Question

1. The aggregate supply curve indicates the:

a. relationship between prices and the level of investment spending.

b. quantity of goods and services producers will supply at different price levels.

c. relationship between prices and the aggregate quantity of goods and services purchased by consumers, investors, governments, and foreigners (net exports).

d. relationship between the real wage rate and the quantity of labor supplied by households.

2. How will an increase in the world price of crude oil influence the economy of an oil-importing country such as the United States traditionally was?

a. Aggregate supply will decrease, leading to a decrease in real GDP.

b. Aggregate supply will increase, leading to an increase in prices and smaller GDP.

c. Aggregate supply will increase, leading to an increase in real GDP.

d. A change in the price of an imported good will not affect the domestic economy of an oil-importing country.

3. The aggregate demand curve is downward sloping because:

a. at lower price levels, interest rates decrease, causing a decrease in the quantities of goods and services demanded.

b. at lower price levels, real wealth decreases, causing a decrease in the quantities of goods and services demanded.

c. an increase in the price level will cause an increase in spending.

d. at lower price levels, households with savings deposits or cash feel wealthier, causing them to spend more on Consumption spending.

Answer 1

1.

b. quantity of goods and services producers will supply at different price levels.

2.

a. Aggregate supply will decrease, leading to a decrease in real GDP.

Aggregate supply curve shows the relationship between price level and real GDP supplied by firms. The aggregate supply curve will shift to the left ( decrease).

3. d. at lower price levels, households with savings deposits or cash feel wealthier, causing them to spend more on Consumption spending. This is the wealth effect.