains constant D. When aggregate demand increases, the price level remains constant



171. Refer to the above graph. The ratchet effect would suggest that: A. If AD1 moves to AD2, the new equilibrium would be at b B. If AD1 moves to AD2, the new equilibrium would be at c C. If AD2 moves to AD1, the new equilibrium would be at a D. If AD2 moves to AD1, the new equilibrium would be at b

AACSB: Analytic Bloom's: Application Learning Objective: 29-4 Level: Easy Topic: Downward price and wage inflexibility

172. Major increases in oil prices in the mid-1970s, and in the late 1970s created: A. An increase in long-run aggregate supply B. A reduction in the unemployment rate C. Adverse aggregate supply shocks D. Beneficial aggregate demand shocks


173. In the late 1980s and throughout most of the 1990s, oil prices: A. Increased over the entire period B. Remained relatively constant over the entire period C. Created an adverse aggregate supply shock to the economy D. Created a beneficial aggregate supply boost to the economy


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174. Why did the increase in oil prices in the late 1990s and early years of the 2000s not produce substantial cost-push inflation? A. Other determinants of aggregate supply offset the negative effects of oil price increases B. Monetary policy was procyclical during the period, thus boosting the economy C. The amount of energy consumed rose as a percentage of GDP D. The economy became more dependent on manufacturing as the basis for economic growth AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Moderate Topic: Aggregate supply (short-run)

True / False Questions

175. Aggregate demand is a schedule which shows the various amounts of goods and services that only consumers and businesses desire to purchase at each possible price level. FALSE


176. The aggregate demand curve shows that when the price level rises, the quantity of real GDP demanded decreases. TRUE



177. A rise in the price level decreases the real value of financial assets with fixed money values and, as a result, decreases spending by the holders of these assets. TRUE AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Moderate Topic: Aggregate demand

178. The interest rate effect indicates that, given the supply of money, a higher price level will decrease the demand for money, thereby increasing the interest rate and reducing those consumption and investment purchases which are interest-rate sensitive. FALSE


179. A change in household indebtedness will cause a movement along an existing aggregate demand curve. FALSE


180. An increase in net exports reduces aggregate demand. FALSE


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181. An increase in real interest rates will increase aggregate demand. FALSE AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-1 Level: Easy Topic: Aggregate demand

182. An increase in consumer wealth will decrease aggregate demand. FALSE


183. A fall in real interest rates will reduce aggregate demand. FALSE


184. Depreciation of the dollar relative to foreign currencies will tend to increase net expo rts and aggregate demand. TRUE



185. The long-run aggregate supply curve slope is horizontal. FALSE AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Easy Topic: Long-run aggregate supply

186. The shape of a short-run aggregate supply curve basically depends on what happens to production costs and therefore to the prices which businesses must receive to cover costs and make a profit as real domestic output expands. TRUE


187. Below the full-employment level of output, per unit production costs rise and firms must receive higher product prices for them to be profitable. FALSE


188. A change in business taxes and regulation can affect input prices and aggregate supply. TRUE


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189. Per-unit production cost is determined by dividing output by total input cost. FALSE AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-2 Level: Moderate Topic: Aggregate supply (short-run)

190. A rightward shift of the aggregate demand curve will increase real domestic output and the price level. TRUE


191. When there is an increase in aggregate demand, there will be an increase in the price level but not in the level of output or employment. FALSE


192. A decrease in aggregate demand will have no effect on the real equilibrium GDP of the economy and will lower its price level. FALSE



193. If the prices of imported resources increase, then aggregate supply will decrease. TRUE AACSB: Analytic Bloom's: Application Learning Objective: 29-2 Level: Difficult Topic: Aggregate supply (short-run)

194. Cost-push inflation can be described as a rightward shift of the aggregate supply curve. FALSE


195. An increase in aggregate supply increases the real domestic output and reduces the price level effects from an increase in aggregate demand. TRUE


196. Minimum wage laws tend to make the price level more flexible rather than less flexible. FALSE


Multiple Choice Questions

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197. The relationship between the aggregate demand curve and the aggregate expenditures model is shown in the fact that: A. A decrease in the price level shifts the aggregate expenditures schedule downward and decreases real GDP B. A decrease in the price level shifts the aggregate expenditures schedule upward and increases real GDP C. An increase in the price level shifts the aggregate expenditures schedule upward and increases real GDP D. An increase in the price level shifts the aggregate expenditures schedule downward and increases real GDP AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: AD in relation to the AE model

198. The aggregate demand curve can be derived from the aggregate expenditures model as indicated by the fact that: A. A decrease in the price level shifts the aggregate expenditures schedule downward and decreases real GDP B. A decrease in the price level shifts the aggregate expenditures schedule upward and decreases real GDP C. An increase in the price level shifts the aggregate expenditures schedule upward and increases real GDP D. An increase in the price level shifts the aggregate expenditures schedule downward and decreases real GDP

AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: AD in relation to the AE model


199. An increase in the price level, other things equal, will shift the: A. Consumption, investment, and net exports schedules of the aggregate expenditures model downward B. Consumption, investment, and net exports schedules of the aggregate expenditures model upward C. Consumption, and investment schedules of the aggregate expenditures model upward, but the net exports schedule downward D. Consumption, and net exports schedules of the aggregate expenditures model upward, but the investment schedule downward AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: AD in relation to the AE model

200. If there is a decrease in the price level, then it will increase aggregate expenditures and this change is equivalent to a(n): A. Increase in aggregate supply B. Increase in aggregate demand C. Decrease in aggregate demand D. Movement along an aggregate demand curve


201. If there is an increase in the price level, then it will increase aggregate expenditures and this change is equivalent to a(n): A. Increase in aggregate supply B. Increase in aggregate demand C. Decrease in aggregate demand D. Movement along an aggregate demand curve


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202. A movement upward along an existing aggregate demand curve that changes the price level is equivalent to a(n): A. Decrease in aggregate demand B. Increase in aggregate demand C. Upward shift in the aggregate expenditures schedule D. Downward shift in the aggregate expenditures schedule AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Moderate Topic: AD in relation to the AE model

203. A movement downward along an existing aggregate demand curve is equivalent to a(n): A. Decrease in aggregate demand B. Increase in aggregate demand C. Upward shift in the aggregate expenditures schedule D. Downward shift in the aggregate expenditures schedule

AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Moderate Topic: AD in relation to the AE model

204. A decrease in the price level in the aggregate expenditures model would: A. Decrease aggregate expenditures and real GDP B. Increase aggregate expenditures and real GDP C. Decrease aggregate expenditures and increase real GDP D. Increase aggregate expenditures and decrease real GDP



205. An increase in the price level in the aggregate expenditures model would: A. Decrease aggregate expenditures and real GDP B. Increase aggregate expenditures and real GDP C. Increase aggregate expenditures and decrease real GDP D. Decrease aggregate expenditures and increase real GDP AACSB: Analytic Bloom's: Application Learning Objective: 29-1 Level: Difficult Topic: AD in relation to the AE model

206. An increase in the aggregate expenditures schedule: A. Increases aggregate demand by the amount of the increase in aggregate expenditures only B. Increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier C. Decreases aggregate demand by the amount of the increase in aggregate expenditures D. Decreases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier


207. An increase in investment spending can be expected to shift the: A. Aggregate expenditures curve downward and the aggregate demand curve leftward B. Aggregate expenditures curve upward and the aggregate demand curve leftward C. Aggregate expenditures curve downward and the aggregate demand curve rightward D. Aggregate expenditures curve upward and the aggregate demand curve rightward


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Chap 029

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