Question 1

Aggregate demand increases when
A) foreign incomes fall.
B) interest rates rise.
C) the exchange rate rises.
D) None of the above answers is correct.

Accepted Answer

Aggregate demand typically increases when there is an increase in consumer spending, government spending, investments, and net exports. Options A, B, and C all describe scenarios that would generally lead to a decrease in aggregate demand. A fall in foreign incomes would decrease demand for domestic exports, rising interest rates would discourage borrowing and investment, and a rising exchange rate would make domestic goods more expensive for foreign buyers, reducing exports.

Question 2

There are several reasons why the aggregate demand curve is downward sloping. Which of the following CORRECTLY describes one of these explanations?
A) A rise in the price level raises the purchasing power wealth and increases desired consumption.
B) A rise in the price level raises interest rates and increases investment spending.
C) A fall in the price level, holding foreign prices and the exchange rate constant, increases net exports.
D) A rise in the price level lowers the interest rate and increases investment spending.

Accepted Answer

A fall in the price level, holding foreign prices and the exchange rate constant, increases net exports.

Question 3

-In the above figure, the economy initially is at point B. Then price level rises by 10. The wealth effect will help
A) move the economy to point A.
B) move the economy to point C.
C) move the economy to point D.
D) keep the economy to point B.

Accepted Answer

The wealth effect refers to the change in consumer spending that results from a change in the value of wealth. When the price level rises, the real value of money decreases, leading to a decrease in consumer spending. This would shift the economy from point B to point C, where the aggregate demand is lower due to reduced purchasing power.

Question 4

Which of the following does NOT shift the aggregate demand curve?
A) a decrease in the quantity of money
B) an increase in people's expected future incomes
C) an increase in the price level
D) an increase in current foreign income

Accepted Answer

An increase in the price level would cause movement along the aggregate demand curve, not a shift of the entire curve. The other options - a decrease in the quantity of money (which would decrease spending), an increase in people's expected future incomes (which would increase spending), and an increase in current foreign income (which would increase net exports) - would all shift the aggregate demand curve.

Question 5

Which of the following changes would NOT shift the aggregate demand curve?
A) a change in fiscal policy
B) a change in monetary policy
C) a change in expectations about future income
D) an increase in technology

Accepted Answer

An increase in technology would shift the aggregate supply curve, not the aggregate demand curve. The other options, A, B, and C, refer to changes in policies or expectations that would affect consumers' overall demand for goods and services, and therefore shift the aggregate demand curve.

Question 6

A change in ________ creates a movement along the aggregate demand curve but does not shift the aggregate demand curve.
A) tax rates
B) the price level
C) fiscal policy
D) None of the above because they all shift the aggregate demand curve.

Accepted Answer

A change in the price level causes movement along the aggregate demand curve, but does not shift it. Changes in tax rates and fiscal policy would shift the aggregate demand curve.

Question 7

The intertemporal substitution effect of the price level on aggregate demand
A) is the same as the real wealth effect.
B) is one reason that the aggregate demand curve has a negative slope.
C) explains why aggregate demand increases when the amount of money increases.
D) is one reason that the aggregate demand curve has a positive slope.

Accepted Answer

The intertemporal substitution effect refers to the tendency of individuals to adjust their consumption and savings decisions in response to changes in the real interest rate, which in turn can be affected by changes in the price level. When the price level increases, this reduces the purchasing power of individuals' savings and therefore encourages them to save less and consume more in the present. This leads to an increase in aggregate demand, which is one reason why the aggregate demand curve has a negative slope.

Question 8

-In the above figure, the economy initially is at point C. Then the domestic price level rises by 10. A
A) substitution effect would help move the economy to point D.
B) substitution effect would help move the economy to point B.
C) substitution effect would keep the economy at point C.
D) wealth effect would help move the economy to point B.

Accepted Answer

The answer of 
-In the above figure, the economy initially...

Question 9

An increase in aggregate demand is shown by a
A) rightward shift of the AD curve.
B) movement upward along the AD curve.
C) movement downward along the AD curve.
D) leftward shift of the AD curve.

Accepted Answer

An increase in aggregate demand is shown by a rightward shift of the AD curve. This indicates that at each price level, there is an increase in the quantity of goods and services demanded in the economy.

Question 10

One reason that the aggregate demand curve has a negative slope is because
A) firms supply more when prices rise.
B) people buy more foreign goods when the domestic price level rises.
C) the amount of money in the economy increases when the price level rises.
D) firms supply less when prices rise.

Accepted Answer

When the domestic price level rises, people tend to buy more foreign goods that are relatively cheaper. This results in a decrease in domestic demand for goods and services, thus causing the aggregate demand curve to slope downwards.

Question 11

-In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help
A) move the economy to point A.
B) move the economy to point C.
C) move the economy to point D.
D) keep the economy to point B.

Accepted Answer

The wealth effect will increase consumption, which will shift the AD curve to the right, moving the economy to point A.

Question 12

One reason that the aggregate demand curve has a negative slope is that when the domestic price level rises,
A) firms produce more goods and services.
B) firms produce fewer goods and services.
C) people substitute toward more imported goods and services.
D) peoples' wealth increases.

Accepted Answer

An increase in domestic price level makes domestic goods become relatively more expensive than foreign goods, causing people to substitute toward more imported goods and services, hence decreasing the demand for domestic goods and services overall.

