Question 1

Part of the story of the interest rate effect is that a lower price level causes __________ in the demand for credit,which then causes the interest rate to __________.
A)a decrease;fall
B)a decrease;rise
C)an increase;fall
D)an increase;rise

Accepted Answer

According to the interest rate effect, a lower price level leads to a decrease in demand for credit as consumers and businesses can afford to pay for purchases without borrowing as much money. With decreased demand for credit, lenders may lower interest rates to entice borrowers, causing interest rates to fall.

Question 2

Which of the following factors can shift the AD curve?
A)net exports
B)government purchases
C)the money supply
D)b and c
E)a,b,and c

Accepted Answer

All three factors, net exports, government purchases, and the money supply can shift the AD curve. 
-A change in net exports will shift the AD curve left or right depending on whether net exports increase or decrease.
-A change in government purchases will shift the AD curve to the right if government purchases increase and to the left if they decrease.
-A change in the money supply will shift the AD curve right if the money supply increases and left if the money supply decreases.

Question 3

Suppose consumption increases at each price level.As a result,aggregate demand __________,and the AD curve shifts __________.
A)increases;leftward
B)decreases;leftward
C)increases;rightward
D)decreases;rightward

Accepted Answer

If consumption increases at each price level, this means that people are willing to buy more goods and services at any given price level, which leads to an increase in aggregate demand. Therefore, the AD curve shifts to the right.

Question 4

The change in the purchasing power of dollar-denominated assets (such as cash holdings)is the
A)money effect.
B)interest rate effect.
C)asset effect.
D)real balance effect.
E)none of the above

Accepted Answer

The change in the purchasing power of dollar-denominated assets, such as cash holdings, is known as the real balance effect. This effect refers to how changes in the price level influence people's real purchasing power, and thus, their demand for money. When prices rise, people need more money to purchase goods and services, which reduces their purchasing power. As a result, they may choose to hold less cash and invest in alternative assets, such as stocks and bonds. This effect is usually associated with Keynesian economics and is used to explain how changes in the money supply can influence real economic activity.

Question 5

If some of a person's wealth is in cash,it follows that
A)this person's monetary wealth will change as the price level changes.
B)this person's monetary wealth will not change as the price level changes.
C)this person is wealthier than a person who holds all his wealth in nonmonetary form.
D)a and c
E)b and c

Accepted Answer

If some of a person's wealth is in cash, then their monetary wealth will change as the price level changes. This is because inflation or deflation will affect the value of the cash holdings, and therefore impact the person's overall monetary wealth. Option B is incorrect as it suggests that the person's wealth will not be impacted by price level changes, which is not true. Option C is also incorrect as it makes a general comparison between two types of wealth, and does not account for the specific circumstances of the individual in question. Option D and E are incorrect as they contain options that are either partially or completely incorrect.

Question 6

One of the reasons why the AD curve slopes downward is that as the
A)price level rises,purchasing power rises.
B)price level falls,purchasing power rises.
C)nation's income level rises,purchasing power rises.
D)nation's income level rises,purchasing power falls.
E)This is a trick question,because the AD curve is upward sloping.

Accepted Answer

As the price level falls, the purchasing power of consumers increases, allowing them to buy more goods and services. This leads to an increase in aggregate demand, causing the AD curve to slope downward.

Question 7

If investment changes because of a change in a factor other than the price level,then the
A)economy moves from one point on an AD curve to another point on the same curve.
B)AD curve shifts.
C)economy moves from one point on a short-run aggregate supply (SRAS)curve to another point on the same curve.
D)SRAS curve shifts.
E)none of the above

Accepted Answer

A change in investment due to a factor other than the price level, such as a change in consumer confidence or government policy, would cause the AD curve to shift, as it represents the relationship between aggregate demand and the price level. The movement from one point on an AD curve to another point on the same curve would only occur if there was a change in the price level. The SRAS curve represents the relationship between the price level and short-run aggregate supply, and a change in investment due to a factor other than the price level would not cause a shift in this curve. Therefore, the best choice is B, as a change in investment due to a factor other than the price level would cause the AD curve to shift.

Question 8

Suppose consumption decreases at each price level.As a result,aggregate demand __________,and the AD curve shifts __________.
A)increases;leftward
B)decreases;leftward
C)increases;rightward
D)decreases;rightward

Accepted Answer

If consumption decreases at each price level, then overall spending in the economy decreases, leading to a decrease in aggregate demand. This results in a leftward shift of the AD curve.

Question 9

An aggregate demand (AD)curve shows the
A)amount of a particular good people are willing and able to buy at a particular price,ceteris paribus.
B)real output (Real GDP)people are willing and able to sell at different price levels,ceteris paribus.
C)real output (Real (GDP)people are willing and able to buy and to sell at different price levels,ceteris paribus.
D)real output (Real GDP)people are willing and able to buy at different price levels,ceteris paribus.

Accepted Answer

An aggregate demand curve shows the level of real output (Real GDP) that people are willing and able to buy at different price levels, assuming all other factors are held constant (ceteris paribus). Therefore, choice D is the correct answer. The other choices are incorrect because they do not accurately describe an aggregate demand curve.

Question 10

The interest rate effect is one of the
A)reasons why an AD curve is downward-sloping.
B)shifters of an AD curve.
C)reasons why a short-run aggregate supply curve can be derived.
D)shifters of a short-run aggregate supply curve.

Accepted Answer

The interest rate effect is one of the three reasons why an AD curve is downward-sloping, along with the wealth effect and the exchange rate effect. This effect suggests that as the price level increases, interest rates will also increase, leading to a decrease in investment spending and a decrease in aggregate demand. As a result, the AD curve slopes downward from left to right.

