Kennesaw State University - ECON 2200   Chapter 9 1)The output of all the goods and services demanded in an economy at various price levels is called:         A) the quantity-price locus

A)

the quantity-price locus.

B)

aggregate demand.

C)

economic production.

D)

the price-output curve.

2.

(Figure: Shifting SRAS and AD)

What economic event is represented if full employment GDP occurs at point (a)?

A)

a recession

B)

demand-pull inflation

C)

cost-push inflation

D)

deflation

3.

If the U.S. aggregate price level rises:

A)

U.S. imports rise.

B)

the aggregate demand curve shifts to the left.

C)

the aggregate demand curve shifts to the right.

D)

business investment increases.

4.

If a pill is discovered that allows people to work twice as fast as they would ordinarily work, then the aggregate supply curve will:

A)

shift to the left.

B)

shift to the right.

C)

not change.

D)

become vertical.

5.

Short-run macroeconomic equilibrium occurs at the intersection of:

A)

aggregate demand and short-run aggregate supply.

B)

aggregate demand and long-run aggregate supply.

C)

aggregate demand, short-run aggregate supply, and long-run aggregate supply.

D)

short-run aggregate supplyand long-run aggregate supply.

6.

Which is a determinant of aggregate supply?

A)

interest rates

B)

productivity

C)

prices of substitutes

D)

household expectations

7.

A(n) __________ in government spending, a __________ domestic currency, and ________ interest rates will shift a country's aggregate demand to the left.

A)

decrease; stronger; higher

B)

increase; weaker; higher

C)

increase; stronger; lower

D)

decrease; weaker; lower

8.

If the market power of firms increases, what happens in the AD/AS model?

A)

Aggregate supply shifts left.

B)

Aggregate supply shifts right.

C)

Aggregate demand shifts left.

D)

Aggregate demand shifts right.

9.

Which of the following events will NOT cause the aggregate demand curve to shift?

A)

Businesses are optimistic about the economy, investing heavily in new equipment.

B)

Consumers' wealth drops because of a drop in the stock market.

C)

A rise in the aggregate price level causes a drop in exports.

D)

Governments increase spending on national security in the wake of terrorist attacks.

10.

High taxes and/or heavy regulation:

A)

can cause firms to boost production so they can cover the added costs.

B)

raise costs of production so that the aggregate supply curve shifts to the left.

C)

are not likely to affect firms' behavior, since they are more concerned about profit than taxes or regulation .

D)

are likely to shift aggregate supply to the right.

11.

Suppose consumers spend more than usual. In the short run, output will ____; in the long run, output will _____ from its starting point.

A)

increase; remain unchanged

B)

increase; increase

C)

remain unchanged; decrease

D)

remain unchanged; increase

12.

Cost-push inflation occurs because of a shift to the:

A)

right of the short-run aggregate supply curve.

B)

left of the short-run aggregate supply curve.

C)

right of the aggregate demand curve.

D)

left of the aggregate demand curve.

13.

If an economy is on the vertical portion of the aggregate supply curve, then it:

A)

is overheating.

B)

is at full employment.

C)

has high unemployment.

D)

is in a severe recession.

14.

Aggregate supply increases when:

A)

input prices rise.

B)

subsidies are reduced.

C)

there is a decrease in firms' market power.

D)

business expectations tend toward the negative.

15.

A breakthrough in solar energy research that halves the cost of electricity will:

A)

have no effect on the aggregate supply curve.

B)

shift the aggregate supply curve to the right.

C)

shift the aggregate supply curve to the left.

D)

cause the aggregate supply curve to become vertical.

16.

Assume initially the economy is at full employment. If aggregate demand increases, the aggregate price level and costs will ______, and ultimately, the short run aggregate supply curve shifts to the _______.

A)

rise; right

B)

rise; left

C)

fall; right

D)

fall; left

17.

According to John Maynard Keynes, what determines employment and income?

A)

aggregate supply

B)

government spending alone

C)

aggregate expenditures

D)

wages, prices, and interest rates

18.

Which of the following factors causes a shift in the aggregate demand curve to the left?

A)

increase in consumption

B)

increase in wealth

C)

increase exports

D)

decrease in government spending

19.

In the short run, a decrease in market power (or monopolization):

A)

will increase the price level.

B)

will decrease the price level.

C)

will not affect the price level.

D)

will not affect output.

20.

_____ will most likely increase the economy's long-run aggregate supply.

A)

A low rate of investment

B)

Unfavorable weather in the corn belt

C)

Advances in technology

D)

An increase in the expected inflation rate

21.

