Multiple Choice Identify the choice that best completes the statement or answers

Question

Multiple Choice Identify the choice that best completes the statement or answers the question 1. Higher interest rates motivate: a. firms to invest less in new factories and working capital b. firms to invest more in new factories and working capital c. individuals to spend more on consumption goods. d. individuals to spend more on capital goods. 2. If a change in the U.S. price level caused U.S. imports to increase, it must be true that the price level: a. increased. b. decreased. c. became elastic d. became negative 3. A decrease in consumer confidence will cause: a. a downward movement along the aggregate demand curve b. a shi c. a shift in aggregate demand to the left. d. an upward movement along the aggregate demand curve ft in aggregate demand to the right 4. The aggregate supply curve shows the relationship between: a. the overall price level in the economy and total production by firms. b. the unemployment rate and total production by firms. c. the overall price level in the economy and the unemployment rate d. the infl the economy ation rate and the overall price level in

Explanation / Answer

Question 1

Higher interest rate implies higher cost of borrowing.

When cost of borrowing is high, businesses refrain themselves from borrowing for expansion and other needs.

So, higher interest rate motivate firms to invest less in new factories and working capital.

Hence, the correct answer is the option (a).

Question 2

It has been provided that US imports has increased.

This can happen if imported goods become relatively cheaper than domestically produced goods.

This can happen if the price level in US increases or US dollar appreciated.

Hence, the correct answer is the option (a).

Question 3

A decrease in consumer confidence leads to decrease in consumption spending by households.

Consumption spending is a component of aggregate demand.

So, decrease in consumption spending will lead to decrease in aggregate demand.

Decrease in aggregate demand will lead to a shift in the aggregate demand to the left.

Hence, the correct answer is the option (c).

Question 4

Aggregate supply curve indicates the total output being supplied by all firms in collective manner at various price level.

So, the aggregate supply curve shows the relationship between the overall price level in the economy and total production by firms.

Hence, the correct answer is the option(a).

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