Practice Test 3-Macro-Arnold - MULTIPLE CHOICE 1. Aggregate...

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MULTIPLE CHOICE 1. Aggregate demand curves are a. downward sloping. b. upward sloping. c. horizontal. d. vertical. ANS: A 2. 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 curve is upward sloping. ANS: B 3. If some of a person's wealth is in cash, it follows that a. this person's real wealth will change as the price level changes. b. this person's real 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 ANS: A 4. 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. ANS: D 5. 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 ANS: B
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6. Part of the story of the interest rate effect is that a lower price level causes __________ in money demand, which then causes the interest rate to __________. a. a decrease; fall b. a decrease; rise c. an increase; fall d. an increase; rise ANS: A Go back to your notes, the money demand curve is directly related to the aggregate price level. This means that a lower price level reduces money demand which in turn reduces the price of borrowing money (the interest rate. Note also (not in the question) that this will cause movement along the investment demand curve and a higher level of autonomous investment. 7 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.
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This note was uploaded on 05/27/2011 for the course ECON 201 taught by Professor Mic during the Spring '11 term at Abraham Baldwin Agricultural College.

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Practice Test 3-Macro-Arnold - MULTIPLE CHOICE 1. Aggregate...

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