Question 1

Aggregate demand shifts right when the Federal Reserve
A)raises personal income taxes.
B)increases the money supply.
C)institutes an investment tax credit.
D)All of the above are correct.

Accepted Answer

When the Federal Reserve increases the money supply, it leads to a decrease in interest rates and an increase in aggregate demand as consumers and businesses have more access to credit and spending power. This is known as expansionary monetary policy. The other options do not lead to an increase in aggregate demand but either decrease it (A) or have no direct impact on it (C).

Question 2

Which of the following shifts aggregate demand to the right?
A)Congress reduces purchases of new weapons systems.
B)The Fed buys bonds in the open market.
C)The price level falls.
D)Net exports fall.

Accepted Answer

When the Fed buys bonds in the open market, it increases the money supply and lowers interest rates, which stimulates spending and investment, thus shifting aggregate demand to the right. The other options will shift aggregate demand to the left, as decreased spending on weapons by Congress, falling prices, and falling net exports all cause less demand for goods and services.

Question 3

Other things the same, when the government spends more, the initial effect is that
A)aggregate demand shifts right.
B)aggregate demand shifts left.
C)aggregate supply shifts right.
D)aggregate supply shifts left.

Accepted Answer

When the government spends more, it increases demand in the economy, which causes aggregate demand to shift to the right. This is because government spending increases the amount of money in the economy, which in turn increases consumption and investment spending by private individuals and firms. As a result, production and employment increase, leading to economic growth.

Question 4

Which of the following shifts aggregate demand to the right?
A)a decrease in the money supply
B)increases in the profitability of capital due perhaps to technological progress.
C)the repeal of an investment tax credit
D)a decrease in the price level

Accepted Answer

Increases in profitability of capital due to technological progress will lead firms to invest more, which will increase consumption of goods and services, shifting the aggregate demand curve to the right. The other options will shift aggregate demand to the left.

Question 5

Which of the following would both shift aggregate demand right?
A)the price level decreases and government expenditures increase.
B)the price level decreases and the government repeals an investment tax credit.
C)taxes decrease and government expenditures increase.
D)None of the above are correct.

Accepted Answer

When taxes decrease, people have more disposable income to spend and therefore consumption increases. This shift in consumption leads to an increase in aggregate demand. Additionally, when government expenditures increase, there is an increase in spending in the economy which also leads to a rightward shift in aggregate demand.

Question 6

When the money supply increases
A)interest rates fall and so aggregate demand shifts right.
B)interest rates fall and so aggregate demand shifts left.
C)interest rates rise and so aggregate demand shifts right.
D)interest rates rise and so aggregate demand shifts left.

Accepted Answer

An increase in the money supply leads to a decrease in interest rates. Lower interest rates stimulate borrowing and spending, which increases aggregate demand. Therefore, the aggregate demand curve shifts to the right.

Question 7

The Central Bank of Wiknam increases the money supply at the same time the Parliament of Wiknam passes a new investment tax credit. Which of these policies shift aggregate demand to the right?
A)both the money supply increase and the investment tax credit
B)the money supply increase but not the investment tax credit
C)the investment tax credit but not the money supply increase
D)neither the investment tax credit nor the money supply increase

Accepted Answer

Both the increase in money supply and the investment tax credit would increase the amount of money available to spend on goods and services, leading to an increase in aggregate demand.

Question 8

An increase in the money supply
A)and an investment tax credit both cause aggregate demand to shift right.
B)and an investment tax credit both cause aggregate demand to shift left.
C)causes aggregate demand to shift right, while an investment tax credit causes aggregate demand to shift left.
D)causes aggregate demand to shift left, while an investment tax credit causes aggregate demand to shift right.

Accepted Answer

Increasing the money supply increases the amount of money available for spending and investment, which leads to an increase in aggregate demand. An investment tax credit also encourages investment and can lead to an increase in aggregate demand. Therefore, both policies cause aggregate demand to shift right.

Question 9

Which of the following would cause investment spending to decrease and aggregate demand to shift left?
A)a decrease in the money supply and an investment tax credit.
B)the repeal of an investment tax credit and an increase in the money supply.
C)a decrease in the money supply and the repeal of an investment tax credit.
D)an investment tax credit and an increase in the money supply.

Accepted Answer

A decrease in the money supply would increase the cost of borrowing and decrease the availability of funds for investment spending, causing investment spending to decrease. The repeal of an investment tax credit would also decrease the incentive for businesses to invest, further decreasing investment spending. Both of these factors would cause aggregate demand to shift left. The other choices have at least one factor that would cause investment spending to increase, which would not result in a leftward shift in aggregate demand.

Question 10

When the Fed buys bonds
A)the supply of money increases and so aggregate demand shifts right.
B)the supply of money decreases and so aggregate demand shifts left.
C)the supply of money decreases and so aggregate demand shifts right.
D)the supply of money increases and so aggregate demand shifts left.

Accepted Answer

When the Fed buys bonds, it increases the money supply by paying for the bonds with newly created money. This leads to an increase in the supply of money, which shifts aggregate demand to the right because people and businesses now have more money to spend.

Question 11

The initial impact of an increase in an investment tax credit is to shift
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.

