Transcript Tutorial

Chapter 20 Tutorial
Aggregate Demand and Supply
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1. The aggregate demand curve is defined as
a. the net national product.
b. the sum of wages, rent, interest, and profits.
c. the real GDP purchased at different possible
price levels.
d. the total dollar value of household
expectations.
C. Answers a, b, and d are not real GDP
purchases at different possible price levels
during a time period.
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2. When the supply of credit is fixed, an
increase in the price level stimulates the
demand for credit, which, in turn, reduces
consumption and investment spending. This
effect is called the
a. real balance effect.
b. interest-rate effect.
c. net exports effect.
d. substitution effect.
B. At a high price level, the demand for
borrowed money increases and results in
higher cost of borrowing (interest rates).
Higher interest rates result in lower
consumption and investment spending.
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3. The real balance effect occurs because a
higher price level reduces the real value of
people’s
a. financial assets.
b. wages.
c. unpaid debt.
d. physical investments.
A. As price increase the dollars people have
in their bank accounts are worth less. As a
result, real GDP demand decreases.
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4. The net exports effect is the inverse
relationship between net exports and the
_______of an economy.
a. Real GDP.
b. GDP deflator.
c. Price level.
d. Consumption spending.
C. A higher domestic price level makes
U.S. goods more expensive relative to
foreign goods and vice versa.
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5. Which of the following will shift the
aggregate demand curve to the left?
a. An increase in exports.
b. An increase in investment.
c. An increase in government spending.
d. A decrease in government spending.
D. Answers a, b, c shift the aggregate
demand curve to the right.
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6. Which of the following will not shift the
aggregate demand curve to the left?
a. Consumers become more optimistic about
the future.
b. Government spending decreases.
c. Business optimism decreases.
d. Consumers become pessimistic about the
future.
A. Answers b, c and d shift the aggregate
demand curve leftward.
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7. The popular theory prior to the Great
Depression that the economy will automatically
adjust to achieve full employment is
a. supply-side economics.
b. Keynesian economics.
c. classical economics.
d. mercantilism.
C. Supply-side economic concerns shifts in
aggregate supply. Keynesians do not believe
the economy automatically adjusts to full
employment. Mercantilism is the idea that gold
or silver is the source of a nation’s wealth.
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8. Classical economists believed that the
a. price system was stable.
b. goal of full employment was impossible.
c. price system automatically adjusts the
economy to full employment in the long run.
d. government should not attempt to restore
full employment.
C. This is a key assumption for the vertical
shape of the classical aggregate supply curve.
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9. Which of the following is not a range on the
eclectic or general view of the aggregate supply
curve?
a. Classical range.
b. Keynesian range.
c. Intermediate range.
d. Monetary range.
D. Answers a, b, and c are the three district
ranges of the aggregate supply at a level of
real GDP below full employment.
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Three Ranges of the Aggregate Supply Curve
Price Level
AS
Classical Range
Intermediate Range
Full Employment
Keynesian Range
Real GDP
YK
YF
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10. Macroeconomic equilibrium occurs when
a. aggregate supply exceeds aggregate demand.
b. the economy is at full employment.
c. aggregate demand equals aggregate supply.
d. aggregate demand equals the average price
level.
C. Note that aggregate demand can equal
aggregate supply at a level of real GDP
below full employment.
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11. Along the classical or vertical range of
the aggregate supply curve, a decrease in
the aggregate demand curve will decrease
a. both the price level and real GDP.
b. only real GDP.
c. only the price level.
d. neither real GDP or the price level.
C. Along the vertical range of the aggregate
supply curve, the economy is at full
employment and only the price level changes.
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12. Other factors held constant, a decrease in
resource prices will shift the aggregate
a. demand curve leftward.
b. demand curve rightward.
c. supply curve leftward.
d. supply curve rightward.
D. Changes in production costs do not
affect the aggregate demand curve.
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13. Assuming a fixed aggregate demand curve, a
leftward shift in the aggregate supply curve
causes a (an)
a. increase in the price level and a decrease in
real GDP.
b. increase in the price level and an increase in
real GDP.
c. decrease in the price level and a decrease in
real GDP.
d. decrease in the price level and an increase in
real GDP.
A.
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200
150
Price Level
Cost Push Inflation
AS2
AS1
E2
Full employment
E1
100
AD
50
Real GDP
2 4 6 8 10 12 14 16 17
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14. An increase in the price level caused by a
rightward shift of the aggregate demand curve
is called
a. cost-push inflation.
b. supply shock inflation.
c. demand shock inflation.
d. demand-pull inflation.
D.
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200
150
Price Level
Demand Pull Inflation
AS
E2
E1
100
50
Real GDP
Full employment
AD2
AD1
2 4 6 8 10 12 14 16 17
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15. Suppose workers become pessimistic about
their future employment, which causes them to
save more and spend less. If the economy is on
the intermediate range of the aggregate supply
curve, then
a. both real GDP and the price level will fall.
b. real GDP will fall and the price level will
rise.
c. real GDP will rise and the price level will
fall.
d. both real GDP and the price level will rise.
A. A leftward movement of the aggregate
demand curve along a downward sloping
aggregate supply curve will result in lower
prices and less employment.
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