Macro Quiz 2

Which of the following is one explanation as to why the aggregate demand curve slopes downward? A) Decreases in the price level raise the interest rate and increase consumption spending. B) Decreases in the price level raise the interest rate and increase investment spending. C) Decreases in the U.S. price level relative to the price level in other countries lower net exports. D) Decreases in the price level raise real wealth and increase consumption spending.

Which of the following will shift the aggregate demand curve to the right? A) an increase in interest rates B) a decrease in disposable income C) a decrease in expected profits for firms D) an increase in net exports

If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve? A) This will move the economy up along a stationary aggregate demand curve. B) This will move the economy down along a stationary aggregate demand curve. C) This will shift the aggregate demand curve to the left. D) This will shift the aggregate demand curve to the right.

How do lower taxes affect aggregate demand? A) They increase disposable income, consumption, and aggregate demand. B) They reduce disposable income, consumption, and aggregate demand. C) they increase corporate investment and aggregate demand. D) They increase aggregate supply and thus increase aggregate demand as well.

A decrease in the price level will A) shift the aggregate demand curve to the left. B) shift the aggregate demand curve to the right. C) move the economy up along a stationary aggregate demand curve. D) move the economy down along a stationary aggregate demand curve.

The long-run aggregate supply curve A) has a negative slope. B) has a steep but positive slope. C) is horizontal. D) is vertical.

Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result, A) the long-run aggregate supply curve will shift to the right. B) the long-run aggregate supply curve will shift to the left. C) the economy will move up along the long-run aggregate supply curve. D) the economy will move down along the long-run aggregate supply curve.

If the economy receives an influx of new workers from immigration, A) the long-run aggregate supply curve will shift to the right. B) the long-run aggregate supply curve will shift to the left. C) we will move up along the long-run aggregate supply curve. D) we will move down along the long-run aggregate supply curve.

Long-run macroeconomic equilibrium occurs when A) aggregate demand equals short-run aggregate supply. B) aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run aggregate supply curve. C) structural and frictional unemployment equals zero. D) output is above potential GDP.

A negative supply shock in the short run causes A) the aggregate supply curve to shift to the left. B) the price level to fall. C) unemployment to fall. D) equilibrium real GDP to rise.

Stagflation occurs when A) inflation rises and GDP rises. B) inflation falls and GDP rises. C) inflation rises and GDP falls. D) inflation falls and GDP falls.

Interest rates in the economy have risen. How will this affect aggregate demand and equilibrium in the short run? A) Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall. B) Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall. C) Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise. D) Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise.

Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred? A) There was an unplanned increase in inventories equal to $2 million. B) There was no unplanned change in inventories. C) There was an unplanned decrease in inventories equal to $2 million. D) There was an unplanned decrease in inventories equal to $19 million.

An unplanned increase in inventories results from A) an increase in planned investment. B) a decrease in planned investment. C) actual investment that is greater than planned investment. D) actual investment that is less than planned investment.

Which of the following is not a component of aggregate expenditure? A) consumption spending B) planned investment spending C) actual investment spending D) government spending

Firms in a small economy anticipated that inventories would grow over the past year by $500,000. Over that year, inventories actually grew by only $400,000. This implies that A) aggregate expenditure that year was greater than GDP that year. B) there was an unplanned increase in inventories that year. C) there was a planned increase in inventories that year. D) aggregate expenditure that year was equal to GDP that year.

Which is the largest component of aggregate expenditure? A) planned investment expenditures B) consumption expenditures C) government expenditures D) net export expenditures

A decrease in Social Security payments will A) decrease consumption spending. B) decrease investment spending. C) decrease government spending. D) decrease export spending.

Investment spending will increase when A) the interest rate rises. B) the corporate income tax increases. C) business cash flow increases. D) firms become more pessimistic about earning future profits.

If the marginal propensity to consume is 0.6, then a $2 million increase in disposable income will A) increase consumption by $5 million. B) increase consumption by $1.2 million. C) decrease consumption by $5 million. D) decrease consumption by $1.2 million.