Question 1

The aggregate-demand curve shows the
A)quantity of labor and other inputs that firms want to buy at each price level.
B)quantity of labor and other inputs that firms want to buy at each inflation rate.
C)quantity of domestically produced goods and services that households want to buy at each price level.
D)quantity of domestically produced goods and services that households,firms,the government,and customers abroad want to buy at each price level.

Accepted Answer

The aggregate-demand curve shows the quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Question 2

Aggregate demand includes
A)only the quantity of goods and services households want to buy.
B)only the quantity of goods and services households and firms want to buy.
C)only the quantity of goods and services households,firms,and the government want to buy.
D)the quantity of goods and services households,firms,the government,and customer abroad want to buy.

Accepted Answer

Aggregate demand represents the total demand for goods and services in an economy and includes the quantity of goods and services households, firms, the government, and customers abroad want to buy. Therefore, option D is the correct answer.

Question 3

The average price level is measured by
A)the price of oil.
B)the rate of inflation.
C)the nominal interest rate.
D)the GDP deflator or the CPI.

Accepted Answer

The GDP deflator or the CPI are both measures of the overall price level in an economy, and are commonly used as indicators of inflation. The other choices are not direct measures of the price level, but may be indirectly related to it.

Question 4

In order to understand how the economy works in the short run,we need to
A)study the classical model.
B)study a model in which real and nominal variables interact.
C)understand that "money is a veil."
D)understand that money is neutral in the short run.

Accepted Answer

Only studying a model in which real and nominal variables interact allows us to understand how the economy works in the short run. The classical model and the concepts of "money as a veil" and money neutrality are all relevant for the long run analysis of the economy, but they do not capture the dynamics of short-term fluctuations.

Question 5

We depart from the assumptions of classical economics when we focus on the relationship between
A)the quantity of output and the price level.
B)the quantity of output and the unemployment rate.
C)the price level and the inflation rate.
D)inflation and the nominal interest rate.

Accepted Answer

The answer of We depart from the assumptions of classical...

Question 6

Aggregate demand includes
A)the quantity of goods and services the government,households,firms,and customers abroad want to buy.
B)neither the quantity of goods and services the government,households,nor firms want to buy nor the quantity of goods and services customers abroad want to buy.
C)the quantity of goods and service the government wants to buy,but not the quantity of goods and services households,firms,or customers abroad want to buy.
D)the quantity of goods and services households and firms want to buy,but not the quantity of goods and services the government wants to buy.

Accepted Answer

Aggregate demand refers to the total quantity of goods and services that all buyers in an economy, including the government, households, firms, and customers abroad, want to buy at any given price level. Therefore, option A is the correct choice.

Question 7

The model of aggregate demand and aggregate supply explains the relationship between
A)the price and quantity of a particular good.
B)unemployment and output.
C)wages and employment.
D)real GDP and the price level.

Accepted Answer

The model of aggregate demand and aggregate supply explains the relationship between the level of real GDP (output) and the price level, as well as the factors that can cause changes in these variables. It does not directly address the relationship between other macroeconomic variables such as unemployment, wages, and employment, which are instead analyzed using other models or theories.

Question 8

The model of aggregate demand and aggregate supply
A)is different from the model of supply and demand for a particular market,in that we cannot focus on the substitution of resources between markets to explain aggregate relationships.
B)is different from the model of supply and demand for a particular market,in that we have to separate real and nominal variables in the aggregate model.
C)is a straightforward extension of the model of supply and demand for a particular market,in which substitution of resources between markets is highlighted.
D)is a straightforward extension of the model of supply and demand for a particular market,in which the interaction between real and nominal variables is highlighted.

Accepted Answer

The answer of The model of aggregate demand and aggregate...

Question 9

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production.This is inconsistent with monetary neutrality because
A)monetary neutrality would mean that neither prices nor production should have risen.
B)monetary neutrality would mean that production should have risen,but prices should not have.
C)monetary neutrality would mean the prices should have risen,but production should not have changed.
D)monetary neutrality would mean that prices and production should both have fallen.

Accepted Answer

Monetary neutrality suggests that changes in the money supply only affect nominal variables like prices, not real variables like production.

Question 10

Classical economist David Hume observed that as the money supply expanded after gold discoveries
A)prices and output both increased immediately.
B)prices increased immediately while output remained unchanged.
C)it took time for prices to rise;in the meantime output was lower.
D)it took time for prices to rise;in the meantime output was higher.

Accepted Answer

Hume noted that an increase in money supply initially boosts economic activity and output before prices adjust and rise.

Question 11

The aggregate demand and aggregate supply graph has
A)the price level on the horizontal axis.The price level can be measured by the GDP deflator.
B)the price level on the horizontal axis.The price level can be measured by real GDP.
C)the price level on the vertical axis.The price level can be measured by the GDP deflator.
D)the price level on the vertical axis.The price level can be measured by GDP.