If the pound sterling appreciates against the U.S. dollar, England buys ______ U.S. goods, causing the U.S. aggregate demand curve to shift to the ______.

A)

more; right

B)

more; left

C)

fewer; left

D)

fewer; right

22.

Government spending on Social Security:

A)

has no impact on aggregate demand.

B)

increases aggregate demand.

C)

decreases aggregate demand.

D)

hurts investment.

23.

_____ measure(s) the proportion of additional income that consumers spend.

A)

The spending multiplier

B)

The marginal propensity to consume

C)

The marginal propensity to save

D)

The spending multiplier, the marginal propensity to consume, and the marginal propensity to save

24.

If the money supply is fixed and prices rise, the cost of borrowing will _____ and business investment will _____. This is called the ______.

A)

rise; rise; wealth effect

B)

fall; rise; interest rate effect

C)

rise; fall; wealth effect

D)

rise; fall; interest rate effect

25.

The Great Depression was primarily the result of:

A)

a decrease in aggregate demand.

B)

an increase in aggregate demand.

C)

disequilibrium.

D)

an increase in aggregate supply.

26.

(Figure: Understanding Aggregate Graphs 2)

This economy is at point a. This figure depicts an economy:

A)

in neither short-run nor long-run equilibrium.

B)

in short-run equilibrium only.

C)

in both short-run and long-run equilibrium

D)

in long-run equilibrium only.

27.

Which of the following best illustrates the wealth effect?

A)

Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000.

B)

Simon felt he needed at least $800,000 to retire comfortably. He increased his saving to build up his wealth.

C)

The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished.

D)

Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks.

28.

When the price of a product falls, causing consumers to purchase more of that product and less of other products, it is the:

A)

income effect.

B)

substitution effect.

C)

wealth effect.

D)

interest rate effect.

29.

What would cause the price level to decrease and employment to increase?

A)

a shift to the left of the AD curve

B)

a shift to the right of the AD curve

C)

a shift to the left of the SRAS curve

D)

a shift to the right of the SRAS curve

30.

Which of the following will shift the short-run aggregate supply curve to the left?

A)

an increase in the minimum wage

B)

a decrease in immigration from abroad

C)

a decrease in the price of oil

D)

a decrease in the actual price level

31.

The aggregate demand curve:

A)

is upward sloping because a higher price level is necessary to make production profitable as production costs rise.

B)

is downward sloping because production costs decline as real GDP increases.

C)

shows the amount of expenditures required to induce the production of each possible level of real GDP.

D)

shows the amount of real GDP that will be demanded at each possible price level.

32.

Increased taxes will shift the aggregate demand curve to the _____ and _____ output demanded.

A)

left; decrease

B)

left; increase

C)

right; increase

D)

right; decrease

33.

The long-run aggregate supply curve uses the classical assumptions that all variables are __________ in the long run and that long-run equilibrium occurs at ___________________.

A)

flexible; full employment

B)

flexible; less than full employment

C)

fixed; less than full employment

D)

fixed; full employment

34.

Which of the following will shift the aggregate supply curve to the right?

A)

the development of a cartel in the production of soybeans

B)

an increase in corporate taxes

C)

increased investment in human capital

D)

an increase in the price of garbage collection

35.

The short-run supply curve slopes up because:

A)

profits increase at higher price levels.

B)

productivity increases at higher price levels.

C)

wages increase at higher output in the short run.

D)

resource costs increase at higher price levels.

36.

(Figure: Determining SRAS Shifts) If there is a decrease in input prices, the short-run aggregate supply curve will shift from SRAS₀ to _____ and the price level will become _____.

A)

SRAS₁; P₀

B)

SRAS₁; P₁

C)

SRAS₂; P₁

D)

SRAS₂; P₂

37.

The proportion of additional income that consumers spend is known as the:

A)

marginal propensity to save.

B)

marginal propensity to consume.

C)

average propensity to save.

D)

average propensity to consume.

38.

According to Keynes, what determines the level of employment and income?

A)

aggregate expenditures

B)

aggregate savings

C)

government spending

D)

aggregate supply

39.

Which of the following partly explains why the aggregate demand curve is negatively sloped?

A)

When the price of cars manufactured in the United States increases, people buy more cars manufactured abroad.

B)

When the price of cars manufactured abroad increases, people buy fewer cars manufactured in the United States.

C)

When the interest rate increases, people borrow more money.

D)

When the interest rate decreases, people borrow less money.

40.

