Module 17 Practice Set 1

Multiple Choice
Identify the choice that best completes the statement or answers the question.
____

1. The modern tools of macroeconomic policy are:

A. tax policy and antitrust policy.
B. fiscal policy and monetary policy.
C. monetary policy and exchange rate policy.
D. capital policy and labor policy.
E. fiscal policy and trade policy.

____

2. If macroeconomic policy has been successful over a period of time, it is likely that the economy has not seen:
A. any inflation.
B. severe recessions.
C. any unemployment.
D. a business cycle.
E. a budget deficit.
Figure 17-1: Aggregate Demand

____

3. Use the Aggregate Demand Figure 17-1. Using the accompanying figure, the quantity of output
demanded if the price level is 120 is:
A. $9 trillion.
B. $10 trillion.
C. $11 trillion.
D. $12 trillion.
E. $13 trillion.

____

4. The relationship between the aggregate price level and the quantity of aggregate output demanded by
households, businesses, the government, and the rest of the world is called:

A.
B.
C.
D.
E.

market demand.
surplus demand.
aggregate demand.
simple demand.
factor demand.

____

5. In general, an increase in the price level, all other things unchanged, causes:
A. an upward movement along the aggregate demand curve.
B. a downward shift of the aggregate demand curve.
C. both a downward movement along the aggregate demand curve and a downward shift in
the curve.
D. no change in the purchasing power of assets.
E. an upward shift of the aggregate demand curve.

____

6. The _____ curve shows the negative relationship between the aggregate price level and the quantity of
aggregate output demanded in the economy.
A. aggregate demand
B. short-run aggregate supply
C. long-run aggregate supply
D. investment demand
E. Phillips curve

____

7. According to the wealth effect, when the price level decreases, the purchasing power of assets:
A. decreases and consumer spending decreases.
B. increases and consumer spending decreases.
C. decreases and consumer spending increases.
D. remains constant and consumer spending is unchanged.
E. increases and consumer spending increases.

____

8. The aggregate demand curve is negatively sloped in part because of the impact of interest rates on:
A. potential output.
B. net exports.
C. consumption and investment.
D. government purchases.
E. productivity.

____

9. The aggregate demand curve:

A. slopes downward for the same reasons that an ordinary demand curve does.
B. slopes downward in part because when the price level falls the real wealth of the public
falls, and this induces people to change their consumption.
C. slopes downward in part because as the price level falls the ability of households and firms
to borrow cheaply increases.
D. slopes upward, unlike an ordinary demand curve.
E. is vertical, unlike an ordinary demand cure.

____ 10. The interest rate effect of an aggregate price level change causes:
A. the long-run aggregate supply curve to be vertical.
B. the aggregate demand curve to be negatively sloped.
C. the short-run aggregate supply curve to be positively sloped.
D. the aggregate demand curve to be positively sloped.
E. the short-run aggregate demand curve to be vertical.
____ 11. An increase in government spending on health care is likely to shift the:

A.
B.
C.
D.
E.

short-run aggregate supply curve to the right.

short-run aggregate supply curve to the left.
long-run aggregate supply curve to the left.
aggregate demand curve to the left.
aggregate demand curve to the right.

Figure 17-2: Shift of the Aggregate Demand Curve

____ 12. Use the Shift of the Aggregate Demand Curve Figure 17-2. An increase in aggregate demand is
illustrated by a movement from:
A. AD1 to AD2.
B. point C to point A.
C. point B to point A.
D. point C to point E.
E. point E to point C.
____ 13. An increase in government spending, all other things unchanged, will cause the aggregate demand curve to:
A. become positively sloped.
B. remain constant.
C. shift to the right.
D. shift to the left.
E. become horizontal.
____ 14. Suppose that consumer assets and wealth decrease in real value. How will this affect the aggregate demand
curve?
A. Aggregate demand shifts to the left.
B. There will be a movement upward along the fixed aggregate demand curve.
C. There will be a movement downward along the fixed aggregate demand curve.
D. Aggregate demand shifts to the right.
E. The aggregate demand curve will become flatter and nearly horizontal.
____ 15. Which of the following has the most direct effect on aggregate demand?
A. Changes in taxes.
B. Changes in interest rates.
C. Changes in the money supply.
D. Changes in government spending.
E. Changes in foreign exchange rates.
____ 16. If the Fed decreases the quantity of money in circulation:

A. interest rates decrease, investment increases, and the aggregate demand curve shifts to the
right.
B. interest rates decrease, investment decreases, and the aggregate demand curve shifts to the
left.
C. interest rates increase, investment decreases, and the aggregate demand curve shifts to the
left.
D. interest rates increase, investment decreases, and the aggregate demand curve shifts to the
right.
E. interest rates decrease, investment decreases, and the aggregate demand curve shifts to the
right.
____ 17. When the aggregate price level rises, this will, other things equal:
A. lead to a rightward shift in the AD curve.
B. lead to a leftward shift in the AD curve.
C. result in a decrease in the quantity of aggregate output demanded.
D. result in an increase in the quantity of aggregate output demanded.
E. result in a decrease in the quantity of aggregate output supplied.
____ 18. The wealth effect explains why:
A. the aggregate demand curve slopes downward since changes in aggregate price levels
change the purchasing power of peoples' assets.
B. the short-run aggregate supply curve slopes upward since an increase in wealth leads to
more consumption.
C. the short-run aggregate supply curve shifts since changes in wealth affect production.
D. the aggregate demand curve slopes upward since wealth allows consumers to purchase
more regardless of the price level.
E. the long-run aggregate supply curve is vertical as there is no relationship between
aggregate price level and aggregate output in the long run.
____ 19. Which of the following will shift the AD curve to the right?
A. an increase in wealth
B. pessimism about the future of the economy
C. a decrease in government spending.
D. a decrease in productivity
E. an increase in commodity prices.
____ 20. Which of the following policies will shift the AD curve to the left?
A. The government increases its level of spending in the economy.
B. The government increases transfer payments to households.
C. The Federal Reserve increases the money supply in the economy.
D. The government decreases its level of taxation in the economy.
E. The government increases its level of taxation in the economy.

Module 17 Practice Set 1

Answer Section
MULTIPLE CHOICE
1. ANS:
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20. ANS:
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B
PTS:
Concept-Based
B
PTS:
Concept-Based
B
PTS:
Concept-Based
C
PTS:
Definitional
A
PTS:
Concept-Based
A
PTS:
Definitional
E
PTS:
Concept-Based
C
PTS:
Concept-Based
C
PTS:
Concept-Based
B
PTS:
Concept-Based
E
PTS:
Concept-Based
A
PTS:
Concept-Based
C
PTS:
Concept-Based
A
PTS:
Concept-Based
D
PTS:
Critical Thinking
C
PTS:
Concept-Based
C
PTS:
Concept-Based
A
PTS:
Concept-Based
A
PTS:
Critical Thinking
E
PTS:
Critical Thinking

DIF: E

REF: Module 17

DIF: M

REF: Module 17

DIF: E

REF: Module 17

DIF: E

REF: Module 17

DIF: M

REF: Module 17

DIF: E

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17

DIF: M

REF: Module 17