1. Which of the following would shift the aggregate demand curve to the left?
a. An increase in the interest rate.
b. An increase in the aggregate price level.
c. An increase in consumer wealth.
d. Stronger consumer optimism about future income.
2. The short-run aggregate supply curve is positively sloped because:
a. wages and other costs of production respond immediately to changes in prices.
b. profit is lower when prices increase, so output decreases.
c. workers are willing to work for lower wages rather than be laid off.
d. higher prices lead to higher profit and higher output.
3. The positive relationship between the aggregate price level and aggregate output supplied gives the short-run aggregate supply curve:
a. an upward slope.
b. a vertical slope.
c. a horizontal slope.
d. a downward slope.
4. The aggregate expenditure curve is represented by a line that is:
a. upward sloping.
b. not sloped.
c. vertical.
d. horizontal.
5. Whenever aggregate spending exceeds GDP:
a. unplanned inventory investment is decreasing.
b. unplanned inventory investment is zero.
c. unplanned inventory investment is positive.
d. planned investment spending exceeds consumption.
6. Whenever GDP exceeds planned aggregate spending:
a. firms reduce production, thereby reducing GDP.
b. households increase consumption, thereby increasing disposable income.
c. firms increase production, thereby increasing GDP.
d. households decrease consumption, thereby decreasing disposable income.
7. The marginal propensity to consume is 0.5, aggregate autonomous consumption is $10,000, and aggregate disposable income is $40,000. If disposable income is expected to increase in the future, the aggregate consumption function might take the form of:
a. C = 10,000 + (40,000 × 0.5).
b. C = 12,000 + (40,000 × 0.5).
c. C = 10,000 + (40,000 × 0.7).
d. C = 10,000 + (42,000 × 0.5).
8. An increase in the wealth of households, all other things unchanged, will result in _______ the aggregate consumption function.
a. no effect on
b. an upward shift in
c. a downward shift of
d. a movement to the right along
9. A downward shift in the consumption function can be caused by:
a. expectations of higher future incomes.
b. an increase in the MPC.
c. a decline in consumer wealth.
d. an increase in the wealth of households.
10. If other things are equal, expectations of lower disposable income in the future would ________ and shift the consumption function _________.
a. increase autonomous consumption; up
b. decrease the marginal propensity to consume; down
c. decrease autonomous consumption; down
d. increase the marginal propensity to consume; up