Accepted Answer

An increase in the investment tax credit would create a tax incentive for businesses to invest in capital goods. This increase in investment spending will shift the aggregate demand curve to the right, as firms increase their demand for resources such as labor to produce the capital goods. The increase in investment will also lead to an increase in potential output in the long-run, shifting the long-run aggregate supply curve to the right, but the initial impact would be on the aggregate demand curve.

Question 12

The initial impact of the repeal of an investment tax credit is to shift
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.

Accepted Answer

The repeal of an investment tax credit would lead to an increase in the cost of investment for firms, leading to a decrease in planned investment and a shift in aggregate demand curve to the left. This is because firms would have less incentive to invest, resulting in lower capital accumulation, and lower output and employment levels in the economy.

Question 13

When the money supply decreases
A)interest rates fall and so aggregate demand shifts right.
B)interest rates fall and so aggregate demand shifts left.
C)interest rates rise and so aggregate demand shifts right.
D)interest rates rise and so aggregate demand shifts left.

Accepted Answer

When the money supply decreases, there is less money available in the economy for lending and borrowing, and this increases the cost of borrowing money, which means that interest rates rise. When interest rates rise, borrowing becomes more expensive, and consumers and businesses tend to borrow less and save more. This causes a decrease in consumer spending and investment, which shifts the aggregate demand curve leftward.

Question 14

Aggregate demand shifts right when the government
A)decreases taxes.
B)cuts military expenditures.
C)repeals an investment tax credit.
D)None of the above is correct.

Accepted Answer

When the government decreases taxes, consumers have more disposable income, which leads to an increase in consumption spending, and hence AD shifts to the right.

Question 15

In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right?
A)only the increased funding for states
B)only the tax cuts
C)both the increased funding for states and the tax cuts
D)neither the increased funding for states nor the tax cuts

Accepted Answer

Both the increased funding for states and the tax cuts would shift aggregate demand right. Increased funding for states would increase spending on infrastructure, which would stimulate economic activity and increase demand. Tax cuts would also increase disposable income and incentivize spending, leading to an increase in aggregate demand.

Question 16

Which of the following shifts aggregate demand to the left?
A)The price level rises.
B)Interest rates fall.
C)The dollar depreciates for some reason other than a change in the price level.
D)Stock prices fall for some reason other than a change in the price level.

Accepted Answer

The answer of Which of the following shifts aggregate demand...

Question 17

Tax cuts shift aggregate demand
A)right as do increases in government spending.
B)right while increases in government spending shift aggregate demand left.
C)left as do increases in government spending.
D)left while increases in government spending shift aggregate demand right.

Accepted Answer

Tax cuts increase disposable income, which leads to a higher level of consumption spending, thereby shifting the aggregate demand curve to the right. On the other hand, increases in government spending can also shift the aggregate demand curve to the right, as they increase total government expenditure and can lead to higher levels of demand for goods and services.

Question 18

Which of the following shifts aggregate demand to the right?
A)the Federal Reserve buys bonds.
B)a decrease in net exports due to something other than a change in domestic prices.
C)an increase in household saving.
D)All of the above are correct.

Accepted Answer

The answer of Which of the following shifts aggregate demand...

Question 19

Which of the following shifts aggregate demand to the right?
A)both an investment tax credit and a decrease in income tax rates
B)an investment tax credit but not a decrease in income tax rates
C)a decrease in income tax rates but not an investment tax credit
D)neither an investment tax credit nor a decrease in income tax rates

Accepted Answer

Both an investment tax credit and a decrease in income tax rates would increase disposable income for firms and households, leading to increased consumption and investment spending, thus shifting aggregate demand to the right.

Question 20

Which of the following shifts aggregate demand to the left?
A)an increase in the price level.
B)households decide to save a larger fraction of their income.
C)an increase in net exports.
D)Congress passes a new investment tax credit.

Accepted Answer

When households decide to save a larger fraction of their income, it means they are consuming less. This decrease in consumption leads to a decrease in aggregate demand, shifting it to the left.

Note: A is incorrect because an increase in the price level leads to a movement along the aggregate demand curve, not a shift. C is incorrect because an increase in net exports would shift aggregate demand to the right. D is incorrect because a new investment tax credit would likely lead to an increase in investment and shift aggregate demand to the right.

Quiz 33: Aggregate Demand and Aggregate Supply

Aggregate demand shifts right when the Federal Reserve

Which of the following shifts aggregate demand to the right?

Other things the same, when the government spends more, the initial effect is that

Which of the following shifts aggregate demand to the right?

Which of the following would both shift aggregate demand right?

When the money supply increases

The Central Bank of Wiknam increases the money supply at the same time the Parliament of Wiknam passes a new investment tax credit. Which of these policies shift aggregate demand to the right?

An increase in the money supply

Which of the following would cause investment spending to decrease and aggregate demand to shift left?

When the Fed buys bonds

The initial impact of an increase in an investment tax credit is to shift

The initial impact of the repeal of an investment tax credit is to shift

When the money supply decreases

Aggregate demand shifts right when the government

In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right?

Which of the following shifts aggregate demand to the left?

Tax cuts shift aggregate demand

Which of the following shifts aggregate demand to the right?

Which of the following shifts aggregate demand to the right?

Which of the following shifts aggregate demand to the left?