Chapter 20 Aggregate Demand and Aggregate Supply - EXPLAIN YOUR ANSWER. 1.Which
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Question
Chapter 20 Aggregate Demand and Aggregate Supply - EXPLAIN YOUR ANSWER.
1.Which of the following is correct?
A.Economic fluctuations are easily predicted by competent economists.
B.Recessions have never occurred very close together.
C.Spending, income, and production do not fluctuate closely with real GDP.
D.None of the above is correct.
2.Which of the following is most commonly used to monitor short-run changes in economic activity?
A.the inflation rate
B.real GDP
C.aggregate demand
D.aggregate supply
3.Which of the following fall during a recession?
A.both retail sales and employment
B.retail sales but not employment
C.employment but not retail sales
D.neither employment nor retail sales
4.During recessions which type of spending falls?
A.consumption and investment
B.investment but not consumption
C.consumption but not investment
D.neither consumption nor investment
5.According to classical macroeconomic theory, changes in the money supply affect
A.nominal variables and real variables.
B.nominal variables, but not real variables.
C.real variables, but not nominal variables.
D.neither nominal nor real variables.
6.Most economists believe that classical macroeconomic theory is a good description of the economy
A.in neither the short nor long run.
B.in the short run and in the long run.
C.in the short run, but not in the long run.
D.in the long run, but not in the short run.
7.The model of aggregate demand and aggregate supply explains the relationship between
A.the price and quantity of a particular good.
B.unemployment and output.
C.wages and employment.
D.real GDP and the price level.
8.Aggregate demand includes
A.only the quantity of goods and services households want to buy.
B.only the quantity of goods and services households and firms want to buy.
C.only the quantity of goods and services households, firms, and the government want to buy.
D.the quantity of goods and services households, firms, the government, and customer abroad want to buy.
9.Which of the following effects helps to explain the slope of the aggregate-demand curve?
A.the exchange-rate effect
B.the wealth effect
C.the interest-rate effect
D.All of the above are correct.
10.If the price level falls, the real value of a dollar
A.rises, so people will want to buy more. This response helps explain the slope of the aggregate demand curve.
B.rises, so people will want to buy more. This response shifts aggregate demand to the right.
C.falls, so people will want to buy less. This response helps explain the slope of the aggregate demand curve.
D.falls, so people will want to buy less. This response shifts aggregate demand to the left.
11As the price level rises
A.people will want to hold more money, so the interest rate rises.
B.people will want to hold more money, so the interest rate falls.
C.people will want to hold less money, so the interest rate falls.
D.people will want to hold less money, so the interest rate rises.
12.When the price level falls
A.the interest rate rises, so the quantity of goods and services demand rises.
B.the interest rate rises, so the quantity of goods and services demand falls.
C.the interest rate falls, so the quantity of goods and services demand rises.
D.the interest rate falls, so the quantity of goods and services demand falls.
13.As the price level rises, the exchange rate
A.falls, so exports rise and imports fall.
B.falls, so exports fall and imports rise.
C.rises, so exports rise and imports fall.
D.rises, so exports fall and imports rise.
14.Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire
A.increased consumption, which shifts the aggregate-demand curve right.
B.increased consumption, which shifts the aggregate-demand curve left.
C.decreased consumption, which shifts the aggregate-demand curve right.
D.decreased consumption, which shifts the aggregate-demand curve left.
15.Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift
A.aggregate demand right.
B.aggregate demand left.
C.aggregate supply right.
D.aggregate supply left.
16.When the money supply increases
A.interest rates fall and so aggregate demand shifts right.
B.interest rates fall and so aggregate demand shifts left.
C.interest rates rise and so aggregate demand shifts right.
D.interest rates rise and so aggregate demand shifts left.
17.Which of the following is not a determinant of the long-run level of real GDP?
A.the price level
B.the supply of labor
C.available natural resources
D.available technology
18.The long-run aggregate supply curve shifts right if
A.immigration from abroad increases.
B.the capital stock increases.
C.technology advances.
D.All of the above are correct.
19.According to the aggregate demand and aggregate supply model, in the long run an increase in the money supply leads to
A.increases in both the price level and real GDP.
B.an increase in real GDP but does not change the price level.
C.an increase in the price level but does not change real GDP.
D.no change in either the price level or real GDP.
20.The aggregate supply curve is upward sloping in
A.the short and long run.
B.neither the short nor long run.
C.the long run, but not the short run.
D.the short run, but not the long run.
21.The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,
A.production is more profitable and employment rises.
B.production is more profitable and employment falls.
C.production is less profitable and employment rises.
D.production is less profitable and employment falls.
22.An increase in the expected price level shifts the
A.short-run and long-run aggregate supply curves left.
B.the short-run but not the long-run aggregate supply curve left.
C.the long-run but not the short-run aggregate supply curve left.
D.neither the long-run nor the short-run aggregate supply curve left.
23.Which of the following shifts short-run aggregate supply right?
A.an increase in the price level
B.an increase in the minimum wage
C.a decrease in the price of oil
D.more people migrate abroad than immigrate from abroad
24.Which of the following would cause prices and real GDP to rise in the short run?
A.short-run aggregate supply shifts right
B.short-run aggregate supply shifts left
C.aggregate demand shifts right
D.aggregate demand shifts left
25.Recessions in China and India would cause
A.the U.S. price level and real GDP to rise.
B.the U.S. price level and real GDP to fall.
C.the U.S. price level to rise and real GDP to fall.
D.the U.S. price level to fall and real GDP to rise.
26.An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level
A.rises, shifting aggregate demand right.
B.rises, shifting aggregate demand left.
C.falls, shifting aggregate supply right.
D.falls, shifting aggregate supply left.
Explanation / Answer
1. D
2 B
3. A
4. A
5. B
6. D
7. D
8. D
9. D
10. B
11. A
12. C
13. D
14. A
15. B
16. A
17. A
18. D
19. C
20. D
21 A
22. B
23. B
24. C
25. B
26. C
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