Macro Chapter 10 Practice Problems #1 Aggregate Demand

1. 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. 2. 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. C) increase in the level of income. B) increase in the price level. D) decrease in the price level. 3. 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. 4. 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.

5. 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. 6. 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.

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decrease the quantity of real domestic output demanded.

7. An increase in taxes on consumers will most likely cause a(n): A) decrease in aggregate supply. C) decrease in aggregate demand. B) increase in aggregate supply. D) increase in aggregate demand. 8. An expected rise in the rate of inflation for consumer goods will: A) decrease aggregate demand. C) increase aggregate demand. B) increase aggregate supply. D) decrease aggregate supply. 9. 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. 10. An increase in aggregate demand is most likely to be caused by a decrease in: A) the wealth of consumers. C) interest rates for home mortgages. B) consumer confidence. D) the tax rates on household income. 11. 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. 12. When the excess capacity of business rises, aggregate: A) demand increases. B) demand decreases. supply decreases. C) supply increases. D)

13. 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. 14. 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.

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15. Refer to the above graph. Which factor will shift AD1 to AD2? A) an increase in business taxes C) an increase in national income abroad B) an increase in real interest rates D) an increase in household indebtedness 16. Refer to the above graph. Which factor will shift AD1 to AD2? A) the real-balances effect C) the foreign purchase effect B) an increase in productivity D) an increase in investment spending