ch 10 multiple choice

ch 10 multiple choice - Question 1 The aggregate demand...

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Question 1 1 out of 1 points The aggregate demand curve is the relationship between the Selected Answer: price level and the real domestic output purchased Correct Answer: price level and the real domestic output purchased Feedback: Correct. See p. 188 for the definition, particularly Figure 10.1. Question 2 0 out of 1 points When the price level rises, Selected Answer: holders of financial assets with fixed money values have more purchasing power Correct Answer: the demand for money increases, so interest rates rise
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Feedback: The higher the price level, the more money will be required to buy the same amount of goods. This increases money demand, which then increases interest rates, which represent the price of money. See "Interest Rate Effect" on p. 189. Question 3 0 out of 1 points One explanation for the downward slope of the aggregate demand curve is that a change in the price level results in Selected Answer: a multiplier effect Correct Answer: a foreign purchases effect
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Feedback: The income and substitutio n effects relate to the demand curve for a single product, not aggregate demand. Only the foreign purchases effect is one of the reasons for the downward slope of the AD curve. See p. 188- 189, and the glossary for the definition of the multiplier effect. Question 4 1 out of 1 points A sharp decline in the real value of stock prices, which is independent of a change in the price level, would best be an example of Selected Answer: a change in real value of consumer wealth Correct Answer: a change in real value of consumer wealth
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Feedback: Correct. When real (inflation- adjusted) stock prices fall, this will decrease the value of assets held by consumers . As a result, consumers will spend less. This is known as the "wealth effect" and changes here will cause a shift in the AD curve. See p. 190. The interest rate and foreign purchases effects are reasons for the downward slope of the AD curve (movemen ts along the original curve). Changes in the level of household debt will shift the AD curve, but aren't related to the changes in real asset values. Question 5 1 out of 1 points The aggregate demand curve will be increased by
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Selected Answer: a depreciation in the value of the U.S. dollar Correct Answer: a depreciation in the value of the U.S. dollar
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Feedback: Correct. A depreciatio n of the US dollar means that dollars buy less foreign currency, which makes imported foreign goods more expensive to Americans and exported US goods less expensive to foreigners. As a result, imports fall and exports rise, causing an increase in aggregate demand. See p. 191-192. Changes in the price level do not shift the AD curve, but cause movement s along it. An increase in excess capacity would make businesse s less prone to spend investment funds, so aggregate demand would fall, not rise.
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Question 6 1 out of 1 points The aggregate supply curve is the relationship between the Selected Answer: price level and the real domestic output produced Correct Answer: price level and
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This note was uploaded on 09/10/2009 for the course ECO 2251 taught by Professor Kirkland during the Spring '09 term at Troy.

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ch 10 multiple choice - Question 1 The aggregate demand...

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