Chapter 29 review
Student: ___________________________________________________________________________
1. The aggregate demand curve shows the: 
A) Inverse relationship between the price level and real GDP purchased
B) Direct relationship between the price level and real GDP produced
C) Inverse relationship between interest rates and real GDP produced
D) Direct relationship between real-balances and real GDP purchased
 
2. When the price level decreases: 
A) The demand for money falls and the interest rate falls
B) Holders of financial assets with fixed money values decrease their spending
C) Holders of financial assets with fixed money values have less purchasing power
D) There is a decrease in consumer spending that is sensitive to changes in interest rates
 
3. A decrease in interest rates caused by a change in the price level would cause a(n): 
A) Decrease in aggregate demand
B) Increase in aggregate demand
C) Decrease in the quantity of real domestic output demanded
D) Increase in the quantity of real domestic output demanded
 
4. An increase in personal income tax rates will cause a(n): 
A) Decrease in the quantity of real domestic output demanded
B) Increase in the quantity of real domestic output demanded
C) Decrease in aggregate demand
D) Increase in aggregate demand
 
5. A decrease in expected returns on investment will most likely shift the AD curve to the: 
A) Right because C will increase
B) Left because C will decrease
C) Right because Ig will increase
D) Left because Ig will decrease
 
6. An increase in personal income taxes would shift AD to the: 
A) Right because C will increase
B) Left because C will decrease
C) Right because G will increase
D) Left because G will decrease
 
7. An increase in expected future income will: 
A) Increase aggregate demand and aggregate supply
B) Decrease aggregate demand and aggregate supply
C) Increase aggregate supply
D) Increase aggregate demand
 
8. Which of the following events would most likely reduce aggregate demand? 
A) A reduction in the amount of existing capital stock
B) A reduction in business and personal tax rates
C) An increase in expected returns on investment
D) An increase in real interest rates
 
9. Which of the following would be one of the factors that shift the aggregate demand curve? A change in: 
A) Productivity
B) Prices of imported resources
C) Domestic resource availability
D) Profit expectations on investment projects
 
10. A decrease in government spending will cause a(n): 
A) Increase in the quantity of real domestic output demanded
B) Decrease in the quantity of real domestic output demanded
C) Decrease in aggregate demand
D) Increase in aggregate demand
 
11. If the dollar appreciates in value relative to foreign currencies: 
A) Aggregate demand decreases because C decreases
B) Aggregate demand increases because C increases
C) Aggregate demand decreases because net exports decrease
D) Aggregate demand increases because net exports increase
 
12. If the dollar appreciates relative to foreign currencies, then: 
A) U.S. goods will look cheaper to foreign buyers
B) Foreign goods will look more expensive to U.S. buyers
C) Net exports of the U.S. will increase
D) Foreign buyers will find U.S. goods becoming more expensive
 
13. Which combination of factors would most likely increase aggregate demand? 
A) An increase in household indebtedness and a decrease in net exports
B) An increase in consumer wealth and a decrease in interest rates
C) An increase in personal taxes and a decrease in government spending
D) An increase in business taxes and a decrease in profit expectations

 
14. Refer to the above graph. Which of the following changes will shift AD1 to AD2? 
A) A cut in personal and business taxes
B) An increase in the value of the dollar relative to other currencies
C) A shrinkage in the value of stocks and other financial assets
D) An increase in real interest rates
 
 Answer the question based on the following list of factors that are related to the aggregate demand curve.

 
15. Which of the above factors best explain the downward slope of aggregate demand curve? 
A) 2, 4, and 6
B) 7, 9, and 10
C) 1, 3, and 8
D) 4, 6, and 7
 
16. Changes in which two of the factors in the list above would most likely cause a shift in aggregate demand due to a change in consumer spending? 
A) 1 and 3
B) 2 and 4
C) 5 and 10
D) 8 and 9
 
17. Refer to the above list. Investment spending would most likely be influenced by changes in: 
A) 1 and 3
B) 4 and 6
C) 5 and 10
D) 8 and 9
 
18. Refer to the above list. A change in net export spending would most likely be caused by changes in: 
A) 2 and 3
B) 5 and 6
C) 7 and 8
D) 6 and 9
 
19. An aggregate supply curve represents the relationship between the: 
A) Price level and the buying of real domestic output
B) Price level and the production of real domestic output
C) Real domestic output bought and the real domestic output sold
D) Price level that producers are willing to accept and the price level buyers are willing to pay
 
20. The immediate-short-run aggregate supply curve is: 
A) Vertical
B) Horizontal
C) Upsloping
D) Downsloping
 
21. The short-run aggregate supply curve shows the: 
A) Inverse relationship between the price level and real GDP purchased
B) Inverse relationship between the price level and real GDP produced
C) Direct relationship between the price level and real GDP produced
D) Direct relationship between the price level and real GDP purchased
 
