Economics Ch.12 practice questions – Flashcards
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The aggregate demand curve is the relationship between the:
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Price level and the purchasing of real domestic output
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The amount of real domestic output that will be purchased at each possible price level is best shown by the:
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Aggregate demand curve
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Which effect best explains the downward slope of the aggregate demand curve?
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A real-balances effect
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What is one likely reason the level of domestic output purchased will be higher when the price level is lower?
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The interest-rate effect
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The foreign purchases effect suggests that a:
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Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand
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The real-balances effect suggests that a:
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Lower price level will increase the real value of many financial assets and therefore cause an increase in spending
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The foreign purchases, interest rate, and real-balances effects explain:
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Why the aggregate demand curve is downsloping
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The foreign purchases effect provides an explanation why the:
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Lower the price level, the higher the level of domestic output purchased
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One explanation for the downward slope of the aggregate demand curve is that a change in the
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A real-balances effect
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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:
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$600 billion
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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:
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Move the economy to point A
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A decrease in interest rates caused by a change in the price level would cause a(n):
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Increase in the quantity of real domestic output demanded
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An expected decline in the prices of consumer goods will:
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Decrease aggregate demand
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An expected rise in the rate of inflation for consumer goods will:
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Increase aggregate demand
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Which set of events would most likely decrease aggregate demand?
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An increase in personal income tax rates
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When the excess capacity of business rises, aggregate:
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Demand decreases
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An increase in government spending will cause a(n):
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Increase in aggregate demand
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When national income in other nations increases:
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Aggregate demand increases
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If the dollar depreciates in value relative to foreign currencies, aggregate:
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Demand increases
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If the U.S. dollar appreciates in value relative to foreign currencies, then this will:
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Decrease aggregate demand
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Which set of events would most likely increase aggregate demand?
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An increase in incomes in foreign nations and a depreciation of the dollar
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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:
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A change in real value of consumer wealth
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Which of the following will lead to an increase in aggregate demand?
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An increase in national incomes abroad
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Which event would most likely increase aggregate demand?
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A depreciation of the dollar
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An aggregate supply curve represents the relationship between the:
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Price level and the production of real domestic output
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The slope of the immediate-short-run aggregate supply curve is based on the assumption that:
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Both input and output prices are fixed
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The upward slope of the short-run aggregate supply curve is based on the assumption that:
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Nominal wages and other resource costs do not respond to price level changes
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A change in aggregate supply would be caused by a change in:
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An aggregate supply determinant
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Which would most likely shift the aggregate supply curve? A change in:
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Prices of imported resources
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An increase in productivity will:
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Increase aggregate supply
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If the price per barrel of Crude decreases in the international market, then this event would most likely:
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Increase aggregate supply in the United States
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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.If Congress raised taxes on businesses, this action would:
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Increase per-unit production costs and thus decrease aggregate supply
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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.An increase in business taxes would tend to:
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Decrease aggregate demand and decrease aggregate supply
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Which would most likely increase aggregate supply?
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A decrease in net exports
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If the U.S. dollar appreciates in value relative to foreign currencies, then this will:
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Decrease aggregate demand and increase aggregate supply
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If personal income taxes and business taxes increase, then this will:
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Decrease aggregate demand and aggregate supply
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A decrease in business taxes will most likely result in a(n):
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Increase in aggregate demand and aggregate supply
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The long run in macroeconomics is a period in which nominal wages:
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Change as the price level changes
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The long-run aggregate supply curve is:
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Vertical
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A graph of the long-run aggregate supply curve is:
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Vertical, and a graph of the short-run aggregate supply is upsloping
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The intersection of the aggregate demand and aggregate supply curves determines the:
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Equilibrium level of real domestic output and prices
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If at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a:
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Surplus and the price level will fall
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A decrease in aggregate demand will decrease:
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Both real output and the price level
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Demand-pull inflation is associated with a(n):
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Increase in aggregate demand
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One reason why the aggregate supply curve might shift to the left is that:
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Per unit production costs have increased
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Cost-push inflation is characterized by a(n):
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Decrease in aggregate supply and no change in aggregate demand
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The economy experiences an increase in the price level and a decrease in real domestic output.
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Input prices have increased
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The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation?
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Interest rates and wage rates have decreased
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Disinflation refers to a situation where:
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The rate of inflation falls, but the price level does not
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Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to:
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A price level that is inflexible downward
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Menu costs will:
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Make prices inflexible downward
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Aggregate demand decreases and real output falls but the price level remains the same. Which factor would most likely contribute to downward price inflexibility?
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Menu cost
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When aggregate demand decreases, product prices, wage rates, and per-unit production costs are inflexible downward because of a:
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Ratchet effect