Question 11

As the price level falls,ceteris paribus,people holding some of their wealth in monetary form become
A)less wealthy and they buy less.
B)more wealthy and they buy more.
C)less wealthy and they buy more.
D)more wealthy and they buy less.

Accepted Answer

When the price level falls, the real value of money increases because each unit of currency can buy more goods and services than before. This makes people holding money wealthier in real terms, and they are likely to increase their consumption as a result.

Question 12

The real balance effect helps to explain "a change in
A)aggregate demand."
B)the quantity demanded of Real GDP."
C)aggregate supply."
D)the quantity supplied of Real GDP."

Accepted Answer

The answer of The real balance effect helps to explain...

Question 13

If consumption changes because of a change in a factor other than the price level,then the
A)economy moves from one point on an AD curve to another point on the same curve.
B)AD curve shifts.
C)economy moves from one point on a short-run aggregate supply (SRAS)curve to another point on the same curve.
D)SRAS curve shifts.
E)none of the above

Accepted Answer

If consumption changes due to a factor other than the price level (such as changes in income or consumer confidence), it would cause a shift in the AD (Aggregate Demand) curve. This is because the AD curve represents the relationship between the price level and the levels of consumption, investment, government spending, and net exports. Any changes in these components, other than the price level, would cause a shift in the AD curve.

Question 14

Which of the following will cause a movement from one point on an AD curve to another point on the same AD curve?
A)a change in consumption
B)a change in government expenditures
C)a change in net exports
D)a change in the price level
E)all of the above

Accepted Answer

Movement along an AD curve occurs due to changes in the price level, which causes a movement along the same curve. Changes in consumption, government expenditures, or net exports would lead to a shift of the entire AD curve, not a movement along it.

Question 15

As the price level falls,
A)the purchasing power of cash holdings rises.
B)the purchasing power of cash holdings falls.
C)the purchasing power of cash holdings remains constant.
D)cash holdings turn into dollar-denominated assets.
E)none of the above

Accepted Answer

As the price level falls, the purchasing power of cash holdings rises because goods and services become relatively cheaper compared to the amount of cash held. This means that one can buy more with the same amount of cash.

Question 16

The real balance effect is one of the
A)reasons why an AD curve is downward-sloping.
B)shifters of an AD curve.
C)reasons why a short-run aggregate supply curve can be derived.
D)shifters of a short-run aggregate supply curve.

Accepted Answer

The real balance effect explains why the aggregate demand (AD) curve is downward sloping. It suggests that as the price level falls, the purchasing power of money increases, leading to higher consumer spending and thus a higher quantity of goods and services demanded.

Question 17

If consumption changes because of a change in the price level,then the
A)economy moves from one point on an AD curve to another point on the same curve.
B)AD curve shifts.
C)economy moves from one point on a SRAS curve to another point on the same curve.
D)SRAS curve shifts.
E)none of the above

Accepted Answer

When consumption changes due to a change in the price level, it affects the aggregate demand (AD) curve. This is because consumption is one of the components of aggregate demand. As a result, the economy moves from one point on the AD curve to another point on the same curve, as each point on the AD curve represents a combination of price level and real output where aggregate demand equals real output. Therefore, option A is the best choice.

Question 18

Aggregate demand curves are
A)downward sloping.
B)upward sloping.
C)horizontal.
D)vertical.

Accepted Answer

Aggregate demand curves are typically downward sloping as the quantity demanded of goods and services increases as the price levels decrease. This is due to the inverse relationship between price levels and real wealth, interest rates, exchange rates, and net exports, which all contribute to the overall level of demand in the economy.

Question 19

The real balance effect describes the change in
A)checking account balances that occur when the money supply increases or decreases.
B)the value of physical assets (e.g. ,houses)that results from a change in the price level.
C)the output producers produce as they attempt to balance their production in response to changes in consumers' demand.
D)the value of cash holdings that results from a change in the price level.
E)the balance of cash holdings that results from a change in the amount of income earned.

Accepted Answer

The real balance effect refers to the change in the value of cash holdings that results from a change in the price level. When prices rise, the value of cash holdings decreases, leading to a decrease in the real purchasing power of money. Conversely, when prices fall, the value of cash holdings increases, leading to an increase in the real purchasing power of money. Therefore, option D is the correct choice.

Question 20

As the price level rises,ceteris paribus,people holding some of their wealth in monetary form become
A)less wealthy and they buy less.
B)more wealthy and they buy more.
C)less wealthy and they buy more.
D)more wealthy and they buy less.

Accepted Answer

As the price level rises, the value of money decreases. Therefore, people holding some of their wealth in monetary form become less wealthy and can afford to buy less.

Quiz 8: Aggregate Demand and Aggregate Supply

Part of the story of the interest rate effect is that a lower price level causes in the demand for credit,which then causes the interest rate to .

Which of the following factors can shift the AD curve?

Suppose consumption increases at each price level.As a result,aggregate demand ,and the AD curve shifts .

The change in the purchasing power of dollar-denominated assets (such as cash holdings) is the

If some of a person's wealth is in cash,it follows that

One of the reasons why the AD curve slopes downward is that as the

If investment changes because of a change in a factor other than the price level,then the

Suppose consumption decreases at each price level.As a result,aggregate demand ,and the AD curve shifts .

An aggregate demand (AD) curve shows the

The interest rate effect is one of the

As the price level falls,ceteris paribus,people holding some of their wealth in monetary form become

The real balance effect helps to explain "a change in

If consumption changes because of a change in a factor other than the price level,then the

Which of the following will cause a movement from one point on an AD curve to another point on the same AD curve?

As the price level falls,

The real balance effect is one of the

If consumption changes because of a change in the price level,then the

Aggregate demand curves are

The real balance effect describes the change in

As the price level rises,ceteris paribus,people holding some of their wealth in monetary form become