Which of the following best explains why the aggregate demand curve is down sloping?

Use the graph to answer the question that follows.

On the accompanying graph, aggregate demand changes from AD to AD′. Which of the following is a likely explanation?

A. An increase in personal income taxes

B. A decrease in the price level increases the value of real wealth or real balances

C. A decrease in government spending on the military

D. An increase in transfer payments to support low-income retirees

E. An increase in the price level raises the real interest rate

Assume country Orta can produce either 100 Y or 200 X, at what "term of trade" would Orta find it profitable to produce and export Y to gain good X?

A. 1 Y trades for .25 X

B. 1 Y trades for .5X

C. 1 Y trades for 1 X

D. 1 Y trades for 1.5 X

E. 1 Y trades for 2.5 X

Which of the following best describes moving along the short-run aggregate supply curve (SRAS)?

A. Moving up the SRAS curve is associated with a higher real wage rate and greater real output.

B. At each point on the SRAS supply curve, there is a different nominal wage rate.

C. The SRAS curve is downward sloping, since a higher price level will attract more firms to produce output.

D. The SRAS curve is upward sloping; a higher price level is needed to get firms to produce more real GDP.

E. Moving up the SRAS, the nominal wage increases, and the rate of unemployment also increases.

Assume that the government has a balanced budget. For political purposes, the government now increases defense spending. Which of the following is likely to happen?

A. Since the economy has been at full employment, the increase in spending will now create inflationary gap.

B. The financing of this additional spending will lower both the nominal interest rate and the real interest rate.

C. Unless the wage rate decreases, this additional spending will generate cyclical unemployment.

D. To fund this spending there will be an increase in the demand for funds, a higher real interest rate, and crowding out of private investment.

E. To fund this spending, the central bank will sell government bonds, reduce the money supply, and reduce real GDP.

Which of the following policies should increase aggregate demand, short-run aggregate supply, and long-run aggregate supply?

A. Reduction in the corporate profits tax

B. Higher transfer payments for retirees

C. Central bank sells government bonds

D. Reduced taxes on low-income households

E. Reduced government spending on infrastructure

Which of the following effects would be associated with a law requiring an annually balanced budget for the central government?

A. There would be no inflation.

B. The money supply could not change.

C. Automatic stabilizers with spending and taxation changes would no longer be effective.

D. The economy would be at full employment with no cyclical unemployment.

E. Any existing government debt would automatically be eliminated.

Which of the following statements about financial assets is true?

A. The basic money supply, M1, includes only demand deposits and time deposits.

B. The basic money supply includes cash issued by the central bank, demand deposits, and time deposits.

C. The most liquid financial assets are cash and government bonds.

D. As nominal interest rates increase, the price of previously issued bonds falls.

E. As interest rates increase, the opportunity cost of holding cash decreases.

Within the money market, if the quantity demanded of money exceeds the quantity supplied of money, which of the following is true?

A. The real interest rate should decrease.

B. The price level in the economy should increase.

C. The nominal interest rate should increase.

D. The money supply will decrease.

E. The monetary authorities will lower all interest rates.

Assume good Z is an inferior good sold in a perfectly competitive market. If the average income of consumers increases and the number of sellers increases, which of the following should occur?

A. The equilibrium price and equilibrium quantity will decrease.

B. The equilibrium price will fall, and the impact on quantity is indeterminate.

C. The equilibrium quantity will decrease, and the impact on price is indeterminate.

D. The equilibrium price will fall, and the equilibrium quantity will increase.

E. The impact on both price and quantity must be indeterminate.

Assume that the economy is always at full employment with a constant velocity of money. If the money supply increases by 5 percent and potential real GDP grows by 2 percent, which of the following is true?

A. The price level should increase by 5 percent.

B. Nominal GDP will increase by 7 percent.

C. The increase in the price level should be 3 percent.

D. Nominal GDP will increase by 3 percent.

E. Real GDP must increase by more than 2 percent.

Which of the following sequences is normal for the business cycle?

