Aggregate Demand and Aggregate Supply 

1. Aggregate Demand increases as the price level decreases because:

A. consumers are more willing to buy a good as its price falls.

B. as price falls, real income increases and consumption increases which increases aggregate demand.

C. as price falls, demand for nominal money balances falls, the interest rate falls which causes investment and aggregate demand to increase.

D. as price falls, demand for nominal money balances increases, the interest rate falls which causes investment and aggregate demand to increase.

2. Which of the following would not cause a decrease in Aggregate Demand?

A. raising the reserve requirement.

B. consumption patterns changing such that autonomous consumption increased.

C. the FED selling government bonds.

D. a decrease in government spending on goods and services.

E. a rise in the discount rate.

3. An increase in net exports would eventually cause all of the following to happen except:

A. increase equilibrium output (assuming aggregate supply is upward sloping.)

B. shift Aggregate Demand to the right.

C. shift the demand for money curve to the right.

D. increase the interest rate.

E. increase the money supply.

4. If Aggregate Demand exceeds Aggregate Supply at a full employment level of output, there will be:

A. unemployment.

B. inflation.

C. a federal budget deficit.

D. stagflation.

5. A technological change that permanently lowered energy costs would cause the:

A. AD curve to shift to the right.

B. AD curve to shift to the left.

C. price level to fall while output grew.

D. AS curve to shift to the right.

E. AS curve to shift to the left.

6. Other things equal, an increase in the money supply will:

A. cause a movement along a given AD curve.

B. shift the AD curve to the right.

C. shift the AD curve to the left.

D. shift the AS curve to the right.

E. cause a movement along a given AS curve.

7. All else equal, a decrease in the supply of labor will result in:

A. decreases in AS which will increase the price level and output.

B. increases in AS which will decrease the price level and output.

C. decreases in AS which will increase the price level and decrease output.

D. decreases in AS which will decrease the price level and output.

E. increases in AS which will decrease the price level and increase output.

8. Consider the following three statements:

I. Most recessions occur when AS grows faster than AD so that there is deflationary pressure in the economy.

II. Stagflation tends to occur when AS decreases.

III. AD is negatively sloped because expansions of government spending crowd out private spending.

A. All three statements are true.

B. All three statements are false.

C. II is true while I and III are false.

D. I is false while II and III are true.

E. III is true while I and II are false.

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