The wealth effect, the interest rate effect, and the international trade effect

Question

The wealth effect, the interest rate effect, and the international trade effect account for the: <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>

A) positive slope of the short-run aggregate supply curve.

B) the shape of the long-run aggregate supply curve.

C) positive slope of the aggregate demand curve.

D) negative slope of the aggregate demand curve.

E) negative slope of the short-run aggregate supply curve.

The AD curve will shift to the right if:

A) people become pessimistic about the future of the economy.

B) there is a decrease in foreign income.

C) the government decreases spending.

D) domestic price levels decrease.

E) foreign price levels increase.

If foreign income falls, we can expect to see all of the following, except:

A) a decrease in foreign spending.

B) a rise in domestic aggregate demand.

C) no change in either domestic net exports or aggregate demand.

D) a decrease in domestic net exports.

E) a decrease in domestic aggregate demand.

Which of the following is most likely to lead to an inward shift of the aggregate demand curve?

A) A decrease in the prices of raw materials

B) A decline in foreign price levels

C) A decline in the domestic price level

D) An optimistic expectation about the economy

Explanation / Answer

D) negative slope of the aggregate demand curve. E) foreign price levels increase. C) no change in either domestic net exports or aggregate demand. E) A decrease in foreign income E) The government spending effect B) A rightward shift of the aggregate demand curve C) Lower aggregate expenditures A) domestic equilibrium GDP to increase. C) a leftward shift of the aggregate demand curve. B) the smaller the inflationary effect of an increase in aggregate demand. D) ability of the producers to respond to price-level changes in the short run. B) The direct relationship between aggregate quantity supplied and the price level. B) It shows the positive relationship between the price level and the supply of all goods produced in the economy. E) Price level B) profits to rise and, thus, total production to increase. C) short-run; costs of production D) becomes steeper. B) economy approaches its potential output. C) vertical. B) the aggregate supply curve is a vertical line. B) all the factors are variable in the long run. D) The aggregate demand curve plays no role in determining the equilibrium level of real GDP. B) Only prices rise; equilibrium output remains fixed D) aggregate supply curve of the economy. D) the price of capital goods rises. D) a higher amount of production at every price level. B) Higher real wage rates in the U.S. A) new production technology is introduced. E) The aggregate supply curve will move to the left A) long-run aggregate supply; right D) the supply of oil was restricted by the oil exporting countries. C) upward-sloping. D) real GDP C) Aggregate demand and aggregate supply determine equilibrium price and output. A) an economic expansion. D) demand-pull inflation. E) a reduction in unemployment and a decline in inflation. C) Cost-push inflation is caused by a decrease in aggregate supply. E) a decrease in aggregate supply with no change in aggregate demand. A) real GDP B) decrease in equilibrium real GDP and an increase in the price level. E) a decrease in the short-run aggregate supply. E) increase in the price level, while the change in equilibrium real GDP is ambiguous. D) zero.

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