Question

1. Aggregate demand curves slope downwards for each of the following reasons EXCEPT A. The wealth effect: As the price level falls, the buying power of people's savings increases and induces them to spend more. B. The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods. c. The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the demand for money, raising interest rates and reducing investment spending. D. The foreign price effect: As the price level falls, U.S. become more attractive to foreigners and domestic residents, increasing net export spending 2. Aggregate supply (AS) denotes the relationship between the that firms choose to produce and sell and the , holding the price of inputs fixed. (A) total quantity, price level for output (B) type of goods; input price of raw materials (C) price of goods; number of employees (D) total inputs: types of goods 3. Aggregate supply in determining the size of the macroeconomy over the (A) Keynesian economists: long run (B) Keynesian economists; short run (C) Neoclassical economists; long run (D) Neoclassical economists; short run 4. Referring to the above diagram, which of the following is a true statement?

Answer 1

1. AD curves slopes downward for each of the given reasons except the substitution effect : As the price level falls , people buy more of the cheaper goods and less of other goods. Hence, option(B) is correct.

2. Aggregate supply denotes the relationship between the total quantity that firms choose to produce and sell and the price level for output , holding the price of inputs fixed. Hence, option(A) is correct.

3. Neoclassical economists emphasize the importance of Aggregate supply in determining the size of the macroeconomy over the long run. Hence, option(C) is correct.