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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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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 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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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 cause 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

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

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

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

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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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

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

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

Chapter 29 - Aggregate Demand and 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

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

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

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

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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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

90. If Congress passed new laws significantly increasing the regulation of 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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

93. If Congress raised taxes on businesses, this action would: 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

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

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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 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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

99. Which would be considered 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

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

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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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

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

Chapter 29 - Aggregate Demand and 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

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

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

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

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

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

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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

Chapter 29 - Aggregate Demand and 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

Chapter 29 - Aggregate Demand and 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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

129. Refer to the above diagram. If AD1 shifts to AD2, then the equilibrium output and price level are: A. P1Q3 B. P2Q3 C. P1Q2 D. P2Q2

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

130. Refer to the above diagram. When AD1 shifts to AD2, then at P1Q3 output demanded will: A. Equal output supplied B. Exceed output supplied C. Be less than output supplied D. Be at stable full-employment GDP

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

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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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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

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

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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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

29-51

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 P2 and Q2 B. Demand-pull inflation, and the new equilibrium price and quantity will be P2 and Q2 C. Demand-pull inflation, the new equilibrium price and quantity will be P2 and Q4 D. Cost-push inflation, and the new equilibrium price and quantity will be P1 and Q3

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

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. P1 and Q1 B. P1 and Q2 C. P2 and Q4 D. P2 and Q2

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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 P1, 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 AS1 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

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

156. Refer to the above diagram. When output decreases from Q1 and the price level increases from P1, 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 AS2 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

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

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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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

AACSB: Analytic Bloom's: Knowledge Learning Objective: 29-4 Level: Moderate Topic: Aggregate supply (short-run)

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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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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

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

29-65

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

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

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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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

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

29-67

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

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

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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

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

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

29-71

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

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

Chapter 29 - Aggregate Demand and Aggregate Supply

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

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

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

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

29-73

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

209. A decrease in consumer 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

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

210. A decrease in net exports 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

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