HW Chapter 08: Aggregate Demand and Supply

Generally, an increase in aggregate supply is

a. the result of an increase in the price level.
b. represented by a movement up along the SRAS curve.
c. represented by a rightward shift in the SRAS curve.
d. both a and b
e. both a and c
In short-run equilibrium, it is always true that
a. quantity demanded of Real GDP = quantity supplied of Real GDP = Natural Real GDP.
b. quantity demanded of Real GDP > quantity supplied of Real GDP.
c. quantity demanded of Real GDP = quantity supplied of Real GDP.
d. a and b
e. There is not enough information to answer the question.
Which of the following best describes the international trade effect?
a. The price level in the U.S. falls relative to foreign price levels, U.S. goods become
relatively less expensive than foreign goods, and both Americans and foreigners buy
more U.S. goods.
b. The price level in the U.S. falls relative to foreign price levels, U.S. goods become
relatively more expensive than foreign goods, and both Americans and foreigners buy
more U.S. goods.
c. The price level in the U.S. rises relative to foreign price levels, U.S. goods become
relatively more expensive than foreign goods, and both Americans and foreigners buy
fewer U.S. goods.
d. The price level in the U.S. rises relative to foreign price levels, U.S. goods become
relatively more expensive than foreign goods, and both Americans and foreigners buy
more U.S. goods.
e. a and c
The interest rate effect occurs because a change in interest rates causes a change in the price
level.
a. TRUE
b. FALSE
A falling interest rate affects the demand for consumer __________ and shifts the AD curve to
the __________.
a. nondurables; right
b. nondurables; left
c. durables; right
d. durables; left
After an adverse supply shock occurs, the ____________ curve shifts _____________ resulting
in a(n) _________________ in the U.S. price level and a(n) ________________ in Real GDP.
a. AD; leftward; decrease; decrease

b. AD; rightward; increase; increase

c. SRAS; rightward; decrease; increase
d. SRAS; leftward; increase; decrease
A subprime loan is a term for a loan that poses less risk than the average loan.
a. TRUE
b. FALSE
The real balance effect is the change in
a. purchasing power that results from a change in income.
b. the amount of money one has that results from a change in income.
c. purchasing power that results from a change in the price level.
d. the amount of money one has that results from a change in the price level.
e. none of the above
The short-run aggregate supply curve is ________ and the long-run aggregate supply curve is
_________.
a. upward sloping; horizontal
b. vertical; upward sloping
c. vertical; horizontal
d. upward sloping; vertical
e. none of the above
Starting from short-run equilibrium, wage rates rise. What is the effect on the price level and
Real GDP in the short run?
a. The price level rises and Real GDP falls.
b. The price level falls and Real GDP rises.
c. The price level rises and Real GDP rises.
d. The price level falls Real GDP falls.
The dollar appreciates in value. This makes foreign-produced goods __________ for Americans
and U.S.-produced goods __________ for foreigners. As a result, U.S. __________ fall and U.S.
__________ rise.
a. more expensive; cheaper; imports; exports
b. cheaper; more expensive; exports; imports
c. cheaper; more expensive; imports; exports
d. more expensive; cheaper; exports; imports
Which of the following is false?
a. Aggregate demand is a specific dollar amount, such as $400 billion.
b. At a given price level, anything that changes total expenditures changes aggregate
demand.
c. Total expenditures rises if consumption rises, ceteris paribus.
d. Total expenditures rises if investment spending rises, ceteris paribus.
The AD curve shows the various amounts of real output that people are willing and able to

a.
b.
c.
d.
e.

buy at different income levels.

buy at different price levels.
sell at different profit levels.
sell at different price levels.
none of the above

