Question

When the price level rises and U.S. goods become relatively more expensive than foreign goods, there will be:

	a.	an upward movement along the aggregate demand curve.
	b.	a downward movement along the aggregate demand curve.
	c.	a leftward shift of the aggregate demand curve.
	d.	a downward movement along the aggregate supply curve.
	e.	a rightward shift of the aggregate demand curve.

Beginning in the late 1970s, economic reform in China allowed farmers, for the first time, to keep a portion of their crops and to sell them to others. Previously, all food was collectively farmed and shared. How did this basic reform improve China’s economic growth?

	a.	It gave farmers an incentive to work less.
	b.	It gave local governments an incentive to tax farmers.
	c.	It gave farmers an incentive to be more productive.
	d.	It gave the national government an incentive to import food.
	e.	It gave consumers an incentive to eat less.

An example of physical capital is:

	a.	exhaust from a smokestack.
	b.	dog food.
	c.	pants.
	d.	a pillow.
	e.	a factory.

Answer 1

1.

Correct option: (a) An upward movement along the aggregate demand curve

Reason: Since changes in price lead to movement along the curve, an increase in price of US goods will lead to an upward movement along the AD curve, leading to a fall in quantity demanded of those goods.

2.

Correct option: (c) it gave farmers an incentive to be more productive

Reason: By allowing farmers to keep a portion of their own produce and sell them in the market, it provides an incentive to the farmers to be more productive and increase their output, so as to be able to sell more of their portion in the market and make more money.

3.

Correct option: (e) a factory

Reason: A factory would count as a physical capital because it is a tangible, man-made object which aides in the production process.