The real balance effect (wealth effect), the interest rate effect, and the net exports effect all help to explain the:
a. decrease in supply in the loanable funds market.
b. large federal budget deficit.
c. increase in short-run aggregate supply.
d. downward-sloping aggregate demand curve.
QUESTION 2Which of the following is a shortcoming of GDP?
a. GDP excludes changes in inventories.
b. GDP includes an estimate of illegal transactions.
c. GDP excludes nonmarket transactions.
d. GDP excludes business investment spending.
QUESTION 3Which of the following is true, other things equal?
a. A reduction in prices will increase the real wealth of those holding a fixed quantity of money.
b. A reduction in prices will lead to a decline in net exports.
c. A reduction in prices will increase the scarcity of money, raise the real interest rate, and, thereby, encourage investment and consumption.
d. A reduction in prices will increase profit margins and, thereby, stimulate additional investment.
QUESTION 4Which of the following is a shortcoming of GDP?
a. GDP measures used goods and services.
b. GDP includes changes in inventories.
c. GDP includes the value of net exports.
d. GDP does not make an allowance for leisure time.
QUESTION 5Which of the following helps explain why real GDP is inversely related to the price level within the framework of the AD-AS model?
a. As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services.
b. As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the quantity of goods and services purchased.
c. As prices fall, the government will have to reduce taxes, which will lead to an increase in the quantity of goods and services purchased.
d. As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services.
QUESTION 6Which of the following is a shortcoming of GDP?
a. GDP measures nonmarket transactions.
b. GDP includes an estimate of illegal transactions.
c. GDP includes an estimate of the value of household services.
d. None of these are true.
QUESTION 7Which of the following reasons helps explain why the aggregate demand curve is downward sloping?
a. The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power.
b. The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more.
c. The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services.
d. None of the above.
Quick Reply
