Question 1

The real balance effect is one of the

Accepted Answer

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.

Question 2

Business taxes fall.This raises __________,which raises __________ and the __________ curve shifts rightward.

Accepted Answer

A)   consumption; aggregate demand (A
D)  ; AD
B)   investment; government purchases; AD
C)   investment; aggregate demand (A
D)  ; AD
D)   net exports; aggregate demand (A
D)  ; AD
E)   none of the above

Question 3

Which of the following best describes how the international trade effect works?

Accepted Answer

A)   The price level in the U.S.falls relative to foreign price levels,U.S.goods become relatively less expensive than foreign goods,and both Americans and foreigners buy more U.S.goods.
B)   The price level in the U.S.falls relative to foreign price levels,U.S.goods become relatively more expensive than foreign goods,and both Americans and foreigners buy more U.S.goods.
C)   The price level in the U.S.rises relative to foreign price levels,U.S.goods become relatively more expensive than foreign goods,and both Americans and foreigners buy fewer U.S.goods.
D)   The price level in the U.S.rises relative to foreign price levels,U.S.goods become relatively more expensive than foreign goods,and both Americans and foreigners buy more U.S.goods.
E)   a and c

Question 4

The AD curve shows the various amounts of real output that people are willing and able to

Accepted Answer

A)   buy at different income levels.
B)   buy at different price levels.
C)   sell at different profit levels.
D)   sell at different price levels.
E)   none of the above

Question 5

Business optimism about future sales tends to __________ investment expenditures,shifting the AD curve to the __________.

Accepted Answer

A)   increase; left
B)   increase; right
C)   decrease; left
D)   decrease; right

Question 6

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

Accepted Answer

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

Question 7

If the nominal wage is $24 per hour and the price level (as measured by a price index) is 8,it follows that the real wage is _________ per hour.

Accepted Answer

A)   $24.00
B)   $6.00
C)   $3.00
D)   $16.00
E)   $4.00

Question 8

The aggregate demand (AD) curve has shifted to the right.This is a result of

Accepted Answer

A)   total expenditures increasing at a given price level.
B)   total expenditures decreasing at a given price level.
C)   the real balance effect.
D)   the interest rate effect
E)   b and c

Question 9

Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar.In this situation,the dollar has ________________,making Mexican goods __________ expensive for Americans.

Accepted Answer

A)   appreciated; less
B)   appreciated; more
C)   depreciated; less
D)   depreciated; more

Question 10

There is a rise in labor productivity in the economy.As a result,in the short run Real GDP __________ and the price level __________.

Accepted Answer

A)   rises; falls
B)   falls; rises
C)   falls; falls
D)   rises; rises
E)   remains constant; remains constant

Question 11

The product of ____________________ and _________________ is equal to the total amount of spending in an economy.

Accepted Answer

A)   the money supply; the price level
B)   velocity; the price level
C)   the money supply; velocity
D)   velocity; the level of output

Question 12

As the interest rate rises,the cost of a given investment project __________ and businesses invest __________.

Accepted Answer

A)   rises; more
B)   rises; less
C)   falls; more
D)   falls; less

Question 13

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

Accepted Answer

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.

Question 14

An increase in investment caused by a factor other than a change in the price level

Accepted Answer

A)   shifts the AD curve to the right.
B)   shifts the AD curve to the left.
C)   causes an upward movement along the existing AD curve.
D)   causes a downward movement along the existing AD curve.
E)   none of the above

Question 15

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

Accepted Answer

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

Question 16

One reason the AD curve is downward sloping is the __________ effect.

Accepted Answer

A)   wage rate
B)   productivity
C)   interest rate
D)   structural
E)   none of the above

Question 17

If businesses buy fewer capital goods,and nothing else changes,then total expenditures on U.S.goods and services will decrease.And if total expenditures decrease,then __________ will decrease; consequently,the __________ curve will shift __________.

Accepted Answer

A)   aggregate demand (A
D)  ; AD; rightward
B)   short-run aggregate supply (SRAS) ; SRAS; leftward
C)   aggregate demand (A
D)  ; AD; leftward
D)   interest rates; AD; leftward
E)   prices; AD; rightward

Question 18

Which set of changes will definitely shift the aggregate demand (AD) curve to the right?

Accepted Answer

A)   Business taxes decline and foreign real national income rises.
B)   Businesses become pessimistic about future sales and the U.S.dollar depreciates.
C)   Wealth increases and individuals expect higher (future) incomes.
D)   a and b
E)   a and c

Question 19

When wage rates rise the short-run aggregate supply curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 20

When the government lowers income taxes,consumption is ______________,causing a __________ the AD curve.

Accepted Answer

A)   stimulated; rightward shift of
B)   stimulated; movement down along
C)   reduced; leftward shift of
D)   reduced; movement up along

Exam 8: Production and Costs

Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar.In this situation,the dollar has ________________,making Mexican goods __________ expensive for Americans.

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There is a rise in labor productivity in the economy.As a result,in the short run Real GDP __________ and the price level __________.

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As the interest rate rises,the cost of a given investment project __________ and businesses invest __________.

Correct AnswerverifiedShow Answer

The aggregate demand (AD) curve has shifted to the right.This is a result of

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Which of the following best describes how the international trade effect works?

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An increase in investment caused by a factor other than a change in the price level

Correct AnswerverifiedShow Answer

Business optimism about future sales tends to __________ investment expenditures,shifting the AD curve to the __________.

Correct AnswerverifiedShow Answer

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

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When the government lowers income taxes,consumption is ______________,causing a __________ the AD curve.

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The product of ____________________ and _________________ is equal to the total amount of spending in an economy.

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

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One reason the AD curve is downward sloping is the __________ effect.

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The AD curve shows the various amounts of real output that people are willing and able to

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If businesses buy fewer capital goods,and nothing else changes,then total expenditures on U.S.goods and services will decrease.And if total expenditures decrease,then __________ will decrease; consequently,the __________ curve will shift __________.

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

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Which set of changes will definitely shift the aggregate demand (AD) curve to the right?

Correct AnswerverifiedShow Answer

Business taxes fall.This raises __________,which raises __________ and the __________ curve shifts rightward.

Correct AnswerverifiedShow Answer

When wage rates rise the short-run aggregate supply curve shifts to the right.

Correct AnswerverifiedShow Answer

The real balance effect is one of the

Correct AnswerverifiedShow Answer

If the nominal wage is $24 per hour and the price level (as measured by a price index) is 8,it follows that the real wage is _________ per hour.

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Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar.In this situation,the dollar has ______,making Mexican goods expensive for Americans.

Correct Answer
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There is a rise in labor productivity in the economy.As a result,in the short run Real GDP and the price level .

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As the interest rate rises,the cost of a given investment project and businesses invest .

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Business optimism about future sales tends to investment expenditures,shifting the AD curve to the .

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When the government lowers income taxes,consumption is ____,causing a the AD curve.

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The product of ____ and _ is equal to the total amount of spending in an economy.

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If businesses buy fewer capital goods,and nothing else changes,then total expenditures on U.S.goods and services will decrease.And if total expenditures decrease,then will decrease; consequently,the curve will shift __.

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Business taxes fall.This raises ,which raises and the __ curve shifts rightward.

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