The aggregate demand curve shows the relationship between the aggregate price level and:
A) aggregate productivity.
B) the aggregate unemployment rate.
C) the aggregate quantity of output demanded by households, businesses, the government, and the rest of the world.
D) the aggregate quantity of output demanded by businesses only.
2.When the aggregate price level increases, the purchasing power of many assets
falls, causing a decrease in consumer spending. This is known as the _____ effect and is a reason why the _____ curve slopes _____.
A) interest rate; aggregate demand; downward
B) wealth; aggregate demand; downward
C) interest rate; investment demand; downward
D) wealth; short-run aggregate supply; upward
3. The aggregate demand curve is negatively sloped in part because of the impact of interest rates on:
A) potential output.
B) net exports.
C) consumption and investment.
D) government purchases.
4. According to the interest rate effect, an increase in the price level causes people to:
A) increase their money holdings, which increases interest rates and decreases investment spending.
B) decrease their money holdings, which increases interest rates and decreases investment spending.
C) to increase their money holdings, which decreases interest rates and decreases investment spending.
D) to decrease their money holdings, which decreases interest rates and increases investment spending.
5. Government purchases of goods and services differ from changes in taxes and transfer payments in that:
A) the former is a type of fiscal policy, while the latter is a type of monetary policy.
B) the former is a type of monetary policy, while the latter is a type of fiscal policy.
C) the former influences aggregate demand directly, while the latter influences aggregate demand indirectly.
D) the former influences aggregate demand indirectly, while the latter influences aggregate demand directly.
6.The aggregate supply curve shows the relationship between:
A) the price of oil and the quantity of aggregate output supplied.
B) the aggregate price level and the quantity of aggregate output supplied.
C) the price of money and the quantity of aggregate output supplied.
D) the level of employment and the quantity of aggregate output supplied
9. According to the long-run aggregate supply curve, when _________, the quantity of aggregate output supplied _________.
A) nominal wages rise; falls
B) the aggregate price level rises; does not change
C) the aggregate price level rises; falls
D) the price of commodities falls; rises
10. Because the aggregate price level has no effect on aggregate output in the long run, the long -run aggregate supply curve is:
A) upward sloping.
B) vertical.
C) horizontal.
D) downward sloping.
11. The inflation tax is:
A) the higher tax paid by individuals whose incomes are indexed to inflation.
B) the taxes paid during periods of inflation.
C) the reduction in the value of money that is held by the public caused by inflation.
D) the higher prices consumers pay due to inflation.
12. Economists refer to the revenue generated by the government's right to print money as:
A) seigniorage.
B) monetary policy.
C) fiscal policy.
D) reserve policy.
13. When the output gap is _______ (an inflationary gap), the unemployment rate is below the natural rate. When the output gap is _______ (a recessionary gap), the unemployment rate is above the natural rate.
A) positive; positive
B) negative; negative
C) positive; negative
D) negative; positive
14. Along a Phillips curve:
A) consumption depends on prices.
B) the inflation rate varies inversely with the unemployment rate.
C) the inflation rate varies directly with the unemployment rate.
D) prices and tax rates are directly related.
15. An increase in the expected rate of inflation would:
A) shift the short-run Phillips curve downward.
B) shift the short-run Phillips curve upward.
C) move the economy along the short-run Phillips curve to higher rates of inflation.
D) move the economy along the short-run Phillips curve to higher rates on unemployment.
16. The long-run Phillips curve is:
A) the same as the short-run Phillips curve.
B) negatively sloped, showing an inverse relationship between unemployment and inflation.
C) vertical at the non accelerating-inflation rate of unemployment (NAIRU).
D) unrelated to the NAIRU.
17. When the economic situation is such that monetary policy can no longer be used because the nominal rate of interest cannot fall below zero, it is called:
A) the liquidity preference.
B) the money neutrality.
C) the liquidity trap.
D) the money illusion.
18. The NAIRU is:
A) the inflation rate at which the unemployment rate does not change over time.
B) a trade-off between unemployment and inflation.
C) the unemployment rate at which inflation does not change over time.
D) a rate at which it is possible to achieve lower unemployment by accepting higher inflation.
19. If the economy is currently in a recessionary gap, real GDP will be________potential output.
A) below
B) the same as
C) above
D) in equilibrium with
20. If the SRAS curve intersects the aggregate demand curve to the right of LRAS, the result will be:
A) a recessionary gap.
B) an inflationary gap.
C) cyclical unemployment.
D) Long-run equilibrium.
1. Option C. the aggregate quantity of output demanded by households, businesses, the government, and the rest of the world.
Explanation: The aggregate demand curve shows the relationship between the price level and the aggregate quantity demanded.
2. Option B
Explanation: The purchasing power of wealth falls due to an increase in the price level. This is the reason the aggregate demand curve slopes downward.
3. Option C
Explanation: When the interest rate rises, consumption and investment fall.
4. Option A
Explanation: When people hold more money, the interest rate goes up and this leads to fall in investment.
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