Economics question

Mana Komai Molle

Assignment 2

1) Which of the following provides a correct definition of aggregate demand?

a) Aggregate demand is the quantity of domestic product that is supplied at each possible income level, ceteris paribus.

b) Aggregate demand is the quantity of domestic product that is demanded at each possible price level.

c) Aggregate demand is the quantity of domestic product that is demanded at each possible price level, ceteris paribus.

d) Aggregate demand is the quantity of domestic product that is demanded by the rest of the world, ceteris paribus.

2) Which of the following provides a correct definition of aggregate supply?

a) Aggregate supply is the quantity of domestic product that is supplied at each possible income level, ceteris paribus.

b) Aggregate supply is the quantity of domestic product that is supplied at each possible price level, ceteris paribus.

c) Aggregate supply is the quantity of domestic product that is supplied at each possible price level.

d) Aggregate supply is the quantity of domestic product that is demanded by the rest of the world, ceteris paribus.

3) Independent consumption

a) Represents a component of consumption that is independent of supply.

b) Decreases when consumer wealth goes down.

c) Decreases when consumer wealth goes up.

d) Decreases when real interest rate goes up.

e) b and d.

4) An increase in the general price level

a) Decreases consumption by decreasing consumer wealth.

b) Decreases net exports.

c) Shifts the expenditure line downward.

d) All of the above.

e) a and b.

5) Theoretically, a lower level of interest rate

a) Encourages consumption.

b) Discourages investment.

c) Lowers the demand side equilibrium GDP.

d) a and c.

e) b and c.

6) Which of the following shifts the investment curve downward?

a) An increase in national income.

b) An increase in the rate of inflation.

c) An increase in capital gains taxes.

d) None of the above.

7) Which of the following statements best represent the definition of the demand side equilibrium GDP?

a) The demand side equilibrium GDP is the level of GDP at which there is no recession.

b) The demand side equilibrium GDP is the level of GDP at which aggregate demand equals the expenditures.

c) The demand side equilibrium GDP is the level of GDP at which firms have no incentive to increase or decrease their total product.

d) c and b.

8) If the GDP of the economy is lower than the equilibrium GDP,

a) Inventories would fall below the desired level and thus firms increase their production.

b) Inventories would be above the desired level and thus firms increase their production.

c) Inventories would fall below the desired level and thus firms decrease their production.

d) Inventories would be above the desired level and thus firms decrease their production.

9) A recessionary gap gets worse when

a) Government reduces its expenditures.

b) Government increases net taxes.

c) Government increases its expenditures.

d) Both a and b.

10) Which of the following cause(s) a decrease in the demand side equilibrium GDP?

1. Inflation.

1. A stronger home currency.

1. An increase in the real interest rate.

1. a and c

1. All of the above.

11) A decrease in the real interest rate.

a) Increases the demand side equilibrium GDP.

b) Decreases the demand side equilibrium GDP.

c) Causes a movement along the aggregate demand.

d) Both b and c.

e) Both a and c.

12) The 45 degree line drawn to find the demand side equilibrium

a) Shows all points at which the aggregate demand is equal to aggregate supply.

b) Shows all points at which the general price level is equal to the total expenditures.

c) Is below the expenditure line if the economy produces the equilibrium GDP.

d) Is above the expenditure line if the economy produces less than the equilibrium GDP.

e) None of the above.

13) A decrease in net taxes

a) Decreases the equilibrium output.

b) Shifts the expenditure line upward.

c) Shifts the aggregate demand to the right.

d) Both b, c.

e) a, and c.

14) Which is more likely to happen as a result of a sudden reduction in aggregate demand?

a) Recession only.

b) Inflation only.

c) The economy will be out of equilibrium.

15) Which of the following is true?

a) Marginal propensity to consume shows the change in consumption as a result of a change in disposable income.

b) Disposable income is roughly national income minus net taxes.

c) Disposable income is either saved or consumed.

d) Both b and c.

e) a, b, and c.

16) Everything else constant, inflation

a) Leads to an increase in a country’s net exports.

b) Increases firms’ inventories below the desired level.

c) Causes a movement along the aggregate demand curve, while shifting the expenditure line downward.

d) a and c.

e) All of the above.

17) Everything else constant, when a country’s money appreciates in value

a) Its net exports tend to decrease.

b) The demand side equilibrium GDP increases.

c) The demand side equilibrium GDP decreases.

d) a and c.

e) a and b.

18) Which of the following are true?

a) Our imports are relatively sensitive to our national income.

b) Our exports fall when our national income rises.

c) When our economy grows slower than the economies of our trading partners our net exports tends to decrease.

d) a and c.

e) b and c.

19) Which of the following is true?

a) The expenditure line shows the relationship between the total product and the general price level.

b) The expenditure line has the same components as the aggregate demand.

c) The expenditure line shows the relationship between the total product and the total spending.

d) None of the above.

e) Both b and c.

20) A recessionary gap is a result of

a) Government deficit.

b) Inadequate aggregate demand.

c) Too much expenditures.

d) Both a and b.

21) Which of the following shifts the investment curve downward?

a) A decrease in disposable income.

b) An increase in the value of our domestic currency.

c) A decrease in the real interest rate.

d) None of the above.

22) Which of the following cause(s) an increase in the demand side equilibrium GDP?

a) A stronger home currency.

b) A weaker home currency.

c) An increase in the real interest rate.

d) a and c

e) b and c.

23) An inflationary gap is a result of

a) Government deficit.

b) Inadequate aggregate demand.

c) Too much expenditures.

d) Both a and b.

24) Everything else constant, inflation

a) Leads to an increase in a country’s exports.

b) Leads to a reduction in a country’s imports.

c) Increases the inventories above the desired level.

d) b and c.

e) none.

25) Which is more likely to happen as a result of a sudden increase in aggregate demand?

a) Recession only.

b) Inflation only.

c) The economy will be out of equilibrium.