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Which statement best describes the effects of an increase in the price level?


A) Dollars are worth more, so people spend more.
B) Dollars are worth more, so people spend less.
C) Dollars are worth less, so people spend more.
D) Dollars are worth less, so people spend less.

E) All of the above
F) A) and B)

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Keynes thought that the behaviour of the economy in the short run was influenced by what he called "animal spirits." By this he meant that businesspeople sometimes felt good about the economy, and carried out lots of investment, and at other times felt bad about the economy, and so cut back on their investment spending. Explain how such fluctuations in investment would lead to fluctuations in GDP and prices.

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Fluctuations in investment cause the agg...

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Increased output and prices in Canada in the early 1940s was mostly the result of increased government expenditures.

A) True
B) False

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Suppose a stock market boom makes people feel wealthier. What are the effects of this increase in wealth?


A) increased consumption, which shifts the aggregate-demand curve right
B) increased consumption, which shifts the aggregate-demand curve left
C) decreased consumption, which shifts the aggregate-demand curve right
D) decreased consumption, which shifts the aggregate-demand curve left

E) A) and C)
F) A) and B)

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When the government spends more, what is the initial effect?


A) Aggregate demand shifts right.
B) Aggregate demand shifts left.
C) Aggregate supply shifts right.
D) Aggregate supply shifts left.

E) All of the above
F) None of the above

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In the mid-1970s the price of oil rose dramatically. What did this event cause?


A) It shifted aggregate supply left.
B) It caused Canadian prices to fall.
C) The aggregate demand increased because of an increase in the demand for gasoline.
D) OPEC to increase oil production

E) All of the above
F) None of the above

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Which of the following shifts the short-run aggregate supply right?


A) an increase in government spending
B) an increase in manufacturing wages
C) a decrease in the price of oil
D) a decrease in immigration from abroad

E) All of the above
F) A) and B)

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Scenario 14-1 The economy is in long-run equilibrium. Suddenly, due to improved international relations, a boom experienced by a major trading partner, and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time. -Refer to the Scenario 14-1. In the long-run, how does the change in price expectations created by optimism change the aggregate demand and aggregate supply diagram?


A) The long-run aggregate-supply curve shifts left.
B) The long-run aggregate-supply curve shifts right.
C) The short-run aggregate-supply curve shifts right.
D) The short-run aggregate-supply curve shifts left.

E) A) and B)
F) A) and C)

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How do changes in the price of oil affect economies?


A) They lead to increased nominal GDP.
B) They do not contribute much to output fluctuations.
C) They change the economy principally by changing aggregate demand.
D) They may create both inflation and recession.

E) B) and C)
F) A) and B)

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The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?

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There are occasional short-lived periods...

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Why does an increase in the price level result in a decrease in the aggregate quantity of goods and services demanded?


A) because as wealth rises, interest rates rise, and the dollar appreciates
B) because as wealth rises, interest rates fall, and the dollar depreciates
C) because as wealth falls, interest rates rise, and the dollar appreciates
D) because as wealth falls, interest rates fall, and the dollar depreciates

E) A) and C)
F) None of the above

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When taxes increase, consumption decreases. How is this situation represented in the aggregate demand and aggregate supply model?


A) by a movement to the left along a given aggregate-demand curve
B) by shifting aggregate demand to the left
C) by shifting aggregate supply to the left
D) by a movement to the right along a given aggregate-demand curve

E) A) and B)
F) B) and C)

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Which of the following shifts the short-run aggregate supply left?


A) an increase in price expectations
B) an increase in the price level
C) an increase in immigration
D) an increase in exports

E) A) and C)
F) All of the above

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What are the effects of an increase in the price level?


A) People hold less money, so they lend less, and the interest rate rises.
B) People hold less money, so they lend more, and the interest rate falls.
C) People hold more money, so they lend more, and the interest rate falls.
D) People hold more money, so they lend less, and the interest rate rises.

E) None of the above
F) B) and C)

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Why is the aggregate demand curve downward sloping?


A) because the more people buy, the fewer additional purchases they need
B) because people buy something else when the price goes up
C) because people feel poorer and buy less when prices go up
D) because the more people wish to consume, the lower the price is

E) None of the above
F) B) and D)

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Figure 14-1 Figure 14-1 -Refer to Figure 14-1. How would an increase in the money supply move the economy in the short and long run? A) from C to B in the short run and the long run B) from C to D in the short run and the long run C) from C to B in the short run and to A in the long run D) from C to D in the short run and back to C in the long run -Refer to Figure 14-1. How would an increase in the money supply move the economy in the short and long run?


A) from C to B in the short run and the long run
B) from C to D in the short run and the long run
C) from C to B in the short run and to A in the long run
D) from C to D in the short run and back to C in the long run

E) A) and D)
F) B) and D)

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In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded decrease?


A) when real wealth increases
B) when the interest rate falls
C) when the dollar depreciates
D) when stock prices fall

E) A) and D)
F) B) and C)

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