Question 1

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.

Accepted Answer

If businesses have overbuilt and have too much capital, they may decide to cut back on investment and potentially lay off workers. This would result in a decrease in aggregate demand, shifting the AD curve to the left.

Question 2

Other things the same, the aggregate quantity of goods demanded decreases if
A)real wealth falls.
B)the interest rate rises.
C)the dollar appreciates.
D)All of the above are correct.

Accepted Answer

The answer of Other things the same, the aggregate quantity...

Question 3

Which of the following will both make people buy more?
A)wealth and interest rates rise.
B)wealth rises and interest rates fall.
C)wealth falls and interest rates rise.
D)wealth falls and interest rates fall.

Accepted Answer

When wealth rises, people have more money to spend, resulting in increased consumption. Additionally, when interest rates fall, the cost of borrowing decreases, which incentivizes people to spend more. Therefore, both factors will lead to increased purchases.

Question 4

Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.

Accepted Answer

If businesses reduce capital purchases due to the expectation of a recession, this will lead to a decrease in investment spending, which is a component of aggregate demand. Therefore, the initial reaction would be a leftward shift of the aggregate demand curve.

Question 5

From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made people feel less wealthy, then it would have shifted
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.

Accepted Answer

The answer of From 2006 to 2008 there was a...

Question 6

From 1995 to 1999 there was a dramatic rise in stock prices. If this rise made people feel wealthier, then it would have shifted
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.

Accepted Answer

The rise in stock prices would have made people feel wealthier, which would increase their willingness and ability to spend money. This would shift aggregate demand to the right.

Question 7

When taxes increase, consumption
A)decreases as shown by a movement to the left along a given aggregate-demand curve.
B)decreases as shown by a shift of the aggregate demand curve to the left.
C)increases as shown by a movement to the right along a given aggregate-demand curve.
D)increases as shown by a shift of the aggregate demand curve to the right.

Accepted Answer

The answer of When taxes increase, consumption
A)decreases as shown by...

Question 8

Which of the following effects provide incentives for consumers to spend less when the price level rises?
A)the wealth effect and the interest-rate effect
B)the wealth effect but not the interest-rate effect
C)the interest-rate effect but not the wealth effect
D)neither the wealth-effect nor the interest rate effect

Accepted Answer

Both the wealth effect and the interest-rate effect provide incentives for consumers to spend less when the price level rises. The wealth effect occurs due to the decrease in the real value of wealth as prices rise, causing individuals to have less purchasing power and spend less. The interest-rate effect occurs when the central bank raises interest rates to combat inflation, which leads to higher borrowing costs for consumers and reduces their ability or willingness to spend. Hence, both effects together will provide incentives for consumers to spend less when the price level rises.

Question 9

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level
A)decreases the real value of money.
B)increases the real value of the dollar in foreign exchange markets.
C)decreases the interest rate.
D)All of the above are correct.

Accepted Answer

The answer of Part of the explanation for why the...

Question 10

Other things the same, an increase in the amount of capital firms wish to purchase would initially shift
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.

Accepted Answer

An increase in the amount of capital firms wish to purchase would increase investment, which is a component of aggregate demand. Therefore, this would shift the aggregate demand curve to the right.

Question 11

An increase in the interest rate causes investment to
A)rise and the exchange rate to appreciate.
B)fall and the exchange rate to depreciate.
C)rise and the exchange rate to depreciate.
D)fall and the exchange rate to appreciate.

Accepted Answer

The answer of An increase in the interest rate causes...

Question 12

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire
A)increased consumption, which shifts the aggregate-demand curve right.
B)increased consumption, which shifts the aggregate-demand curve left.
C)decreased consumption, which shifts the aggregate-demand curve right.
D)decreased consumption, which shifts the aggregate-demand curve left.

Accepted Answer

An increase in wealth would cause people to feel more confident and willing to spend money, leading to increased consumption. This would shift the aggregate-demand curve to the right as there is now a higher demand for goods and services.

