13)Which of the following cause(s) a decrease in the demand side equilibrium GDP
ID: 1151534 • Letter: 1
Question
13)Which of the following cause(s) a decrease in the demand side equilibrium GDP?
a)A stronger home currency.
b)A weaker home currency.
c)An increase in the real interest rate.
d)a and c
e)b and c.
14)A decrease in the real interest rate.
a)Increases the demand side equilibrium GDP.
b)Decreases the demand side equilibrium GDP.
c)Does not affect the demand side equilibrium GDP.
d)Happens as a result of an inflationary gap.
e)Both a and d.
15)The 45 degree line drawn to find the demand side equilibrium
a)Shows all points at which the aggregate demand is equal to aggregate supply.
b)Shows all points at which the general price level is equal to the total expenditures.
c)Is below the expenditure line if the economy produces more than the equilibrium GDP.
d)Is above the expenditure line if the economy produces less than the equilibrium GDP.
e)None of the above.
16)A decrease in net taxes
a)Increases the equilibrium output.
b)Shifts the expenditure line downward.
c)Shifts the aggregate demand to the right.
d)Causes a movement along the aggregate demand.
e)a, and c.
17)Which of the following shifts the investment curve downward?
a)A decrease in disposable income.
b)An increase in the value of our domestic currency.
c)A decrease in the real interest rate.
d)None of the above.
18)Which of the following cause(s) an increase in the demand side equilibrium GDP?
a)A stronger home currency.
b)A weaker home currency.
c)An increase in the real interest rate.
d)a and c
e)b and c.
Explanation / Answer
(13) (d)
Stronger home currency decreases exports and increases imports, decreasing net exports and decreasing aggregate demand. Higher real interest rate decreases investment and consumption, decreasing aggregate demand. So both of these factors will decrease GDP.
(14) (e)
A decrease in interest rate increases investment and consumption, thus increasing aggregate demand and increasing GDP. Also, an inflationary gap increases inflation rate which leads to a decrease in real interest rate (which equals nominal interest rate less inflation rate).
(15) (e)
The 450 line is above the expenditure line if the economy produces more than the equilibrium GDP, and below the expenditure line if the economy produces less than the equilibrium GDP.
(16) (e)
Decrease in person tax increases consumption and decrease in business tax increases investment, increasing aggregate demand and output in either case and shifting AD curve rightward.
(17) (d)
(18) (b)
Weaker home currency increases exports, decreases imports and increases net exports, thus increasing aggregate demand and GDP.
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