Chapter 08 Aggregate Demand and Aggregate Supply

Transcription

1 Chapter 08 Aggregate Demand and Aggregate Supply Multiple Choice Questions 1. The interest rate effect, the real balance effect and the foreign purchases effect suggests that the aggregate demand curve is A. Downward sloping b. Horizontal c. Vertical d. Shaped as a backward L 2. The Keynesian, Classical and Intermediate ranges apply to the a. Shape of the individual market supply curve b. The slope of the individual market demand curve C. The shape of the aggregate supply curve d. The slope of the aggregate demand curve 3. The aggregate supply-aggregate demand diagram models a. The behavior of individual consumers b. The behavior of individual firms C. The economy as a whole d. The interaction of producers and consumers for a particular good or service 4. The aggregate supply-aggregate demand diagram relates various levels of a. Production of two different goods B. All prices as measured by the CPI and production as measured by Real Gross Domestic Product c. Imports and exports of goods against exchange rates d. The price and quantity of a particular good 8-1

2 5. The rationale for interest rates determining AD is a. With lower interest rates firms will borrow more to invest b. With lower interest rate consumers will borrow less to buy durables c. With lower interest rate consumers will borrow more to buy durables D. A and C 6. The rationale for exchange rates determining AD is a. With stronger dollar exports will fall AD will rise b. With stronger dollar imports will fall AD will rise c. With weaker dollar exports will fall AD will rise D. With weaker dollar imports will fall AD will rise 7. Any event that creates a "crisis in confidence" is likely to lead to a. Higher aggregate prices B. Lower aggregate prices c. Higher aggregate output d. Inflation 8. An increase in taxes will cause B. AD to decrease (move to the left) 9. A decrease in taxes will cause A. AD to increase (move to the right) 8-2

3 10. An increase in government spending will cause A. AD to increase (move to the right) 11. A decrease in government spending will cause B. AD to decrease (move to the left) 12. An increase in interest rates will cause B. AD to decrease (move to the left) 13. A decrease in interest rates will cause A. AD to increase (move to the right) 14. An increase in confidence will cause A. AD to increase (move to the right) 8-3

4 15. A decrease in confidence will cause B. AD to decrease (move to the left) 16. An increase in input prices will cause D. AS to decrease (move to up and to the left) 17. A decrease in input prices will cause C. AS to increase (move to down and to the right) 18. An increase in productivity will cause C. AS to increase (move to down and to the right) 19. A decrease in productivity will cause D. AS to decrease (move to up and to the left) 8-4

5 20. An increase in regulation will cause D. AS to decrease (move to up and to the left) 21. A decrease in regulation will cause C. AS to increase (move to down and to the right) 22. Use the Aggregate Supply- Aggregate Demand model to determine which of the following will lead to higher prices a. A tax increase b. An increase in interest rates c. A fall in world oil prices D. An increase in government spending 23. Use the Aggregate Supply - Aggregate Demand model to determine which of the following will lead to higher aggregate output a. A tax increase B. A cut in interest rates c. A spike in world oil prices d. A cut in government spending 24. The notion of the "interest rate effect" was one of the basic reasons behind the downward sloping nature of the a. Supply curve b. Present value curve C. Aggregate demand curve d. Aggregate supply curve 8-5

6 25. The notion of the "classical range" was one of the basic parts of the a. Supply curve b. Present value curve c. Aggregate demand curve D. Aggregate supply curve 26. Disagreements about the shape of the aggregate supply curve focus on the degree of in the economy. A. Unemployment b. Inflation c. Fraud d. Confidence 27. The use of a backward-l shaped aggregate supply curve allows us to in a way that other shapes would not. a. Consider various levels of prices b. Consider different macroeconomic points of view C. Deal with shifting curves d. Create an equilibrium 8-6

7 Use Figure 8.1 to answer questions 28-40: Figure Referring to the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, which box should be filled with the label PI for "price index?" A. Box 1 b. Box 4 c. Box 5 d. Box Referring to the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, which box should be filled with the label PI* for the macroeconomic equilibrium level of the price index? a. Box 1 B. Box 2 c. Box 5 d. Box 6 8-7

8 30. Referring to the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, which box should be filled with the label RGDP for the Real Gross Domestic Product? a. Box 1 b. Box 2 c. Box 3 D. Box Referring to the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, which box should be filled with the label RGDP* for the macroeconomic equilibrium level of Real Gross Domestic Product? a. Box 1 b. Box 2 C. Box 5 d. Box Referring to the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, which box should be filled with the label AS for the aggregate supply curve? a. Box 1 b. Box 2 C. Box 3 d. Box Referring to the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, which box should be filled with the label AD for the aggregate demand curve? a. Box 1 b. Box 2 c. Box 3 D. Box 4 8-8

9 34. In the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, Box 1 should be filled with A. PI for Price Index b. RGDP for Real Gross Domestic Product c. AS for Aggregate Supply d. AD for Aggregate Demand 35. In the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, Box 2 should be filled with A. PI* for macroeconomic equilibrium Price Index b. RGDP* for macroeconomic equilibrium Real Gross Domestic Product c. AS for Aggregate Supply d. AD for Aggregate Demand 36. In the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, Box 3 should be filled with a. PI for Price Index b. RGDP for Real Gross Domestic Product C. AS for Aggregate Supply d. AD for Aggregate Demand 37. In the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, Box 4 should be filled with a. PI for Price Index b. RGDP for Real Gross Domestic Product c. AS for Aggregate Supply D. AD for Aggregate Demand 38. In the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, Box 5 should be filled with a. PI* for macroeconomic equilibrium Price Index B. RGDP* for macroeconomic equilibrium Real Gross Domestic Product c. AS for Aggregate Supply d. AD for Aggregate Demand 8-9

