1. The aggregate demand curve A. is upsloping because a higher price level is ne
ID: 1119810 • Letter: 1
Question
1. The aggregate demand curve A. is upsloping because a higher price level is necessary to make production profitable as production costs rise. B. is downsloping because production costs decline as real output increases. C. shows the amount of expenditures required to induce the production of each possible level of real output. D. shows the amount of real output that will be purchased at each possible price level. 2. The aggregate demand curve is: A. vertical under conditions of full employment. B. horizontal when there is considerable unemployment in the economy. C. downsloping because of the interest-rate, real-balances, and foreign purchases effects. D. downsloping because production costs decrease as real output rises 3·The real-balances effect indicates that: A. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B. a lower price level will decrease the real value of many financial assets and therefore reduce spending. C. a higher price level will increase the real value of many financial assets and therefore increase spending. D. a higher price level will decrease the real value of many financial assets and therefore reduce spending. 4The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will: A. shift the aggregate demand curve leftward. B. shift the aggregate supply curve leftward C. decrease U.S. exports and increase U.S. imports. D. increase U.S. exports and decrease U.S. imports.Explanation / Answer
1. D) shows the amount of real output that will be purchased at each possible price level.
AD curve shows different combination of price level and level of output at which goods market and money market are in equilibrium simultaneously.
2. C) downsloping because of the interest rate, real balance, and foreign purchases effects.
3. D) a higher price level will decrease the real value of many financial assets and therefore reduce spending.
4. D) increase U.S. exports and decrease U.S. imports
5. C) determinants of aggregate demand
6. B) explains shifts of the aggregate demand curve.
7. A) a change in the price level.
8. Change in AD = Change in investment x Multiplier
= 10 billion x 1/(1 - 0.8) = 10 billion x 5 = $ 50 billion
C) rightward by $ 50 billion at each price level.
9. D) Multiplier effect
10. Change in AD = 20 billion x 1/(1 - 0.6) = 20 billion x 2.5 = $ 50 billion
D) $ 50 billion
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.