Module 17 Practice Set 1Multiple 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: ____ 5. no change in the purchasing power of assets. remains constant and consumer spending is unchanged. the purchasing power of assets: A. A. ____ 9. the aggregate demand curve to be positively sloped. factor demand. E. investment demand E. the aggregate demand curve to be negatively sloped. aggregate demand B. market demand. E. aggregate demand. decreases and consumer spending decreases. The interest rate effect of an aggregate price level change causes: A. unlike an ordinary demand curve. ____ 8. the long-run aggregate supply curve to be vertical. slopes upward. D. C. increases and consumer spending decreases. and this induces people to change their consumption. simple demand.A. causes: A. B. B. D. D. B. According to the wealth effect. B. increases and consumer spending increases. slopes downward in part because when the price level falls the real wealth of the public falls. surplus demand. In general. an upward movement along the aggregate demand curve. The aggregate demand curve: A. short-run aggregate supply C. slopes downward for the same reasons that an ordinary demand curve does. when the price level decreases. ____ 11. D. C. government purchases. C. The aggregate demand curve is negatively sloped in part because of the impact of interest rates on: A. ____ 6. unlike an ordinary demand cure. D. consumption and investment. all other things unchanged. An increase in government spending on health care is likely to shift the: . an upward shift of the aggregate demand curve. E. B. slopes downward in part because as the price level falls the ability of households and firms to borrow cheaply increases. is vertical. productivity. a downward shift of the aggregate demand curve. C. potential output. E. an increase in the price level. E. B. long-run aggregate supply D. C. Phillips curve ____ 7. net exports. ____ 10. E. both a downward movement along the aggregate demand curve and a downward shift in the curve. The _____ curve shows the negative relationship between the aggregate price level and the quantity of aggregate output demanded in the economy. D. C. the short-run aggregate supply curve to be positively sloped. the short-run aggregate demand curve to be vertical. decreases and consumer spending increases. The aggregate demand curve will become flatter and nearly horizontal. C. Suppose that consumer assets and wealth decrease in real value. C. Changes in taxes. Changes in government spending. point C to point E. If the Fed decreases the quantity of money in circulation: . ____ 15. long-run aggregate supply curve to the left. E. B. An increase in government spending. aggregate demand curve to the left. D. E. B. How will this affect the aggregate demand curve? A. D. short-run aggregate supply curve to the right. C. D. ____ 16. B. become horizontal. E. shift to the right. Which of the following has the most direct effect on aggregate demand? A. There will be a movement upward along the fixed aggregate demand curve. Aggregate demand shifts to the left. point C to point A. Changes in interest rates. Use the “Shift of the Aggregate Demand Curve” Figure 17-2. Aggregate demand shifts to the right. Changes in the money supply. shift to the left. become positively sloped. AD1 to AD2. ____ 14. point E to point C.A. point B to point A. E. Changes in foreign exchange rates. short-run aggregate supply curve to the left. C. D. An increase in aggregate demand is illustrated by a movement from: A. will cause the aggregate demand curve to: A. remain constant. all other things unchanged. E. C. aggregate demand curve to the right. B. ____ 13. There will be a movement downward along the fixed aggregate demand curve. B. D. Figure 17-2: Shift of the Aggregate Demand Curve ____ 12. the aggregate demand curve slopes downward since changes in aggregate price levels change the purchasing power of peoples' assets. ____ 18. result in a decrease in the quantity of aggregate output demanded. B. and the aggregate demand curve shifts to the right. the short-run aggregate supply curve shifts since changes in wealth affect production. interest rates decrease. and the aggregate demand curve shifts to the right. ____ 17. C. . E. D. and the aggregate demand curve shifts to the right. lead to a leftward shift in the AD curve. The wealth effect explains why: A. ____ 20. interest rates decrease. The government increases its level of taxation in the economy. E. interest rates increase. investment decreases. the aggregate demand curve slopes upward since wealth allows consumers to purchase more regardless of the price level. B. pessimism about the future of the economy C. investment decreases. ____ 19. and the aggregate demand curve shifts to the left. and the aggregate demand curve shifts to the left. result in a decrease in the quantity of aggregate output supplied. result in an increase in the quantity of aggregate output demanded. The government decreases its level of taxation in the economy. Which of the following will shift the AD curve to the right? A.A. other things equal: A. C. B. the short-run aggregate supply curve slopes upward since an increase in wealth leads to more consumption. interest rates decrease. D. B. an increase in wealth B. C. investment decreases. an increase in commodity prices. a decrease in government spending. this will. the long-run aggregate supply curve is vertical as there is no relationship between aggregate price level and aggregate output in the long run. a decrease in productivity E. D. C. E. D. interest rates increase. Which of the following policies will shift the AD curve to the left? A. investment decreases. investment increases. The Federal Reserve increases the money supply in the economy. The government increases transfer payments to households. E. D. lead to a rightward shift in the AD curve. When the aggregate price level rises. The government increases its level of spending in the economy. ANS: SKL: 7. ANS: SKL: 2. ANS: SKL: 9. ANS: SKL: 8. ANS: SKL: 4. ANS: SKL: 10. ANS: SKL: 3. ANS: SKL: 18. ANS: SKL: 11. ANS: SKL: 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 1 DIF: E REF: Module 17 1 DIF: M REF: Module 17 1 DIF: E REF: Module 17 1 DIF: E REF: Module 17 1 DIF: M REF: Module 17 1 DIF: E REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 1 DIF: M REF: Module 17 . ANS: SKL: 5. ANS: SKL: 19. ANS: SKL: 13. ANS: SKL: 15. ANS: SKL: 16. ANS: SKL: 17. ANS: SKL: 14.Module 17 Practice Set 1 Answer Section MULTIPLE CHOICE 1. ANS: SKL: 20. ANS: SKL: 12. ANS: SKL: 6.