Accepted Answer

In the aggregate demand and aggregate supply graph, the price level is on the vertical axis and can be measured by the GDP deflator.

Question 12

The aggregate demand is described graphically as
A)​sloping downward.
B)​a vertical line.
C)​a horizontal line.
D)​sloping upward.

Accepted Answer

Aggregate demand is usually illustrated on a graph as a downward sloping curve, indicating that as prices increase, buyers will demand less of goods and services. Similarly, as prices fall, buyers will demand more.

Question 13

Real and nominal variables are highly intertwined,and changes in the money supply change real GDP.Most economists would agree that this statement accurately describes
A)both the short run and the long run.
B)the short run,but not the long run.
C)the long run,but not the short run.
D)neither the long run nor the short run.

Accepted Answer

In the short run, changes in the money supply can affect real GDP due to price and wage stickiness, but in the long run, real GDP is determined by real factors like technology and resources, not by the money supply.

Question 14

The aggregate demand and aggregate supply graph has
A)quantity of output on the horizontal axis.Output can be measured by the GDP deflator.
B)quantity of output on the horizontal axis.Output can be measured by real GDP.
C)quantity of output on the vertical axis.Output can be measured by the GDP deflator.
D)quantity of output on the vertical axis.Output can be measured by real GDP.

Accepted Answer

The quantity of output is typically measured by real GDP, which adjusts for changes in prices. Therefore, the horizontal axis of the aggregate demand and aggregate supply graph represents real GDP. The vertical axis represents the price level, which can be measured by the GDP deflator.

Question 15

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are
A)the price level and real output.
B)real output and employment.
C)employment and the inflation rate.
D)the value of money and the price level.

Accepted Answer

The vertical axis in the aggregate demand and supply graph represents the price level, while the horizontal axis represents real output. Therefore, the correct answer is A, which indicates that the variables on the vertical and horizontal axes are the price level and real output, respectively. B and C are incorrect because they do not reflect the variables on the aggregate demand and supply graph. D is incorrect because it suggests the use of a different graph altogether.

Question 16

Which of the following would not be included in aggregate demand?
A)an increase in firms' inventories.
B)purchases of goods by households.
C)firms' purchases of newly produced machinery.
D)government's tax collections.

Accepted Answer

Government's tax collections would not be included in aggregate demand because they represent a leakage from the economy, rather than spending on goods and services. Aggregate demand is the total amount of spending on goods and services in an economy, including consumption expenditures by households, investment expenditures by firms, government purchases of goods and services, and net exports (exports minus imports). An increase in firms' inventories would be included in aggregate demand because it represents an increase in investment spending, while purchases of goods by households and newly produced machinery by firms would be included in aggregate demand because they represent consumption and investment spending, respectively.

Question 17

When looking at a graph of aggregate demand,which of the following is correct?
A)There are nominal variables on both the vertical and the horizontal axes.
B)There are real variables on both the vertical and horizontal axes.
C)The variable on the vertical axis is nominal;the variable on the horizontal axis is real
D)The variable on the vertical axis is real;the variable on the horizontal axis is nominal

Accepted Answer

The variable on the vertical axis of the aggregate demand graph is nominal because it represents the total spending in the economy, which includes price levels. The variable on the horizontal axis is real because it represents the total quantity of goods and services demanded in the economy, which is adjusted for changes in price levels. Therefore, choice C is correct.

Question 18

The model of short-run economic fluctuations focuses on
A)the price level and real GDP.
B)productivity and economic growth.
C)the neutrality of money and inflation.
D)None of the above is correct.

Accepted Answer

The model of short-run economic fluctuations, also known as the Keynesian model, focuses on the relationship between the price level and real GDP in the short term. It emphasizes the role of aggregate demand and the importance of government intervention to stabilize the economy during periods of recession or inflation. Productivity and economic growth are more long-term concerns, while the neutrality of money and inflation are more relevant to the classical model of economics.

Quiz 20: Aggregate Demand and Aggregate Supply: Explaining Short-Run Economic Fluctuations

The aggregate-demand curve shows the

Aggregate demand includes

The average price level is measured by

In order to understand how the economy works in the short run,we need to

We depart from the assumptions of classical economics when we focus on the relationship between

Aggregate demand includes

The model of aggregate demand and aggregate supply explains the relationship between

The model of aggregate demand and aggregate supply

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production.This is inconsistent with monetary neutrality because

Classical economist David Hume observed that as the money supply expanded after gold discoveries

The aggregate demand and aggregate supply graph has

The aggregate demand is described graphically as

Real and nominal variables are highly intertwined,and changes in the money supply change real GDP.Most economists would agree that this statement accurately describes

The aggregate demand and aggregate supply graph has

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are

Which of the following would not be included in aggregate demand?

When looking at a graph of aggregate demand,which of the following is correct?

The model of short-run economic fluctuations focuses on