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Aggregate demand curves slope downwards for each of the following reasons except:
 
(i) The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods. 
(ii) The wealth effect: As the price level falls, the buying power of people's savings increases and induces them to spend more. 
(iii) The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the demand for money, raising interest rates and reducing investment spending. 
(iv) The foreign price effect: As the price level falls, the USA becomes more attractive to foreigners and domestic residents, increasing net export spending.

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Bunny Greenfelder
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Related questions

14) Globalization refers to

A) the process of establishing a common world currency.

B) the willingness of individuals within a given country to share knowledge.

C) the process of countries becoming more open to foreign trade and investment.

D) the reduction in growth rates of real GDP per capita as a result of trade with foreign

countries.

15) According to a study by economists Raymond Fisman and Edward Miguel, as the level of corruption in a country increases,

A) so does the number of parking violations by the country's United Nations delegates.

B) so does the size of the country's population.

C) the levels of foreign direct investment and foreign portfolio investment decrease.

D) the levels of real GDP per capita and real income per capita increase.

16) Which of the following best describes the "wealth effect"?

A) When the price level falls, the real value of household wealth falls.

B) When the price level falls, the nominal value of household wealth falls.

C) When the price level falls, the nominal value of household wealth rises.

D) When the price level falls, the real value of household wealth rises.

17) The "interest rate effect" can be described as an increase in the price level that raises the interest 17) rate and chokes off

A) government spending.

B) government spending and unplanned investment.

C) investment and consumption spending.

D) net exports.

18) Which of the following is one explanation as to why the aggregate demand curve slopes downward?

A) Decreases in the price level raise the interest rate and increase consumer spending.

B) Decreases in the price level raise the interest rate and increase investment spending.

C) Decreases in the U.S. price level relative to the price level in other country's lower net exports.

D) Decreases in the price level to raise real wealth and increase consumer spending.

19) Higher personal income taxes

A) increase in aggregate demand.

B) increase disposable income.

C) decrease aggregate demand.

D) both B and C

20) If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.

B) This will move the economy down along a stationary aggregate demand curve.

C) This will shift the aggregate demand curve to the left.

D) This will shift the aggregate demand curve to the right.

21) How do lower taxes affect aggregate demand?

A) They increase disposable income, consumption, and aggregate demand.

B) They reduce disposable income, consumption, and aggregate demand.

C) they increase corporate investment and aggregate demand.

D) They increase aggregate supply and thus increase aggregate demand as well.

MACROECONOMICS

1. Which one of the following is not a determinant of aggregate demand?

a. Investment expenditure

b. Technology

c. Consumption expenditure

d. Net exports

2. An improvement in technology will?

a. Decrease aggregate demand

b. Increase aggregate demand

c. Increase aggregate supply

d. Decrease aggregate supply

3. Oil price changes in the mid 80's are an example of?

a. An exiernal supply shock increasing prices and reducing real income

b. An external supply shock decreasing prices and raising real income

c. An external supply shock increasing prices and reducing real in come

d. An external demand shock inceasing prices and reducing real in come

4. The oil shock in 1979-80 was an example of?

a. An external supply shock decreasing prices and increasing real income

b. An external supply shock increasing prices and decreasing real income

c. An external demand shock decreasing prices and real income

d. An external demand shock increasing prices and real income

5. Which one of the following does not cause the aggregate demand curve to slop downward?

a. Changes in relative prices between foreign and domestic goods

b. Wealth effect

c. Changes in real output

d. Changes in interest rate

6.Which one of the following is not determinant of aggregate supply?

a. Productivity

b. Disposal income

c. Capacity and investment plan

d. Cost and availability of resources

7. Which of the following relationship is correct?

a. Equilibrium employment and full employment may not be the same

b. Equilibrium employment and full employment are not related

c. Equilibrium employment and full employment are always the same

d. Equilibrium employment and full employment are never the same

8. Which of the following was not a factor limiting the severity of effects of the oil sopply shock of 1979-80?

a. Increase in use of alternative sources of energy

b. More efficient use of energy

c. Increased supplies of non-OPEC oil

d. More rapid worldwide economic growth

9. Which one of following does not cause the aggregate demand curve to slop downward?

a. Changes in relative prices between foreign and domestic goods

b. Interest rate changes

c. Wealth effect

d. Chnages in real output

10. With aggregate demand shocks?

a. teh aggregte supply curve moves up the aggregate demand curve and increases price and reduces real income

b. the aggregate demand curves moves up the aggregate supply curve and increases prices and real income

c. the aggregate demand curves moves down the aggregate supply curve and increases both prices and real income

d. the aggregate supply curve moves down the aggregate demand curve and reduces prices and increases in real income

a) In the AD-AS model, stagflation does not persist, because the working of the self-correcting mechanism of the economy _____ the level of output and _____ the price level until the economy eventually returns to a long-run equilibrium state, where actual output _____ potential output.
decreases; decreases; falls short of
increases; decreases; equals
decreases; increases; exceeds
decreases; increases; equals
increases; decreases; exceeds
b) The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that
Y* is independent of the price level and that actual output Y > Y* in the long run
Y* equals actual output (Y) in the long run
Y* is independent of the price level and that actual output Y = Y* in the long run
Y* is independent of the price level
Y* is independent of the price level and that actual output Y < Y* in the long run
c) Stagflation arises in the context of the AD-AS model when some external factor causes
the LRAS curve to shift to the right
the AD curve to shift leftwards
the SRAS curve to shift downwards
the SRAS curve to shift upwards
the AD curve to shift rightwards
d) If the SRAS curve is positively sloped, then a decrease in the demand for Canadian-made goods in Europe will lead to _____ in the price level, in the short run.
either an increase or a decrease
no change
an increase
a decrease
an initial increase, and then a decrease
e) Which of the following will shift the aggregate demand curve to the right?
Consumers become pessimistic about the future
A new technology is developed that will increase profits
Income taxes are raised
Foreign economies fall into recession, reducing their demand for domestic exports
The government reduces purchases to balance the budget
f) Suppose a stock market crash decreases the stock of household wealth and therefore causes autonomous consumption to fall. Which of the following is the likely result?
A leftward shift the AD curve
There will be no movement of the AD curve
A movement down the AD curve
A movement up the AD curve
A rightward of the shift the AD curve
g) An economy is characterized by the AD equation P = 200 ? 0.02Y, SRAS equation P = 100 and LRAS equation Y* = 5000. In the absence of any change in policy or exogenous shocks, this economy will achieve a long-run price level of
100
110
120
90
105
h) The AD-AS model depicts a self-correcting economy. This means that the price level in the model adjusts automatically in response to a(n) _____ gap, so as to eliminate the _____ gap in the long run, without requiring any help from government policies.
recessionary; recessionary
recessionary; expansionary
expansionary; expansionary
output; output
expansionary; recessionary
i) The aggregate demand curve shows
the amount of planned aggregate expenditure (and output) at the current price level
the amount of planned aggregate expenditure (and output) at an average price level
the amount of planned aggregate expenditure (and output) at a constant price level
the amount of planned aggregate expenditure (and output) at various price levels
the amount of planned aggregate expenditure (and output) at last year's price level
j) Consider an economy initially at long-run equilibrium with output (Y) equal to potential output (Y*). If the SRAS is positively sloped, then a shift to the right of the AD curve will lead to _____ in the price level, in the short run. In the long run, the SRAS curve will shift to the _____ and the equilibrium will be at __________.
an increase; left; Y = Y*
a decrease; right; Y > Y*
an increase; right; Y = Y*
a decrease; left; Y > Y*
no change; left; Y = Y*

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