Macroeconomics : Multiple choice 6. Which of the following decreases in response

Question

Macroeconomics : Multiple choice

6.   Which of the following decreases in response to the interest-rate effect from an increase in the price level?
a.   both investment and consumption
b.   consumption but not investment
c.   investment but not consumption
d.   neither investment nor consumption

7.   When the dollar depreciates, U.S.
a.   net exports rise, which increases the aggregate quantity of goods and services demanded.
b.   net exports rise, which decreases the aggregate quantity of goods and services demanded.
c.   net exports fall, which increases the aggregate quantity of goods and services demanded.
d.   net exports fall, which decreases the aggregate quantity of goods and services demanded.

8.   When the Fed buys bonds
a.   the supply of money increases and so aggregate demand shifts right.
b.   the supply of money decreases and so aggregate demand shifts left.
c.   the supply of money decreases and so aggregate demand shifts right.
d.   the supply of money increases and so aggregate demand shifts left.

9.   Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?
a.   as people revise their price-level expectations upward, firms and workers strike bargains for higher nominal wages.
b.   as people revise their price-level expectations upward, firms and workers strike bargains for lower nominal wages.
c.   as people revise their price-level expectations downward, firms and workers strike bargains for higher nominal wages.
d.   as people revise their price-level expectations downward, firms and workers strike bargains for lower nominal wages.

10.   When production costs rise,
a.   the short-run aggregate supply curve shifts to the right.
b.   the short-run aggregate supply curve shifts to the left.
c.   the aggregate demand curve shifts to the right.
d.   the aggregate demand curve shifts to the left.

11.   Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P1 and Y1 , then it must be the case that

a.   short run aggregate supply has decreased.
b.   short run aggregate supply has increased.
c.   aggregate demand has increased.
d.   aggregate demand has decreased.

12.   Assume the AD-SRAS-LRAS diagram for the U.S. economy starts in a long-run equilibrium, what happens if the US exchange rate falls?
a.   AD shifts to the right
b.   SRAS shifts to the right
c.   The quantity of AD increases
d.   The quantity of AD decreases

Explanation / Answer

(6) (a)

When inflation increases, interest rates rise as well. Higher price level lowers consumption & higher interest rate lowers investment.

(7) (a)

When dollar depreciates, US exportables become more competitive in global market, so export demand increases, causing next exports (= Exports - Imports) rise. Higher net exports increase aggregate demand.

(8) (a)

When Fed buys bonds for money, money supply increases which increases consumption demand, so aggregate demand rises & AD shifts right.

(9) (d)

Lower government spending reduces AD, which lowers prices. At lower price, supply decreases, demand for labor reduces due to lower output, which strikes a bargain to lower nominal wages in lieu of unemployment (job cut).

(10) (b)

Higher production costs discourages producers to increase output. As output falls, SRAS shifts left.

(11) What are the positions of Z, P1 & Y1?

(12) (a)

Lower exchange rate makes US exportables competitive in global market, so exports increases, net exports rises causing higher aggregate demand. AD shifts right.

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