Question 13

Which of the following does NOT shift the aggregate demand curve?
A) a decrease in the quantity of money
B) an increase in investment
C) an increase in the price level
D) a decrease in taxes

Accepted Answer

An increase in the price level causes a movement along the aggregate demand curve rather than a shift. A decrease in the quantity of money, an increase in investment, and a decrease in taxes would shift the aggregate demand curve to the right.

Question 14

A key issue in the presidential election of 2012 between President Obama and Mr. Romney concerned tax rates. President Obama favored increasing taxes, especially on the rich. As a result of a tax increase
A) the aggregate demand curve shifts leftward.
B) the aggregate demand curve shifts rightward.
C) the aggregate supply curve shifts leftward.
D) the aggregate supply curve shifts rightward.

Accepted Answer

Increasing taxes, especially on the rich, would lead to a decrease in disposable income, reducing consumption and investment. This decrease in consumption and investment would lead to a leftward shift in the aggregate demand curve.

Question 15

Which of the following issues prominent in the presidential election of 2012 shifts the aggregate demand curve rightward?
A) raising taxes on the rich
B) increasing Medicare, Medicaid, and Social Security payments
C) loosening immigration policies
D) allowing more oil drilling on Federal lands

Accepted Answer

Increasing Medicare, Medicaid, and Social Security payments would shift the aggregate demand curve rightward because it increases government spending, thereby increasing overall demand in the economy.

Question 16

According to the intertemporal substitution effect, when the price level increases, the interest rate
A) rises and the quantity of real GDP demanded increases.
B) rises and the quantity of real GDP demanded decreases.
C) falls and the quantity of real GDP demanded decreases.
D) is not affected.

Accepted Answer

The intertemporal substitution effect suggests that when the price level increases, individuals will save more and consume less in the current period, leading to a decrease in the quantity of real GDP demanded. This leads to a reduced demand for loanable funds, causing the interest rate to rise. Therefore, the correct choice is B, where the interest rate increases and the quantity of real GDP demanded decreases.

Question 17

When the prices of U.S.-produced goods rise and the price of foreign-produced goods do not change, the result is
A) an increase in exports.
B) a decrease in exports.
C) a decrease in imports.
D) no change in imports or exports.

Accepted Answer

When the prices of U.S.-produced goods rise and the price of foreign-produced goods do not change, it makes U.S.-produced goods relatively more expensive compared to foreign-produced goods. As a result, the demand for U.S.-produced goods decreases, and people start buying more foreign-produced goods. This leads to a decrease in exports and an increase in imports, causing a trade deficit.

Question 18

When the price level in France increases while the exchange rate and the price level in the United States remain the same, the result is
A) U.S.-made goods become relatively cheaper compared to French-made goods.
B) French citizens are more likely to buy U.S.-made goods.
C) U.S. citizens are less likely to buy French-made goods.
D) All of the above answers are correct.

Accepted Answer

When the price level in France increases, French-made goods become relatively more expensive compared to U.S.-made goods, causing U.S.-made goods to become relatively cheaper. Consequently, French citizens will be more likely to buy U.S.-made goods, while U.S. citizens are less likely to buy French-made goods. Therefore, all of the above answers are correct.

Question 19

According to the intertemporal substitution effect, a higher price level
A) decreases the quantity of real GDP demanded.
B) lowers the costs of building new plants and equipment.
C) increases the quantity of real GDP demanded.
D) makes it less costly for people to buy houses and cars.

Accepted Answer

The intertemporal substitution effect suggests that as the price level increases, individuals will choose to substitute current consumption for future consumption. This means they will reduce the quantity of real GDP demanded, as they will opt to save more and consume less in the present, anticipating that they will be able to consume more in the future when prices are lower.

Question 20

Which of the following would NOT shift the U.S. aggregate demand curve?
A) a change in income in Canada
B) a change in the quantity of capital in the United States
C) an expectation that inflation will be lower in the future
D) U.S. monetary and fiscal policy

Accepted Answer

The answer of Which of the following would NOT shift...

Quiz 10: Aggregate Supply and Aggregate Demand

Aggregate demand increases when

There are several reasons why the aggregate demand curve is downward sloping. Which of the following CORRECTLY describes one of these explanations?

-In the above figure, the economy initially is at point B. Then price level rises by 10. The wealth effect will help

Which of the following does NOT shift the aggregate demand curve?

Which of the following changes would NOT shift the aggregate demand curve?

A change in ________ creates a movement along the aggregate demand curve but does not shift the aggregate demand curve.

The intertemporal substitution effect of the price level on aggregate demand

-In the above figure, the economy initially is at point C. Then the domestic price level rises by 10. A

An increase in aggregate demand is shown by a

One reason that the aggregate demand curve has a negative slope is because

-In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help

One reason that the aggregate demand curve has a negative slope is that when the domestic price level rises,

Which of the following does NOT shift the aggregate demand curve?

A key issue in the presidential election of 2012 between President Obama and Mr. Romney concerned tax rates. President Obama favored increasing taxes, especially on the rich. As a result of a tax increase

Which of the following issues prominent in the presidential election of 2012 shifts the aggregate demand curve rightward?

According to the intertemporal substitution effect, when the price level increases, the interest rate

When the prices of U.S.-produced goods rise and the price of foreign-produced goods do not change, the result is

When the price level in France increases while the exchange rate and the price level in the United States remain the same, the result is

According to the intertemporal substitution effect, a higher price level

Which of the following would NOT shift the U.S. aggregate demand curve?