Part 07_Agg. Demand & Agg. Supply - Copy (2)

Part 07_Agg. Demand & Agg. Supply - Copy (2) -...

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Aggregate Demand Aggregate Supply True or False: 1) The aggregate demand-aggregate supply model is a fixed-price-level model. 2) An increase in net exports reduces aggregate demand. 3) An increase in interest rates will increase aggregate demand. 4) The higher the price level, the lower the aggregate expenditure schedule. 5) In the horizontal range of the aggregate supply curve, per unit production costs rise and firms must receive higher product prices for them to be profitable. 6) A change in business taxes and regulation can affect input prices and aggregate supply. 7) A rightward shift of the aggregate demand curve in the horizontal range of the aggregate supply curve will increase real domestic output and the price level. 8) When there is an increase in aggregate demand in the vertical range of the aggregate supply curve, there will be an increase in the price level but not in the level of output or employment. 9) If the prices of imported resources increase, then aggregate supply will fall. 10) The size of the shift in the aggregate demand curve is equal to the change in initial spending times the multiplier. Multiple Choice: (1) The aggregate demand curve shows the: A) inverse relationship between the price level and real GDP purchased. B) direct relationship between the price level and real GDP produced. C) inverse relationship between interest rates and real GDP produced. D) direct relationship between real-balances and real GDP purchased.
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(2) Which effect best explains the downward slope of the aggregate demand curve? A) a multiplier effect B) an income effect C) a substitution effect. D) an interest rate effect (3) Other things being equal, the higher the price level, the lower the level of domestic output purchased. This occurs because of: A) household indebtedness. B) the real-balances effect. C) a change in business taxes. D) consumer spending on capital goods. (4) The downward slope of the aggregate demand curve is best explained by the: A) interest rate, real-balances, and foreign purchases effects B) rate of inflation and the natural rate of unemployment C) policies to stabilize prices and reduce unemployment D) household indebtness, business taxes, and exchange rates. (5) An increase in personal income tax rates will cause a(n): A) decrease in the quantity of real domestic output demanded. B) increase in the quantity of real domestic output demanded. C) decrease in aggregate demand. D) increase in aggregate demand. (6)
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This note was uploaded on 10/23/2011 for the course ECON 201 taught by Professor Staff during the Spring '08 term at Northern Virginia Community College.

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Part 07_Agg. Demand & Agg. Supply - Copy (2) -...

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