Starting from short-run equilibrium, the following occurs: individuals expect higher (future)
incomes and wage rates rise. What is the effect on the price level and Real GDP in the short run?
a. The price level rises and Real GDP rises.
b. The price level falls and Real GDP falls.
c. The price level rises, but the effect on Real GDP cannot be determined.
d. Real GDP rises, but the effect on the price level cannot be determined.
e. Real GDP falls, but the effect on the price level cannot be determined.
If the price level remains constant but the wage rate increases, then there will be __________ in
production and the SRAS curve will shift __________.
a. an increase; rightward
b. a decrease; rightward
c. an increase; leftward
d. a decrease; leftward
Refer to Exhibit 8-2. Based on the given change, what word (rises or falls) should go in blank
(7) and blank (8), respectively, to summarize the resulting impact on short run equilibrium?
a. rises; rises
b. falls; falls
c. rises; falls
d. falls; rises
Which of the following statements represents a correct and sequentially accurate economic
explanation?
a. Business taxes rise, investment falls, total expenditures on goods and services falls, AD
rises, and the AD curve shifts rightward.
b. The dollar depreciates, net exports rise, total expenditures on goods and services rises,
AD rises, and the AD curve shifts rightward.
c. The interest rate falls, consumption rises, total expenditures on goods and services rises,
AD rises, and the AD curve shifts rightward.
d. b and c
e. a, b, and c
As interest rates rise, the ____________ curve shifts _____________ resulting in a(n)
_________________ in the U.S. price level and a(n) ________________ in Real GDP.
a. AD; leftward; decrease; decrease
b. AD; rightward; increase; increase
c. SRAS; rightward; decrease; increase
d. SRAS; leftward; increase; decrease

Personal income taxes rise. This lowers __________, which lowers __________ and the
__________ curve shifts __________.
a. net exports; aggregate demand (AD); AD; leftward
b. consumption; short-run aggregate supply (SRAS); SRAS; rightward
c. government revenue; net exports; AD; rightward
d. consumption; aggregate demand (AD); AD; leftward
e. none of the above
Suppose the price level is rising and it is widely forecast to rise even further. This forecast might
cause __________ of some consumption plans, resulting in __________ the AD curve.
a. postponement; a rightward shift of
b. postponement; a leftward shift of
c. acceleration; a rightward shift of
d. acceleration; movement down along
Which of the following statements is false?
a. Some prices in an economy adjust faster than other prices.
b. Aggregate demand curves slope downward.
c. Firms may not adjust their prices immediately because they may be unable to figure out
whether a decline in demand is temporary or permanent.
d. The absolute price of a good is the dollar or money price of the good.
e. none of the above
If velocity and the money supply are __________________, then when one component of
spending rises another component of spending ________________.
a. constant; must fall
b. constant; must rise
c. rising; may not necessarily fall
d. rising; must rise
One of the problems facing the Greek economy in 2012 was the Greek governments inability
to unilaterally devalue the euro.
a. TRUE
b. FALSE
Which of the following is not a factor that can shift the short-run aggregate supply curve?
a. changes in the wage rate
b. changes in the price of energy
c. changes in the stock of capital goods
d. improvements in management techniques
e. none of the above
A decrease in the price of electricity will cause
a. a movement down the SRAS curve.
b. a movement up the SRAS curve.
c. a leftward shift in the SRAS curve.

d. a rightward shift in the SRAS curve.

e. no change regarding the SRAS curve.
Which of the following statements represents a correct and sequentially accurate economic
explanation?
a. If government purchases rise, total expenditures on goods and services rises, and the AD
curve shifts leftward.
b. If government purchases rise, total expenditures on goods and services rises, and the AD
curve shifts rightward.
c. If consumption rises, total expenditures on goods and services rises, and the AD curve
shifts rightward.
d. If consumption rises, total expenditures on goods and services rises, and the quantity
demanded of Real GDP rises.
e. b and c
Suppose the real exchange rate of 115 Japanese yen to the dollar moves to 105 yen to the dollar.
The dollar has __________, making Japanese goods __________ expensive for Americans.
a. appreciated; less
b. appreciated; more
c. depreciated; less
d. depreciated; more
Changes in which of the following will not cause the SRAS curve to shift?
a. the wage rate
b. prices of nonlabor inputs
c. the price level
d. productivity
e. All of the above will cause the SRAS curve to shift.
A rise in aggregate demand and a fall in short-run aggregate supply will definitely
a. raise the price level, but there is not enough information to know how Real GDP will
change.
b. lower Real GDP, but there is not enough information to know how the price level will
change.
c. raise the price level and Real GDP.
d. raise Real GDP, but there is not enough information to know how the price level will
change.
e. raise the price level and lower Real GDP.
If wages are sticky, a decline in the price level will
a. raise the real wage and lower the quantity demanded of labor.
b. lower the real wage and lower the quantity supplied of labor.
c. raise the real wage and lower the quantity supplied of labor.
d. a and b
e. none of the above