22. The short-run aggregate supply curve: 
A) Becomes flatter at output levels above the full-employment output
B) Becomes steep at output levels above the full-employment output
C) Is upward-sloping with a constant slope
D) Is horizontal
 
23. The long-run aggregate supply curve is: 
A) Upward-sloping and becomes steeper at output levels above the full-employment output
B) Upward-sloping and becomes flatter at output levels above the full-employment output
C) Horizontal
D) Vertical

 
24. Refer to the above graph. The long-run aggregate supply curve would be represented by which line? 
A) 1
B) 2
C) 3
D) 4
 
25. A fall in the prices of inputs will shift the aggregate: 
A) Demand curve leftward
B) Demand curve rightward
C) Supply curve rightward
D) Supply curve leftward
 
26. Which would most likely shift the aggregate supply curve? A change in the prices of: 
A) Domestic products
B) Foreign products
C) Financial assets
D) Resources
 
27. A fall in labor costs will cause aggregate: 
A) Supply to increase
B) Demand to increase
C) Supply to decrease
D) Demand to decrease
 
28. An increase in productivity will: 
A) Increase aggregate demand
B) Increase aggregate supply
C) Increase aggregate supply and aggregate demand
D) Decrease aggregate supply and aggregate demand
 
29. If the price of crude oil decreases, then this event would most likely: 
A) Decrease aggregate supply in the U.S.
B) Increase aggregate supply in the U.S.
C) Increase aggregate demand in the U.S.
D) Decrease aggregate demand in the U.S.

 
30. Refer to the above graph. Which of the following factors will shift AS1 to AS2? 
A) An increase in real interest rates
B) A decrease in business subsidies
C) An increase in input prices
D) A decrease in business taxes
  Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30.
 
31. Refer to the above information. The level of productivity in this economy is: 
A) 20
B) 30
C) 40
D) 50
 
32. Refer to the above information. The per-unit cost of production is: 
A) $0.25
B) $0.50
C) $0.75
D) $2.00
 
33. The intersection of the aggregate demand and aggregate supply curves determines the: 
A) Productivity level in the economy
B) Shape of the aggregate demand curve
C) Per-unit cost of production in the economy
D) Equilibrium level of real domestic output and prices

 34. Refer to the above graph. This economy is at equilibrium: 
A) At point a
B) At point b
C) Price level P2 and output Q2
D) Price level P1 and output Q1
 
35. Refer to the above graph. It depicts an economy in the: 
A) Immediate short run
B) Short run
C) Immediate long run
D) Long run
  It shows the aggregate demand-aggregate supply schedule for a hypothetical economy.

 36. Refer to the above table. The equilibrium price level and quantity of real domestic output will be: 
A) 200 and $5000
B) 200 and $6000
C) 250 and $7000
D) 300 and $8000

 37.  If wages and prices are flexible in both directions, a decrease in aggregate demand in the short run will reduce:v:392012  
A)  Both real output and the price level 
B)  The price level and increase the real domestic output 
C)  The real domestic output and have no effect on the price level 
D)  The price level and have no effect on real domestic output 

 38. Demand-pull inflation is illustrated in the short run aggregate supply-aggregate demand model as a shift of the aggregate: 
A) Supply to the right
B) Supply to the left
C) Demand to the right
D) Demand to the left
    
 39. Refer to the figure above. If the economy is operating at full employment when its aggregate demand curve is AD2, then a further increase in consumption and investment spending will cause: 
A) Cost-push inflation, and the new equilibrium output will be less than Q2
B) Demand-pull inflation, and the new equilibrium output will be less than Q2
C) Demand-pull inflation, and the new equilibrium output will be more than Q2
D) Cost-push inflation, and the new equilibrium output will be more than Q2

 40. A decrease in aggregate supply means: 
A) Both the real domestic output and the price level would decrease
B) The real domestic output would increase and rises in the price level would become smaller
C) The real domestic output would decrease and the price level would rise
D) Both the real domestic output and rises in the price level would become greater
 
41. Cost-push inflation is characterized by a(n): 
A) Increase in aggregate supply and a decrease in aggregate demand
B) Increase in aggregate demand and no change in aggregate supply
C) Decrease in aggregate supply and no change in aggregate demand
D) Decrease in both aggregate supply and aggregate demand

Chapter 29 review Key
 
1. A
 
2. A
 
3. D
 
4. C
 
5. D
 
6. B
 
7. D
 
8. D
 
9. D
 
10. C
 
11. C
 
12. D
 
13. B
 
14. A
 
15. C
 
16. B
 
17. C
 
18. D
 
19. B
 
20. B
 
21. C
	22. B
 
23. D
 
24. D
 
25. C
 
26. D
 
27. A
 
28. B
 
29. B
 
30. D
 
31. C
 
32. C
 
33. D
 
34. C
 
35. B
 
36. B
 
37. A
 
38. C
 
39. C
 
40. C
 
41. C