Question

1. Which of the following is not a property of the aggregate demand curve?

• It shows the relationship between the overall price level and level consumption.

• It shows the price level on the vertical axis and output on the horizontal axis.

• The aggregate demand curve slopes downward.

• It shows the relationship between the overall price level and the level of total demand.

2. When the price level increases people:

• feel more wealthy.

• have the same real value of assets, regardless of the change in the price level.

• want to spend more, but can't due to the prices of all goods and services going up.

• demand a smaller quantity of goods and services in the aggregate.

3. If prices increase only in the United States, then:

• U.S. goods become relatively less expensive than goods from other countries.

• the income level of people in the US must rise.

• U.S. goods become relatively more expensive than goods from other countries.

• the prices of foreign goods must rise.

4. The downward-sloping aggregate demand curve can be explained in part through the:

• wealth effect.

• negative relationship between the price level and net exports.

• negative relationship between the price level and investment spending.

• All of these are true.

5. If consumption increases in general the aggregate demand curve will:

• shift to the right.

• remain unchanged but the economy will move down along the curve to a higher quantity.

• remain unchanged but the economy will move down along the curve to a lower quantity.

• shift straight down.

6. If you were told the MPC was = 0.75 and the government engaged in a spending increase of $400B, then the change in GDP would be:

• $1600B.

• $300B

• $400B.

• $1200B

7. An aggregate supply curve that is a vertical line must be:

• an individual industry's supply curve.

• an individual firm's supply curve.

• a long-run curve.

• a short-run curve.

8. In the long run aggregate:

• supply tends to shift to the left.

• demand is fixed.

• demand tends to shift to the right.

• supply is fixed.

9. Changes in expectations about future price levels:

• affect only the short-run aggregate supply curve.

• affect only the long-run aggregate supply curve.

• do not affect either the long-run aggregate supply or the short-run aggregate supply curve.

• affect both the long-run aggregate supply curve and the short-run aggregate supply curve.

10.

a. Which of the following statements is true?

• Sticky wages are contracts that keep wages fixed between businesses and their suppliers, while sticky prices are contracts that keep prices fixed between businesses and workers.

• Sticky wages are contracts that keep wages fixed between businesses and workers, while sticky prices are contracts that keep prices fixed between businesses and their suppliers.

• Sticky wages are contracts that keep prices fixed between businesses and the government, while sticky prices are contracts that keep wages fixed between businesses and their foreign suppliers.

• Sticky prices are contracts that keep wages fixed between businesses and workers, while sticky wages are contracts that keep prices fixed between businesses and their suppliers.

b. Sticky wages and sticky prices explain the upward-sloping short-run aggregate supply curve because:

• higher prices are an advantage to suppliers, even if their costs increase.

• as the prices of a firm’s products rise, they are willing to supply more if their input costs are not rising at the same time.

• people want to buy more as the price rises because they are afraid of future price increases.

• the price level always increases when more is supplied.

c. The long-run aggregate supply curve is vertical because:

• wages and prices are only sticky in the short run, not in the long run.

• consumers tend to buy the same quantities over the long run.

• minimum wage sets the long-run wages.

• the price level is constant in the long run.

11. Long-run economic growth is generally positive rather than negative because long-run changes in output are driven by changes in:

• consumption, investment, and net exports.

• labor, capital, and technology.

• government spending.

• aggregate demand

12. For each of the following scenarios, say whether the shock was a demand-side shock, a supply-side shock, or a combination of both shocks.

    a. The price level and GDP both fell. GDP then increased, but the price level fell even further.

    

        The shock was a (Click to select) [combination of both shocks/demand-side shock/supply-side shock]

    b. In the long run, the economy had the same level of output but a higher price level.

    

        The shock was a (Click to select) [supply-side shock/combination of both shocks/demand-side shock]

c. In the short run, the price level increased, but GDP fell.

    

        The shock was a (Click to select) [supply-side shock/demand-side shock/combination of both shocks]

  

    d. In the long run, GDP increased, and the price level fell.

    

        The shock was a (Click to select) [combination of both shocks/demand-side shock/supply-side shock]

    e. In the long run, GDP increased, and the price level was constant.

    

        The shock was a (Click to select) [supply-side shock/demand-side shock/combination of both shocks]

13. What is the relationship between the price level and the following components of aggregate demand.

    a. There is (Click to select) [a negative/ no / a positive] relationship between the price level and consumption.

    b. There is (Click to select) [a negative/ a positive / no] relationship between the price level and investment.

    c. There is (Click to select) [no / a negative / a positive ] relationship between the price level and government spending.

    d. There is (Click to select) [a positive / a negative/ no] relationship between the price level and net exports.

14. If the government cuts taxes, what components of aggregate demand are affected?

Instructions: You may select more than one answer.

• Consumption.unanswered

• Investment.unanswered

• Net exports.unanswered

• Government spending.

Answer 1