HW Chapter 08: Aggregate Demand and Supply

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
A rise in foreign real national income tends to raise U.S. __________, shifting the U.S. AD curve
to the __________.
a. exports; left
b. exports; right
c. imports; left
d. imports; right
A decrease in consumption at a given price level
a. shifts the AD curve to the right.
b. shifts the AD curve to the left.
c. causes an upward movement along the existing AD curve.
d. causes a downward movement along the existing AD curve.
e. none of the above.
Which of the following statements is true?
a. A decrease in wage rates will shift the SRAS curve to the left.
b. An adverse supply shock will shift the SRAS curve to the left.
c. A fall in the prices of nonlabor inputs will shift the SRAS curve to the left.
d. An increase in labor productivity will shift the SRAS curve to the left.
e. c and d
Suppose that C = $700, I = $200, G = $200, NX = $100, and that the money supply is equal to
$400. Based upon these assumptions, velocity is equal to ________________. If consumption
and velocity both rise beyond their initial levels, then it follows that another component of
spending ___________ necessarily fall.
a. 3; must
b. 3; does not
c. 4; must
d. 4; does not
Refer to Exhibit 8-1. Assume that the economy is originally in equilibrium at point B. If
businesses become pessimistic about future sales, at which point is the economy most likely to
end up in the short run?
a. A
b. B
c. C
d. D

An adverse supply shock results in an increase in the price level and an increase in Real GDP.
a. TRUE
b. FALSE
Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If wage rates
rise, at which point is the economy most likely to end up in the short run?
a. A
b. B
c. C
d. D
__________ identifies the level of Real GDP the economy produces when all economywide
adjustments have taken place and there are no misperceptions on the part of workers.
a. Short-run equilibrium
b. Disequilibrium
c. Long-run equilibrium
d. Equilibrium
e. none of the above
As the price level falls, ceteris paribus, people holding some of their wealth in monetary form
become
a. less wealthy and they buy less.
b. more wealthy and they buy more.
c. less wealthy and they buy more.
d. more wealthy and they buy less.
The short-run aggregate supply (SRAS) curve shows the quantity
a. demanded of all goods and services at different price levels, ceteris paribus.
b. supplied of all goods and services at a particular price level, ceteris paribus.
c. supplied of all goods and services at different price levels, ceteris paribus.
d. supplied of GDP at a particular price level, ceteris paribus.
Which set of changes is definitely predicted to lower Real GDP in the short run?
a. The money supply rises and labor productivity rises.
b. The U.S. dollar depreciates and wage rates fall.
c. The U.S. dollar appreciates and labor productivity rises.
d. Foreign real national income falls and wage rates rise.
e. none of the above
If consumption changes because of a change in 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 SRAS curve to another point on the same curve.
d. SRAS curve shifts.
e. none of the above

As the U.S. dollar appreciates and the Japanese yen depreciates,

a. U.S.-produced goods become more expensive for the Japanese and Japanese-produced
goods become cheaper for Americans.
b. U.S.-produced goods become cheaper for the Japanese and Japanese-produced goods
become more expensive for Americans.
c. U.S.-produced goods become cheaper for both the Japanese and Americans.
d. Japanese-produced goods become more expensive for both the Japanese and Americans.
e. none of the above
Suppose the real exchange rate of 10 Mexican pesos to the dollar moves to 9 pesos to the dollar.
The dollar has __________________, making American goods __________ expensive for
Mexicans.
a. appreciated; less
b. appreciated; more
c. depreciated; less
d. depreciated; more
A decrease in the money supply may __________ total expenditures and thus __________
aggregate demand.
a. raise; raise
b. raise; lower
c. lower; raise
d. lower; lower
Only a change in the price level can cause a movement from one point to another point along a
given aggregate demand curve.
a. TRUE
b. FALSE
If consumption increases,
a. the SRAS curve will shift rightward, which will push the price level up.
b. the SRAS curve will shift leftward, which will push the price level up.
c. the AD curve will shift leftward, which will push the price level down.
d. the AD curve will shift rightward, which will push the price level up.
The aggregate demand (AD) curve shifts to the right. This is a result of
a. total expenditures increasing at a given price level.
b. total expenditures decreasing at a given price level.
c. the real balance effect.
d. the interest rate effect
e. b and c
If the nominal wage is $12 per hour and the price level (as measured by a price index) is 2, it
follows that the real wage is _________ per hour.
a. 24

b.
c.
d.
e.

6
2.5
$14.00.
none of the above

Velocity is the average number of times a dollar is spent to buy

a. final goods and services in a year.
b. final and intermediate goods and services in a year.
c. final goods, but not services, in a year.
d. services in a year.
The short-run aggregate supply curve shows the various amounts of real output that producers
are willing to
a. sell at different profit levels.
b. sell at different price levels.
c. buy at different income levels.
d. buy at different price levels.
Refer to Exhibit 8-3. A movement from point B to point A on AD1 would have been the result of
a. a decrease in the price level.
b. an increase in the price level.
c. an increase in foreign real national income.
d. a decrease in foreign real national income.
If wage rates rise at the same time that labor productivity increases, what is the effect on shortrun aggregate supply (SRAS)?
a. SRAS rises.
b. SRAS falls.
c. SRAS remains constant.
d. SRAS may rise, fall, or remain constant.
Some of the factors that can shift the short-run aggregate supply curve can also cause a shift in
the long-run aggregate supply curve.
a. TRUE
b. FALSE
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.

Suppose the following: (1) the wage rate falls, (2) business taxes decline, (3) any change in
SRAS is greater than any change in AD. Based on this information, in the short run Real GDP
will __________ and the price level will __________.
a. rise; rise
b. fall; rise
c. fall; fall
d. rise; fall
e. none of the above
Suppose the real exchange rate of 105 Japanese yen to the dollar moves to 115 yen to the dollar.
The dollar has _________________, making Japanese goods __________ expensive for
Americans.
a. appreciated; less
b. appreciated; more
c. depreciated; less
d. depreciated; more
Which of the following will not lead to a leftward shift in the SRAS curve?
a. an increase in wage rates
b. an increase in the prices of nonlabor inputs
c. an increase in productivity
d. an adverse supply shock
Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If the price of
oil rises, at which point is the economy most likely to end up in the short run?
a. A
b. B
c. C
d. D