A. Trough, expansion, peak, recession

B. Expansion, recession, trough, peak

C. Peak, recession, expansion, trough

D. Recession, peak, expansion, trough

E. Expansion, peak, trough, recession

Use the graph to answer the question that follows.

In the accompanying graph, the short-run equilibrium of the economy changes from E0 to E1. Which of the following fiscal policy initiatives can explain this change?

A. A decrease in government spending

B. The purchase of government bonds by the central bank

C. A reduction in income tax rates

D. A decrease in transfer payments

E. An increase in the national debt

Assume that a commercial bank has demand deposits of $1,000,000 and cash reserves of $150,000. If the required reserve ratio is 10%, which of the following is true?

A. This bank has inadequate reserves, given its demand deposits.

B. This bank must keep demand deposits of at least $150,000.

C. This bank has excess reserves of $100,000.

D. This bank's required reserves equal $100,000.

E. This bank must reduce its demand deposits to comply with the reserve requirement.

Which of the following statements is true concerning the "monetary base"?

A. The monetary base equals the sum of the value of circulating cash and demand deposits.

B. The monetary base represents the estimate of liquidity available for consumers to spend.

C. The monetary base is the sum of the value of currency in circulation and bank reserves.

D. The monetary base in the United States represents the amount of liquidity issued by the Congress.

E. The monetary base plus time deposits equals M2.

Use the graph to answer the question that follows.

On the accompanying graph, the short-run aggregate supply moves from point A to point B. Which of the following could explain this change?

A. A reduction in the price level in the economy

B. A reduction in labor force participation

C. A reduction in the wage rate

D. An increase in the nominal interest rate

E. A higher rate of unemployment

Assume that there is significant cyclical unemployment, in the absence of any government intervention, which of the following should occur in the long run to the wage rate, short-run aggregate supply, and real GDP?

A.

B.

C.

Image transcription text

Wage Rate Short-Run Aggregate Supply Real GDP Decrease Increase Indeterminate...

D.

E.

Which is the most expansionary combination of fiscal policies?

A. Central bank buying government bonds and Congress lowering taxes

B. Increasing government spending and increasing transfer payments

C. Increasing tax and increasing government spending by the same amount

D. Lowering taxes and lowering transfer payments by equal amounts

E. Lowering the required reserve ratio for commercial banks and lowering taxes

Which of the following statements about the natural rate of unemployment is true?

A. The natural rate of unemployment is equal to the rate of cyclical unemployment.

B. When aggregate demand increases and employment increases, the natural rate of unemployment falls.

C. A major component of the natural rate of unemployment are those frictionally unemployed.

D. The natural rate of unemployment captures the unemployment that occurs when the economy is at full employment.

E. The natural rate of unemployment, unlike the actual rate of unemployment, counts discouraged workers as unemployed.

Which of the following statements relating to deficit financing is most accurate?

A. When government outlays (or expenditures) are less than tax revenues, a fiscal deficit is the result.

B. A fiscal surplus tends increases the real interest rate in the loanable funds market.

C. A fiscal deficit funded by borrowing can reduce the availability of funds for the private sector, crowding out private investment.

D. A fiscal deficit increases the demand for government bonds raising the price of bonds, and lowering nominal interest rates.

E. A fiscal surplus tends to reduce the availability of funds available for consumer lending and household mortgages.

Assume that the required reserve ratio is 1/5 (or 20%) and that Bank Z has no excess reserve. If an individual deposits $1,000 cash into her bank account at Bank Z, what is value of each of the following?

Maximum amount of new loans from Bank Z; Maximum amount of new deposits in the system

A. $200; $800

B. $200; $1,000

C. $800; $3,200

D. $800; $5,000

E. $1,000; $5,000

Which of the following is a reason why the aggregate demand curve is downward sloping?

Which of the following best explains the slope of the aggregate demand curve?

Which of the following is a reason why the aggregate demand curve is downward sloping a higher price level decreases savings?

Why is the AD curve downward sloping quizlet?

Which effect best explains the downward slope of the aggregate demand curve quizlet?

Which of the following best describe the aggregate demand curve?