Economics Ch.29 practice questions

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The aggregate demand curve is the relationship between the:

Price level and the purchasing of real domestic output

The amount of real domestic output that will be purchased at each possible price level is best shown by the:

Aggregate demand curve

Which effect best explains the downward slope of the aggregate demand curve?

A real-balances effect

What is one likely reason the level of domestic output purchased will be higher when the price level is lower?

The interest-rate effect

The foreign purchases effect suggests that a:

Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand

The real-balances effect suggests that a:

Lower price level will increase the real value of many financial assets and therefore cause an increase in spending

The foreign purchases, interest rate, and real-balances effects explain:

Why the aggregate demand curve is downsloping

The foreign purchases effect provides an explanation why the:

Lower the price level, the higher the level of domestic output purchased

One explanation for the downward slope of the aggregate demand curve is that a change in the

A real-balances effect

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:

$600 billion

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:

Move the economy to point A

A decrease in interest rates caused by a change in the price level would cause a(n):

Increase in the quantity of real domestic output demanded

An expected decline in the prices of consumer goods will:

Decrease aggregate demand

An expected rise in the rate of inflation for consumer goods will:

Increase aggregate demand

Which set of events would most likely decrease aggregate demand?

An increase in personal income tax rates

When the excess capacity of business rises, aggregate:

Demand decreases

An increase in government spending will cause a(n):

Increase in aggregate demand

When national income in other nations increases:

Aggregate demand increases

If the dollar depreciates in value relative to foreign currencies, aggregate:

Demand increases

If the U.S. dollar appreciates in value relative to foreign currencies, then this will:

Decrease aggregate demand

Which set of events would most likely increase aggregate demand?

An increase in incomes in foreign nations and a depreciation of the dollar

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 change in real value of consumer wealth

Which of the following will lead to an increase in aggregate demand?

An increase in national incomes abroad

Which event would most likely increase aggregate demand?

A depreciation of the dollar

An aggregate supply curve represents the relationship between the:

Price level and the production of real domestic output

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

Both input and output prices are fixed

The upward slope of the short-run aggregate supply curve is based on the assumption that:

Nominal wages and other resource costs do not respond to price level changes

A change in aggregate supply would be caused by a change in:

An aggregate supply determinant

Which would most likely shift the aggregate supply curve? A change in:

Prices of imported resources

An increase in productivity will:

Increase aggregate supply

If the price per barrel of Crude decreases in the international market, then this event would most likely:

Increase aggregate supply in the United States

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:

Increase per-unit production costs and thus decrease aggregate supply

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:

Decrease aggregate demand and decrease aggregate supply

Which would most likely increase aggregate supply?

A decrease in net exports

If the U.S. dollar appreciates in value relative to foreign currencies, then this will:

Decrease aggregate demand and increase aggregate supply

If personal income taxes and business taxes increase, then this will:

Decrease aggregate demand and aggregate supply

A decrease in business taxes will most likely result in a(n):

Increase in aggregate demand and aggregate supply

The long run in macroeconomics is a period in which nominal wages:

Change as the price level changes

The long-run aggregate supply curve is:

Vertical

A graph of the long-run aggregate supply curve is:

Vertical, and a graph of the short-run aggregate supply is upsloping

The intersection of the aggregate demand and aggregate supply curves determines the:

Equilibrium level of real domestic output and prices

If at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a:

Surplus and the price level will fall

A decrease in aggregate demand will decrease:

Both real output and the price level

Demand-pull inflation is associated with a(n):

Increase in aggregate demand

One reason why the aggregate supply curve might shift to the left is that:

Per unit production costs have increased

Cost-push inflation is characterized by a(n):

Decrease in aggregate supply and no change in aggregate demand

The economy experiences an increase in the price level and a decrease in real domestic output.

Input prices have increased

The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation?

Interest rates and wage rates have decreased

Disinflation refers to a situation where:

The rate of inflation falls, but the price level does not

Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to:

A price level that is inflexible downward

Menu costs will:

Make prices inflexible downward

Aggregate demand decreases and real output falls but the price level remains the same. Which factor would most likely contribute to downward price inflexibility?

Menu cost

When aggregate demand decreases, product prices, wage rates, and per-unit production costs are inflexible downward because of a:

Ratchet effect

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