Question 13

When taxes decrease, consumption
A)decreases as shown by a movement to the left along a given aggregate-demand curve.
B)decreases as shown by a shift of the aggregate demand curve to the left.
C)increases as shown by a movement to the right along a given aggregate-demand curve.
D)increases as shown by a shift of the aggregate demand curve to the right.

Accepted Answer

When taxes decrease, consumers have more disposable income. This leads to an increase in consumption, which causes aggregate demand to shift to the right. Therefore, the correct answer is D, an increase in consumption as shown by a shift of the aggregate demand curve to the right.

Question 14

Which of the following does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases?
A)consumer wealth rises
B)borrowing rises
C)each dollar is worth more domestic goods
D)the dollar appreciates relative to other currencies

Accepted Answer

Option D, "the dollar appreciates relative to other currencies," does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases. The other options (consumer wealth rising, borrowing rising, and each dollar being worth more domestic goods) all provide reasons why aggregate goods demand increases as the price level decreases.

Question 15

An increase in household saving causes consumption to
A)rise and aggregate demand to increase.
B)rise and aggregate demand to decrease.
C)fall and aggregate demand to increase.
D)fall and aggregate demand to decrease.

Accepted Answer

An increase in household saving means that households are spending less money on consumption. This leads to a decrease in consumption and, as a result, a decrease in aggregate demand, since consumption is a major component of aggregate demand.

Question 16

Other things the same, a decrease in the price level causes real wealth to
A)fall, interest rates to fall, and the dollar to appreciate.
B)fall, interest rates to rise, and the dollar to depreciate.
C)rise, interest rates to rise, and the dollar to appreciate.
D)rise, interest rates to fall, and the dollar to depreciate.

Accepted Answer

The answer of Other things the same, a decrease in...

Question 17

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.

Accepted Answer

An increase in house prices would likely make people feel wealthier and more confident in their purchasing power, leading to an increase in consumer spending. This would shift aggregate demand to the right.

Question 18

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
A)real wealth rises.
B)the interest rate rises.
C)the dollar appreciates.
D)All of the above are correct.

Accepted Answer

As real wealth increases, consumers are able to purchase more goods and services, leading to an increase in aggregate demand. A rise in interest rates typically leads to a decrease in spending as borrowing becomes more expensive, so B is incorrect. A stronger dollar makes imports cheaper, which can lead to a decrease in demand for domestically produced goods, so C is incorrect. Therefore, only A is correct.

Question 19

Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to
A)decrease consumption, shown as a movement to the left along a given aggregate-demand curve.
B)increase consumption, shown as a movement to the right along a given aggregate-demand curve.
C)decrease consumption, shown by shifting the aggregate-demand curve to the left.
D)increase consumption, shown by shifting the aggregate-demand curve to the right.

Accepted Answer

The answer of Suppose a fall in stock prices makes...

Question 20

Which of the following both shift aggregate demand left?
A)a decrease in taxes and at a given price level consumers feel more wealthy
B)a decrease in taxes and at a given price level consumers feel less wealthy
C)an increase in taxes and at a given price level consumers feel more wealthy
D)an increase in taxes and at a given price level consumers feel less wealthy

Accepted Answer

An increase in taxes would reduce the disposable income of consumers, leading to a decrease in consumption expenditure and a shift of the aggregate demand curve leftwards. Also, if consumers feel less wealthy, they are likely to save more, leading to a decrease in consumption expenditure and a shift of the aggregate demand curve leftwards as well.

Quiz 33: Aggregate Demand and Aggregate Supply

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift

Other things the same, the aggregate quantity of goods demanded decreases if

Which of the following will both make people buy more?

Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift

From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made people feel less wealthy, then it would have shifted

From 1995 to 1999 there was a dramatic rise in stock prices. If this rise made people feel wealthier, then it would have shifted

When taxes increase, consumption

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level

Other things the same, an increase in the amount of capital firms wish to purchase would initially shift

An increase in the interest rate causes investment to

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

When taxes decrease, consumption

Which of the following does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases?

An increase in household saving causes consumption to

Other things the same, a decrease in the price level causes real wealth to

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if

Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to

Which of the following both shift aggregate demand left?