(Figure: Shifting the AD and SRAS)

Starting in long-run equilibrium when the aggregate demand curve is AD₀ and the short-run aggregate supply curve is SRAS₀, if there is a supply shock, such as a drastic increase in the price of oil, this will cause _____ and a movement to a short-run equilibrium at point _____.

A)

a leftward shift in AD₁; a

B)

a rightward shift in AD₁; c

C)

a rightward shift in SRAS₂; c

D)

a leftward shift in SRAS₂; a

41.

Who recognized the need to develop tools to analyze the macroeconomy as a whole?

A)

Adam Smith

B)

Karl Marx

C)

John Maynard Keynes

D)

Milton Friedman

42.

According to the text, what brought us out of the Great Depression?

A)

increase in investment

B)

increase in consumption

C)

decrease in the interest rate

D)

spending on World War II

43.

_____ is the output of goods and services demanded at different price levels.

A)

Aggregate expenditure

B)

Aggregate demand

C)

Aggregate spending

D)

Aggregate supply

44.

The idea that new spending creates more new spending is known as:

A)

the crowding-out effect.

B)

the multiplier effect.

C)

the wealth effect.

D)

the interest rate effect.

45.

When home values collapsed in the period that began in 2008, it reduced many Americans':

A)

bank balances.

B)

household wealth.

C)

household income.

D)

retirement accounts.

46.

Which of the following events causes an increase in aggregate demand?

A)

decreasing wealth

B)

falling interest rates

C)

decrease in government spending

D)

rising imports

47.

Demand-pull inflation is caused by:

A)

increases in wages pulling up prices.

B)

increases in aggregate demand.

C)

decreases in aggregate supply.

D)

consumers demanding better quality, which increases costs.

48.

In the Keynesian model, the price level is ___________; in the aggregate demand and supply model, the price level is _______________.

A)

fixed; fixed

B)

flexible; flexible

C)

flexible; fixed

D)

fixed; flexible

49.

An increase in aggregate demand can be caused by:

A)

the depreciation of the dollar.

B)

a cut in government spending.

C)

an increase in interest rates.

D)

a rise in consumer debt.

50.

________ taxes and ________ interest rates in the United States, along with ___________ incomes in other countries, will shift the U. S. aggregate demand curve to the right.

A)

Decreasing; rising; rising

B)

Increasing; falling, rising

C)

Decreasing; falling, rising

D)

Decreasing; falling, falling

51.

The long-run supply curve is:

A)

vertical.

B)

horizontal.

C)

elastic.

D)

inelastic.

52.

Suppose the government raises income taxes, so consumers have less take-home pay. This policy action will cause a(n):

A)

increase in aggregate demand.

B)

decrease in aggregate demand.

C)

increase in short-run aggregate supply.

D)

decrease in short-run aggregate supply.

53.

(Figure: Understanding Aggregate Graphs)

This economy is currently at point a. This figure depicts an economy:

A)

in neither short-run nor long-run equilibrium.

B)

in short-run equilibrium only.

C)

in both short-run and long-run equilibrium

D)

in long-run equilibrium only.

54.

A(n) _______ in oil prices and a(n) _______ in taxes will shift short-run aggregate supply to the left.

A)

increase; increase

B)

increase; reduction

C)

reduction; increase

D)

reduction; reduction

55.

The Great Depression showed that the short-run aggregate supply and the aggregate demand curves:

A)

must always intersect at full employment.

B)

can intersect at output levels far below full employment.

C)

must intersect at output levels above full employment.

D)

can never lead to deflation.

56.

What would cause inflation to rise and employment to increase?

A)

a shift of the AS curve to the left

B)

a shift of the AD curve to the left

C)

a shift of the AS curve to the right

D)

a shift of the AD curve to the right

57.

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

A)

left; decrease

B)

left; increase

C)

right; increase

D)

right; decrease

58.

Which of the following factors is NOT a determinant of aggregate supply?

A)

income

B)

taxes on business

C)

input prices

D)

regulation

59.

The 1973 oil shocks created:

A)

demand-pull inflation.

B)

cost-push inflation.

C)

a shift to the right of the aggregate supply curve.

D)

a shift to the right of the aggregate demand curve.

60.

A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded.

A)

left; decrease

B)

left; increase

C)

right; increase

D)

right; decrease

61.

(Figure: Aggregate Demand Shift)

Which of the following may be an explanation for the shift in aggregate demand from A to B?

A)

Prices fall and increase real wealth.

B)

Consumer confidence drops and consumption spending falls.

C)

Goods and services become less competitive and exports fall.

D)

Interest rates fall and boost investment.

