ECONOMICS CH. 7

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The aggregate demand curve is the relationship between the:
A.
price level and the purchasing of real domestic output.
B.
price level and the distribution of real domestic output.
C.
real domestic output bought and the real domestic output sold.
D.
price level and the sales of producers.

A. price level and the purchasing of real domestic output.

A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n):
A.
decrease in the price level.
B.
decrease in the level of income.
C.
increase in the level of income.
D.
increase in the price level.

D. increase in the price level.

An expected decline in the prices of consumer goods will:
A.
increase the quantity of real domestic output demanded.
B.
decrease the quantity of real domestic output demanded.
C.
decrease aggregate demand.
D.
increase aggregate demand.

C. decrease aggregate demand.

An expected rise in the rate of inflation for consumer goods will:
A.
increase current aggregate supply.
B.
decrease current aggregate demand.
C.
decrease current aggregate supply.
D.
increase current aggregate demand.

D. increase current aggregate demand.

An increase in aggregate demand would be most likely caused by a decrease in:
A.
the wealth of consumers.
B.
consumer confidence.
C.
expected future prices.
D.
the tax rates on household income.

D. the tax rates on household income.

Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the price level is 200, the quantity of real GDP demanded is:
A.
$800 billion.
B.
$700 billion.
C.
$600 billion.
D.
$500 billion.

C. $600 billion.

A decrease in government spending will cause a(n):
A.
increase in the quantity of real domestic output demanded.
B.
increase in aggregate demand.
C.
decrease in aggregate demand.
D.
decrease in the quantity of real domestic output demanded.

C. decrease in aggregate demand.

If the dollar appreciates in value relative to foreign currencies:
A.
the quantity of real domestic output demanded decreases.
B.
the quantity of real domestic output demanded increases.
C.
aggregate demand increases.
D.
aggregate demand decreases.

D. aggregate demand decreases.

When national income on other nations increases:
A.
the quantity of real domestic output demanded decreases.
B.
aggregate demand decreases.
C.
the quantity of real domestic output demanded increases.
D.
aggregate demand increases.

D. aggregate demand increases.

Which combination of factors would most likely increase aggregate demand?
A.
An increase in business taxes and a decrease in profit expectations.
B.
An increase in household indebtedness and a decrease in foreign demand for products.
C.
An increase in personal taxes and a decrease in government spending.
D.
An increase in consumer wealth and a decrease in interest rates.

D. An increase in consumer wealth and a decrease in interest rates.

An aggregate supply curve shows the:
A.
price level at which real domestic output will be in equilibrium.
B.
level of real domestic output that will be purchased at each possible price level.
C.
level of real domestic output that will be produced at each possible price level.
D.
price level at which real domestic output will be purchased.

C. level of real domestic output that will be produced at each possible price level.

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:
A.
neither input nor output prices are fixed.
B.
input prices are flexible, but output prices are fixed.
C.
both input and output prices are fixed.
D.
input prices are fixed, but output prices are flexible.

C. both input and output prices are fixed.

The immediate-short-run aggregate supply curve is:
A.
upward sloping.
B.
downward sloping.
C.
horizontal.
D.
vertical.

C. horizontal.

The short-run aggregate supply curve shows the:
A.
direct relationship between the price level and real GDP produced.
B.
inverse relationship between the price level and real GDP purchased.
C.
inverse relationship between the price level and real GDP produced.
D.
direct relationship between the price level and real GDP purchased.

A. direct relationship between the price level and real GDP produced.

Refer to the above graph, which factor will shift AS1 to AS2?
A.
A decrease in business taxes.
B.
An increase in real interest rates.
C.
A decrease in business subsidies.
D.
An increase in input prices.

A. A decrease in business taxes.

Suppose that an economy produces 500 units of outputs. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this output. The per-unit cost of production is:
A.
$0.40.
B.
$1.24.
C.
$0.70.
D.
$1.42.

C. $0.70. Per-unit production cost = total input cost/units of output = (1015+450)/500=$0.70.

Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. The per-unit cost of production is:
A.
$0.75.
B.
$0.50.
C.
$0.25.
D.
$2.00.

A. $0.75. Per-unit production cost=Total input cost/units of output = (60*30)/2400=$0.75.

If Congress passed new laws significantly increasing the regulation of business, this action will tend to:
A.
increase per-unit production costs and shift the aggregate demand curve to the left.
B.
increase per-unit production costs and shift the aggregate supply curve to the right.
C.
increase per-unit production costs and shift the aggregate demand curve to the right.
D.
increase per-unit production costs and shift the aggregate supply curve to the left.

D. increase per-unit production costs and shift the aggregate supply curve to the left.

The long-run aggregate supply curve is:
A.
downsloping, and a graph of the short-run aggregate supply is horizontal.
B.
horizontal, and a graph of the short-run aggregate supply is upsloping.
C.
upsloping, and a graph of the short-run aggregate supply is vertical.
CorrectD.
vertical, and a graph of the short-run aggregate supply curve is upsloping.=

D. vertical, and a graph of the short-run aggregate supply curve is upsloping.=

The intersection of the aggregate demand and aggregate supply curves determines the:
A.
shape of the aggregate demand curve.
B.
per-unit cost of production in the economy.
C.
shape of the aggregate supply curve.
D.
equilibrium level of real domestic output and prices.

D. equilibrium level of real domestic output and prices.

Refer to the above diagram, when AD1 shifts to AD2, real output:
A.
stays the same, while the price level rises.
B.
increases from Q1 to Q2, while the price level rises.
C.
increases from Q1 to Q3, while the price level declines.
D.
increases from Q1 to Q2, while the price level stays the same.

B. increases from Q1 to Q2, while the price level rises.

Wage contracts, menu costs, and the minimum wage are explanations for why:
A.
competition results in price wars.
B.
wages tend to be inflexible downward.
C.
there is little support for the existence of a real-balances effect.
D.
the aggregate demand curve slopes downward.

B. wages tend to be inflexible downward.

What is the general relationship between a country’s price level and the quantity of its domestic output (real output) demanded?

The relationship between a country’s price level and the quantity of its domestic output demanded is a inverse relationship. The AD curve shows that whenever the price level drops, at the same time the quantity of GDP increases.

The relationship between a country’s price level and the quantity of its domestic output demanded is a inverse relationship. The AD curve shows that whenever the price level drops, at the same time the quantity of GDP increases.

What assumptions cause the immediate-short-run aggregate supply curve to be horizontal? Why is the long-run aggregate supply curve vertical? Explain the shape of the short-run aggregate supply curve?

The immediate-short-run aggregate supply curve is horizontal because of contractual agreements.
The long-run aggregate supply curve is vertical because the economy’s output is determined by productivity and availability of sources.
The shape of the short-run aggregate supply curve is upsloping

The immediate-short-run aggregate supply curve is horizontal because of contractual agreements. The long-run aggregate supply curve is vertical because the economy’s output is determined by productivity and availability of sources. The shape of the short-run aggregate supply curve is upsloping

Other things equal, what effect will each of the following have on the equilibrium price level?

A. An increase in aggregate supply, with no change in aggregate demand.

B. Equal increases in aggregate demand and short-run aggregate supply.

C. An increase in aggregate demand and a decrease in aggregate supply.

A. Price level will drop and output will increase.
B. Price level will not change, but output raises up
C. Price level increases and the change in real output is unknown.

A. Price level will drop and output will increase. B. Price level will not change, but output raises up C. Price level increases and the change in real output is unknown.

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