ECON Ch. 11 Test Review (QUIZ) – Flashcards

The aggregate demand curve... a) is upsloping because a higher price level is necessary to make production profitable as production costs rise. b) is downsloping because production costs decline as real output increases. c) shows the amount of expenditures required to induce the production of each possible level of real output. d) shows the amount of real output that will be purchased at each possible price level.

The aggregate demand curve is... a) vertical if full employment exists. b) horizontal when there is considerable unemployment in the economy. c) downsloping because of the interest-rate, real-balances, and foreign purchases effects. d) downsloping because production costs decrease as real output rises.

The interest-rate effect suggests that a) a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. b) an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. c) an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. d) an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

The real-balances effect indicates that... a) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. b) a lower price level will decrease the real value of many financial assets and therefore reduce spending. c) a higher price level will increase the real value of many financial assets and therefore increase spending. d) a higher price level will decrease the real value of many financial assets and therefore reduce spending.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will: a) increase the amount of U.S. real output purchased. c) increase both U.S. imports and U.S. exports. b) increase U.S. imports and decrease U.S. exports. d) decrease both U.S. imports and U.S. exports.

The real-balances, interest-rate, and foreign purchases effects all help explain: a) why the aggregate demand curve is downsloping. c) shifts in the aggregate demand curve. b) why the aggregate supply curve is upsloping. d) shifts in the aggregate supply curve.

The determinants of aggregate demand: a) explain why the aggregate demand curve is downsloping. b) explain shifts in the aggregate demand curve. c) demonstrate why real output and the price level are inversely related. d) include input prices and resource productivity.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.: a) aggregate demand curve would shift to the right. c) aggregate supply curve would shift to the right. b) aggregate supply curve would shift to the left. d) aggregate demand curve would shift to the left.

The horizontal range of the aggregate supply curve: a) assumes constant resource prices. b) implies that output can be increased only by increasing the price level. c) assumes there are no unemployed resources in the economy. d) is explained by the law of increasing opportunity costs.

Other things equal, an improvement in productivity will: a) shift the aggregate demand curve to the left. c) shift the aggregate supply curve to the right. b) shift the aggregate supply curve to the left. d) increase the price level.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question(s) on the basis of this information. 12. Refer to the above information. Given an increase in input price from $4 to $6, we would expect the aggregate: a) supply curve to shift to the left. c) demand curve to shift to the left. b) supply curve to shift to the right. d) demand curve to shift to the right.

The determinants of aggregate supply: a) are consumption, investment, government, and net export spending. b) explain why real domestic output and the price level are directly related. c) explain the three distinct ranges of the aggregate supply curve. d) include input prices and resource productivity.

Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate: a) demand curve will shift leftward. c) supply curve will shift leftward. b) supply curve will shift rightward. d) expenditures curve will shift downward.

Other things equal, a reduction in personal and business taxes can be expected to: a) increase aggregate demand and decrease aggregate supply. b) increase both aggregate demand and aggregate supply. c) decrease both aggregate demand and aggregate supply. d) decrease aggregate demand and increase aggregate supply.

Graphically, demand-pull inflation is shown as a: a) rightward shift of the AD curve in the horizontal range of aggregate supply. b) rightward shift of the AS curve in the intermediate range of aggregate demand. c) leftward shift of AS curve in the intermediate range of aggregate demand. d) rightward shift of the AD curve in the intermediate or vertical ranges of aggregate supply.

17. Graphically, cost-push inflation is shown as a: a) leftward shift of the AD curve. c) leftward shift of AS curve. b) rightward shift of the AS curve. d) rightward shift of the AD curve.

18. Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a: a) rightward shift of the aggregate demand curve along a fixed aggregate supply curve. b) rightward shift of the aggregate supply curve along a fixed aggregate demand curve. c) rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve. d) leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

An increase in aggregate demand in the intermediate range of the aggregate supply curve will increase: a) employment, but the price level will be unchanged. c) both employment and the price level. b) the price level, but employment will be unchanged. d) employment, but reduce the price level.