5 Written questions
5 Matching questions
- Spending on the war in Iraq is essentially categorized as government purchases. How do increases in spending
on the war in Iraq affect the aggregate demand curve?
A) They will shift the aggregate demand curve to the left.
B) They will move the economy up along a stationary aggregate demand curve.
C) They will move the economy down along a stationary aggregate demand curve.
D) They will shift the aggregate demand curve to the right.
- If real GDP in the United States increases faster than real GDP in other countries, U.S. imports will
__________ faster than U.S. exports, and net exports will ___________.
a. increase; rise
b. increase; fall
c. decrease; rise
d. decrease; fall
- What are the three factors that cause the AD curve to shift?
- Why does the failure of workers and firms to accurately predict the price level result in an upwardsloping
aggregate supply curve?
a. because contracts make some wages and prices "sticky"
b. because firms are often slow to adjust wages
c. because menu costs make some prices "sticky"
d. all of the above
- The wealth effect refers to the fact that
a. when the price level falls, the real value of household wealth rises, and so will consumption.
b. when income rises, consumption rises.
c. when the price level falls, the nominal value of assets rises, while the real value of assets remains
d. all of the above
- a D) They will shift the aggregate demand curve to the right
- b a. when the price level falls, the real value of household wealth rises, and so will consumption.
- c b. increase; fall
- d 1. changes in government policies
2. changes in expectations of households
3. changes in foreign variables
- e d. all of the above
5 Multiple choice questions
- D) potential GDP.
- b. rise; left
- a. a fall in the price level
- c. a technological change
- b. a recession in the short run, and a decline in the price level in the long run.
5 True/False questions
If firms reduce investment spending and the economy slumps into a recession, which of the following
contributes to the adjustment that causes the economy to return to its long-run equilibrium?
a. the eventual agreement by workers to accept lower wages
b. the decision by firms to charge higher prices
c. both of the above
d. none of the above → a. the eventual agreement by workers to accept lower wages
The aggregate demand curve shows the relationship between the price level and the quantity of real
GDP demanded by
c. the government.
d. all of the above → d. all of the above
What are menu costs?
a. the costs of searching for profitable opportunities
b. the costs associated with guarding against the effects of inflation
c. the costs to firms of changing prices
d. the costs of a fixed list of inputs → c. the costs to firms of changing prices
What are the three reason why the other components of GDP change as the price level changes? → 1. the wealth effect
2. the interest rate effect
3. the international effect
Describe the short-run aggregate supply curve. → shows the relationship between the price level and the level of planned
aggregate expenditure by households, firms, and the government