Chapter 21 Self-test questions

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The aggregate demand curve, AD, is negatively sloped because:

At higher price levels net exports increase and consumption rises leading to lower GDP correct incorrect

At higher price levels net exports fall and consumption rises leading to higher GDP. correct incorrect

At higher price levels net exports fall and consumption falls leading to lower GDP correct incorrect

At lower price levels net exports increase and consumption rises leading to lower GDP correct incorrect

At lower price levels net exports fall and consumption falls leading to lower GDP correct incorrect

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Consumption falls when there is an exogenous price level increase because:

Consumers expect prices to fall later correct incorrect

Consumers expect inflation to rise correct incorrect

Consumers are better off owing to higher house prices correct incorrect

Consumers have lower wealth owing to the lower purchasing power of their nominal savings correct incorrect

Consumers' wages will be compensated for the inflation correct incorrect

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The Pigou effect implies that

When the price level suddenly increases, the gains that result from an asset do not fully compensate for the losses. correct incorrect

Inflation is a short term phenomenon correct incorrect

Inflation leads to winners and losers correct incorrect

Due to inflation, borrowers gain and lenders lose. correct incorrect

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In deriving the aggregate demand curve, the points that lie on the left of the curve indicate

the Pigou effect correct incorrect

Points where total desired spending is equal to output correct incorrect

Points where total desired spending is greater than output correct incorrect

Points where total desired spending is lower than output correct incorrect

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A positive demand shock can be caused by the following except

A rise in investment spending correct incorrect

A rise in nominal money supply correct incorrect

A rise in net exports correct incorrect

A fall in the propensity to consume correct incorrect

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One difference between the short run and long run aggregate supply curves is that

Short run curves are associated with aggregate demand curves whilst long run curves are associated with aggregate demand curves correct incorrect

The long run curve is downward sloping but the short run curve is positively sloping correct incorrect

The long run curve is vertical at potential GDP but the short run curve has a positive slope correct incorrect

None of the above correct incorrect

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The point where the aggregate demand and the short run aggregate supply curves intersect is referred to as

Ricardo effect correct incorrect

Macroeconomic equilibrium correct incorrect

Macroeconomic stability correct incorrect

Pigou effect correct incorrect

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One of the following is a necessary condition for macroeconomic equilibrium

Individuals must have a high propensity to consume correct incorrect

Firms must make profits correct incorrect

All output produced must have willing buyers correct incorrect

Demand for money must exceed the supply of money correct incorrect

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During a stagflation,

Only the price level increases but at an exponential rate correct incorrect

Inflation is constant but GDP falls correct incorrect

The price level increases but GDP falls correct incorrect

Inflation falls but the real wealth effect is zero correct incorrect

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A common cause of stagflation in an economy is

Sharp rise in oil prices correct incorrect

Increase in exports correct incorrect

Rise in government expenditure correct incorrect

Negative externalities correct incorrect