10 39. In the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, Box 6 should be filled with a. PI for Price Index B. RGDP for Real Gross Domestic Product c. AS for Aggregate Supply d. AD for Aggregate Demand 40. Which of the following will increase macroeconomic equilibrium prices A. An increase in government spending b. An increase in productivity c. An increase in taxes d. A decrease in input prices 41. Which of the following will increase macroeconomic equilibrium prices a. A decrease in government spending b. An increase in productivity C. A decrease in taxes d. A decrease in input prices 42. Which of the following will increase macroeconomic equilibrium prices a. A decrease in government spending B. A decrease in productivity c. An increase in taxes d. A decrease in input prices 43. Which of the following will increase macroeconomic equilibrium prices a. A decrease in government spending b. An increase in productivity c. An increase in taxes D. An increase in input prices 8-10

11 44. Which of the following will increase macroeconomic equilibrium real gross domestic product. A. An increase in government spending b. A decrease in productivity c. An increase in taxes d. An increase in input prices 45. Which of the following will increase macroeconomic equilibrium real gross domestic product. a. A decrease in government spending b. A decrease in productivity C. A decrease in taxes d. An increase in input prices 46. Which of the following will increase macroeconomic equilibrium real gross domestic product. a. A decrease in government spending B. An increase in productivity c. An increase in taxes d. An increase in input prices 47. Which of the following will increase macroeconomic equilibrium real gross domestic product. a. A decrease in government spending b. A decrease in productivity c. An increase in taxes D. A decrease in input prices 48. Under the George W. Bush Administration, federal income taxes were cut twice and boosted defense spending substantially. Taken together these actions are likely to have A. Increased aggregate demand b. Increased aggregate supply c. Decreased aggregate demand d. Decreased aggregate supply 8-11

12 49. If, in response to a weak employment picture, a law was passed to increase the number of lanes on all interstate highways by at least one lane this would likely A. Increase aggregate demand b. Increase aggregate supply c. Decrease aggregate demand 50. If Iraq were to become a stable oil producing friend of the U.S., this would likely a. Increase aggregate demand B. Increase aggregate supply c. Decrease aggregate demand 51. If there was a significant find of natural gas in a readily accessible location in the U.S. this would likely a. Increase aggregate demand B. Increase aggregate supply c. Decrease aggregate demand 52. Suppose the U.S. was to experience a series of terrorists attacks aimed at keeping consumers away from large shopping areas. Suppose further that the primary effect is for consumer confidence to decrease, this would likely a. Increase aggregate demand b. Increase aggregate supply C. Decrease aggregate demand 53. Suppose the U.S. was to experience a series of terrorists' attacks aimed at the electricity grid. This would likely a. Increase aggregate demand b. Increase aggregate supply c. Decrease aggregate demand D. Decrease aggregate supply 8-12

13 54. Suppose as a reaction to terrorist attacks the U.S. government were to create a new branch of the military employing 1,000,000 new service men and women to monitor malls, large sporting events, and infrastructure (bridges, dams, refineries, etc.) Hiring and paying these people would likely A. Increase aggregate demand b. Increase aggregate supply c. Decrease aggregate demand 55. In reaction to the terrorist attacks of September 11, 2001 the Federal Reserve moved to lower interest rates. This was intended to A. Increase aggregate demand b. Increase aggregate supply c. Decrease aggregate demand 56. In reaction to the recession of 2001, a tax cut was passed in which tax rebate checks were sent to millions of American families. This was intended to A. Increase aggregate demand b. Increase aggregate supply c. Decrease aggregate demand 57. Suppose the Federal Reserve wanted to fight inflation by increasing interest rates. Doing so would a. Increase aggregate demand b. Increase aggregate supply C. Decrease aggregate demand 8-13

14 58. Congress and the President have control of the tax system and government spending. As a result their policies will directly impact a. Aggregate supply b. Residual demand C. Aggregate demand d. The demand for loanable dollars 59. The Federal Reserve has indirect control over short term interest rates and as a result their ability to control economic activity is through a. Aggregate supply b. Residual demand C. Aggregate demand d. The exchange rate 60. An economist worrying about the economic impact of environmental regulations would model that impact with a A. Decrease in aggregate supply b. Decrease in aggregate demand c. Increase in aggregate supply d. Increase in aggregate demand 61. Elimination of government regulations undertaken explicitly to influence the aggregate supply curve would be an example of a. Keynesian economics b. Classical economics c. Demand-side economics D. Supply-side economics 62. Reduction of marginal tax rates undertaken explicitly to increase incentives of innovate, take risks, and work hard would be an example of A. Supply-side economics b. Incentives-based deprecation c. Keynesian economics d. Progressivism 8-14

15 63. Policy initiatives typically associated with "supply-side economics" would include a. Increased spending for national defense b. Increases in the minimum wage C. Investment tax credits d. Reduced minimum reserve requirements 8-15