62.

Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?

A)

crowding-out

B)

the multiplier effect

C)

the wealth effect

D)

the interest rate effect

63.

The _____ is vertical at full employment.

A)

short-run aggregate supply curve

B)

long-run aggregate supply curve

C)

short-run aggregate demand curve

D)

long-run aggregate demand curve

64.

A shift to the ________ of the __________ curve would cause the price level to decrease and employment to decrease.

A)

left; aggregate demand

B)

right; aggregate demand

C)

left; short-run aggregate supply

D)

right; short-run aggregate supply

65.

Cost-push inflation is a situation in which:

A)

the short-run aggregate supply curve shifts rightward.

B)

the aggregate demand curve shifts rightward.

C)

the short-run aggregate supply curve shifts leftward.

D)

the aggregate demand curve shifts leftward.

66.

Aggregate supply shifts to the left when:

A)

input prices rise.

B)

subsidies are higher.

C)

inflation expectations are lower.

D)

there is a decrease in burdensome regulations.

67.

The collapse of home values that began in 2008 led to ____ in Americans' saving rates, shifting aggregate demand to the ____.

A)

a decrease; left

B)

a decrease; right

C)

an increase; left

D)

an increase; right

68.

What happens if business expectations improve?

A)

Aggregate supply shifts left.

B)

Aggregate supply shifts right.

C)

Aggregate demand shifts left.

D)

Aggregate demand shifts right.

69.

(Figure: Determining SRAS Shifts 3)

Which of the following might be a cause of the change in short-run aggregate supply?

A)

Unions successfully negotiate higher wages.

B)

Subsidies to firms increase.

C)

Consumer incomes drop.

D)

Workers and firms believe that inflation is going to decrease.

70.

During cost-push inflation, aggregate output _______ and the aggregate price level _________.

A)

rises; rises

B)

rises; falls

C)

falls; falls

D)

falls; rises

71.

The Potbelly Pothole Company is undertaking some investment in its plant. Suppose interest rates fall and new technologies increase the return on its investment. What is likely to happen?

A)

The company's demand for investment will fall.

B)

There will be no change in the company's demand for investment.

C)

The company's demand for investment will first fall as interest rates fall and then rise as technology improves.

D)

The company's demand for investment will rise.

72.

When the price of a given product declines, the consumer's spendable income rises because it takes less income to purchase the same quantity. This is called the:

A)

net export effect.

B)

income effect.

C)

substitution effect.

D)

interest effect.

73.

_____ occurs when a negative supply shock hits the economy, shifting the short-run aggregate supply curve leftward.

A)

Demand-pull inflation

B)

Demand-push inflation

C)

Cost-push inflation

D)

Cost-pull inflation

74.

(Figure: Aggregate Demand Shift)

The shift in aggregate demand depicted may be due to a(n):

A)

increase in consumer confidence.

B)

decrease in interest rates.

C)

increase in income taxes.

D)

increase in exports.

75.

If oil prices decrease, the short-run aggregate supply curve shifts _____ and output supplied will be _____.

A)

left; increased

B)

left; reduced

C)

right; increased

D)

right; reduced

76.

When government spending rises:

A)

aggregate demand rises.

B)

aggregate demand falls.

C)

the aggregate price level falls.

D)

it crowds out net exports.

77.

The _____ shows the amount of output that firms are willing to produce at various price levels.

A)

aggregate expenditure curve

B)

aggregate supply curve

C)

aggregate demand curve

D)

aggregate spending curve

78.

Which of the following events will shift the aggregate demand curve to the right?

A)

a catastrophic hurricane hitting the northeastern United States

B)

an increase in household debt

C)

decreased taxes

D)

decrease in military spending

79.

Aggregate supply is:

A)

the real GDP that firms will produce at varying price levels.

B)

the total supply over a span of several years.

C)

the amount of goods, but not services, firms supply at various price levels.

D)

the amount of output that is sold at each price level.

80.

The Great Depression demonstrated that:

A)

there can be no macroeconomic equilibrium.

B)

short-run equilibrium can occur at substantially less than full employment.

C)

inflation is a worse problem than unemployment.

D)

government intervention in the economy results in economic depressions.

81.

Output definitely increases if aggregate demand ______ and aggregate supply ______.

A)

increases; increases

B)

rises; falls

C)

falls; rises

D)

decreases; decreases

82.

Which of the following events will shift the aggregate demand curve to the right?

A)

decreased exports

B)

increased imports

C)

a rise in the interest rate

D)

a new government program to eliminate poverty

83.

