Unit 4.01

Aggregate demand is the total quantity of goods and services demanded by:

The aggregate demand/aggregate supply model is popular because: -it provides fairly accurate predictions about the economy. -it works for both macroeconomics and microeconomics. -it provides perfectly accurate predictions about the economy. -it considers all important details in a macroeconomy. -it is the same as the microeconomic demand and supply demand.

The aggregate demand cure shows the relationship between: -prices fand total quantity of all goods and services demanded. -price level and total quantity of all goods and services demanded. -price level and quantity demanded. -price level and level of unemployment. -price and quantity demanded.

Aggregate demand uses real GDP instead of GDP because:

The fact that the AD curve is downward sloping means: -when the price of a good increases, people will choose less of it. -as the quantity of goods and services demanded falls, the price level will increase. -at higher price levels, more goods and services are demanded. -at lower price levels, fewer goods and services are demanded. -as the price level increases, the quantity of goods and services demanded falls.

One reason the aggregate demand curve is downward sloping is the real balances effect, also called the income effect. This means:

One reason the aggregate curve is downward sloping is the interest-rate effect. This means:

One reason the aggregate curve is downward sloping is the net exports effect. This means:

To measure changes in RGDP, the ceteris paribus assumption of the aggregate demand/aggregate supply model says:

Which of the following will cause an increase in aggregate demand? -a decrease in the price level, which increases exports. -a decrease in foreign incomes, which decreases exports. -an increase in the price level, which lowers households real balances. -an increase in the price level, which decreases exports. -an increase in foreign incomes, which increases exports.

Which of the following is incorrect? -a lower price level increases aggregate demand. -more goods and services are demanded at lower price levels, ceteris paribus. -a lower price level causes increased net exports. -a higher price level decreases the aggregate quantity demanded. -a lower price level increases the aggregate quantity demanded.

As the price level increases, ceteris paribus:

Which of the following would cause an increase in aggregate demand? -an increase in price level. -a decrease in government spending. -a decrease in the price level. -improving expectations about the future of the economy.

Which of the following would cause a decrease in aggregate demand? -an increase in the price level. -a decrease in foreign incomes, which leads to decreased exports. -a decrease in the price level. -an increase in government spending.

C + I + G + NX is the equation for determining aggregate demand. The letters stand for:

An economy producing at a point below its production possibilities frontier (PPF): -is producing the maximum output possible. -is operating at full capacity. -can produce more of one good only if it produces less of the other. -does not have limited resources. -can produce more of each good.

Full capacity is:

The upward slope of the AS curve means:

High price levels are associated with high levels of real GDP along an aggregate supply curve because:

As the price level rises:

On an aggregate supply curve, as real GDP rises, an increase in the price level:

Which of the following will increase aggregate supply? -a decrease in wages. -an increase in oil prices. -an increase in the price level. -an increase in wages. -a decrease in the price level.

Which of the following will decrease aggregate supply? -a decrease in the price of oil. -a decrease in taxes on businesses. -a decrease in the level of technology in an economy. -a decrease in the price level. -a decrease in wages.

When the economy is producing well below full capacity:

Which of the following statements regarding production costs, aggregate supply, and the AS curve is correct?

As the economy approaches full capacity:

The aggregate supply curve is upward sloping because:

Real GDP is:

The vertical line at full capacity indicates:

The AD/AS model is useful in making predictions about what happens because:

Moving from A to B on the graph represents: (B higher, A lower)

Which of the following is (are) true of the aggregate demand curve?

In the graph, movement from AD1 to AD2 indicates: a right arrow on the graph

An increase in aggregate demand is:

Which of the following sectors of the economy is (are) not included in aggregate demand: The household sector. The business sector. The rest of the world (ROW) sector. All of the above are included in aggregate demand.

There are three reasons the AD curve is downward sloping. When a higher price level decreases the purchasing power of money saved, this is an example of: Income effect. Interest rate effect. Net exports effect. All of the options are correct. None of the options are correct.

Changes in all the following except one will shift aggregate demand. Which one will not cause a shift in aggregate demand?

Let's say that consumer confidence hits its highest level in thirty years. This means consumers expect good economic times in the future. What effect will this have on aggregate demand?

Several years ago, the U.S. went to war with Iraq. This led to an increase in government expenditures and a decrease in private consumption and investment. What is the total effect of these circumstances on aggregate demand? An increase in AD. A decrease in AD. An unknown change in AD. It will not affect AD. Leave AD unchanged.

Which of the following events would cause the aggregate demand curve to shift from AD1 to AD2, as illustrated in the graph below? AD1 shifts left

When an economy is operating at full capacity:

When the economy is on the flat portion of its AS curve: The economy is near full capacity. Small changes in the price level have little or no effect on the amount of production in the economy. There is no relatively flat portion on the AS curve. Attempts to increase the output of the economy will result in inflation. The economy is well below full capacity.

Which of the following is not one of the pieces of the AS curve of an economy?

If an economy is producing on the steep portion of the AS curve, large price increases have what effect on output? A large decrease. No change. A small increase. A small decrease. A large increase.

How could production costs change to shift the AS curve from AS1 to AS2 in this graph? AS1 moves right to AS2

Technological improvement causes: The AS curve to shift to the right. Production costs to increase. The AS curve to shift to the left. Decreases in production. The AS curve to remain unchanged.

An increase in the price level of an economy causes:

In the above PPF, which point (A, B, or C) might mark full capacity?

On an AS curve, output at full capacity is represented by:

Let's assume that recent oil prices are higher than normal. What effect will this have on AS?