SOLVED

15.1Â Â Aggregate Demand 1) The basic aggregate demand and aggregate supply curve model helps explain A) short term fluctuations in real GDP and the price level. B) long term growth. C) price fluctuations in an individual market. D) output fluctuations in an individual market. 2) FedEx plays such a large role in moving packages around the country that there is usually a close relationship between fluctuations in FedEx’s business and fluctuations in GDP. Some economists refer to this relationship as the A) shipping cycle. B) FedEx indicator. C) overnight delivery index. D) package prognostication process. 3) When the economy enters into a recession, your employer is ________ to reduce your wages because ________. A) unlikely; output and input prices generally fall during recession B) unlikely; lower wages reduce productivity and morale C) likely; output prices always fall during recession D) likely; aggregate demand is vertical in the long run 4) The ________ shows the relationship between the price level and quantity of real GDP demanded. A) consumer price index B) aggregate expenditure line C) 45-degree line D) aggregate demand curve 5) Because of the slope of the aggregate demand curve, we can say that A) a decrease in the price level leads to a lower level of real GDP demanded. B) an increase in the price level leads to no change in the level of real GDP demanded. C) a decrease in the price level leads to a higher level of real GDP demanded. D) an increase in the price level leads to a higher level of real GDP demanded. 6) All of the following would be considered a positive addition to household wealth except A) the equity in one’s home B) 500 shares of Google stock C) the balance in your savings account D) a credit card balance 7) Which of the following best describes the “wealth effect”? A) When the price level falls, the real value of household wealth falls. B) When the price level falls, the nominal value of household wealth falls. C) When the price level falls, the nominal value of household wealth rises. D) When the price level falls, the real value of household wealth rises. 8) The “interest rate effect” can be described as an increase in the price level that raises the interest rate and chokes off A) government spending. B) government spending and unplanned investment. C) investment and consumption spending. D) net exports. 9) An increase in the price level results in a(n) ________ in the quantity of real GDP demanded because ________. A) decrease; a higher price level reduces consumption, investment, and net exports. B) increase; a higher price level reduces consumption, investment, and net exports. C) decrease; a higher price level increases consumption, investment, and net exports. D) increase; a higher price level increases consumption, investment, and net exports. 10) When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise. A) imports; exports; net exports B) exports; imports; net exports C) net exports; exports; imports D) net exports; imports; exports 1