Which of the following would NOT cause a shift in the aggregate demand curve?

A)

a stock market crash

B)

a reduction in raw material prices

C)

a decrease in real interest rates

D)

an increase in the expected rate of inflation

84.

In the short run, the aggregate supply curve is ____ because input prices are _____.

A)

positively sloped; not completely flexible

B)

positively sloped; completely flexible

C)

vertical; not completely flexible

D)

vertical; completely flexible

85.

If the U.S. aggregate price level falls:

A)

the purchasing power of wealth declines.

B)

net exports rise.

C)

interest rates go up.

D)

the aggregate demand curve shifts to the right.

86.

________ in wealth and ________ in government spending, along with a(n) _________ of the dollar, will shift the U.S. aggregate demand curve to the left.

A)

Decreases; increases;  appreciation

B)

Increases; decreases; appreciation

C)

Decreases; decreases; depreciation

D)

Decreases; decreases; appreciation

87.

The aggregate demand curve slopes _____ and has _____ on the vertical axis.

A)

downward; output

B)

downward; the price level

C)

upward; output

D)

upward; the price level

88.

Which of the following will NOT shift the aggregate supply curve to the right?

A)

the discovery of cheap solar energy

B)

the development of nanotechnology methods of production

C)

an increase in the minimum wage

D)

a decrease in corporate taxes

89.

What would cause the price level to rise and employment to increase?

A)

a shift to the left of the aggregate demand curve

B)

a shift to the right of the aggregate demand curve

C)

a shift to the left of the short-run aggregate supply curve

D)

supply shift to the right of the short-run aggregate supply curve

90.

Which is NOT consistent with the level of output in the long run?

A)

the natural rate of output

B)

full capacity output level

C)

high inflation

D)

the natural rate of unemployment

91.

Which of the following factors is NOT a component of aggregate demand?

A)

consumption

B)

investment

C)

income

D)

net exports

92.

(Figure: Determining SRAS Shifts) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS₀ to _____ and the price level will become _____.

A)

SRAS₁; P₀

B)

SRAS₁; P₁

C)

SRAS₂; P₁

D)

SRAS₂; P₂

93.

A shift of the aggregate _______ curve to the ________ would cause inflation to rise and employment to increase.

A)

supply; left

B)

demand; left

C)

supply; right

D)

demand; right

94.

Which of the following would NOT cause a shift in the aggregate demand curve?

A)

a change in consumption spending

B)

a change in the price level

C)

a change in investment

D)

a change in net exports

95.

The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS) model is that the:

A)

Keynesian model assumes that prices are constant.

B)

AD/AS model assumes that prices are constant.

C)

Keynesian model assumes full employment.

D)

AD/AS model assumes that equilibrium always occurs at less than full employment.

96.

The short-run aggregate supply curve:

A)

is vertical because the economy is at full capacity.

B)

is upward sloping because some costs are slow to rise as output expands.

C)

is horizontal because input prices do not rise as output rises.

D)

cannot be generalized because each economy is unique.

97.

Economic growth is shown as a:

A)

shift to the left in the long-run aggregate supply curve.

B)

movement up along the short-run aggregate supply curve.

C)

shift to the right in the long-run aggregate supply curve.

D)

shift to the left in the short-run aggregate supply curve.

98.

If the national incomes of foreign countries fall at the same time the dollar appreciates, then in the United States the aggregate demand curve:

A)

shifts to the right.

B)

shifts to the left.

C)

remains unchanged.

D)

does not shift, but there is movement up along it.

99.

If both consumers and businesses are pessimistic about the future of the economy:

A)

there is a movement up along the aggregate demand curve.

B)

the aggregate demand curve shifts to the left.

C)

there is a movement down along the aggregate demand curve.

D)

the aggregate demand curve shifts to the right.

100.

An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _________ in the ____________ U.S.-made products.

A)

decrease; aggregate demand for

B)

increase; short-run aggregate supply of

C)

increase; aggregate demand for

D)

decrease; short-run aggregate supply of

101.

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in:

A)

increased inflation.

B)

increased output.

C)

both increased output and increased inflation.

D)

neither increased output nor increased inflation.

102.

At high domestic price levels compared to other countries, Americans:

A)

sell more exports.

B)

buy more imported goods.

C)

buy the same amount of foreign goods.

D)

try to buy American.

103.

(Figure: Predicting Aggregate Demand Shifts) Which of the following would shift the aggregate demand curve from AD₂ to AD₁?

A)

a tax cut

B)

an increase in interest rates

C)

an increase in government purchases