Multiple Choice Questions:

1. As the price level increases, other things being equal,

a. Aggregate demand decreases.

b. The quantity of real gross domestic product demanded increases.

c. The quantity of real gross domestic product demanded decreases.

d. Aggregate demand increases.

e. Both a and c occur.

2. According to the real wealth effect, if you are living in a period of falling price levels on a fixed income (that is not indexed), the cost of the goods and services you buy ____________ and your real income ____________.

a. Decreases; decreases

b. Increases; increases

c. Decreases; remains the same

d. Decreases; increases

3. As the price level decreases, real wealth ____________, purchasing power ____________, and the quantity of RGDP demanded ____________.

a. Increases; decreases; increases

b. Increases; increases; increases

c. Decreases; decreases; decreases

d. Decreases; decreases; increases

e. Increases; decreases; decreases

4. As the price level increases, interest rates____________, investments ____________, and the quantity of RGDP demanded ____________.

a. Decrease; increase; decreases

b. Increase; increase; decreases

c. Decrease; decrease; increases

d. Decrease; increase; increases

e. Increase; decrease; decreases

5. What is the open economy effect?

a. If prices of the goods and services in the domestic market rise relative to those in global markets as a result of a higher domestic price level, consumers and businesses will buy less from foreign producers and more from domestic producers?

b. People are allowed to trade with anyone, anywhere, anytime.

c. It is the ability of firms to enter or leave the marketplace—easy entry and exit with low entry barriers.

d. If prices of the goods and services in the domestic market rise relative to those in global markets as a result of a higher domestic price level, consumers and businesses will buy more from foreign producers and less from domestic producers, other things being equal.

6. Which of the following helps explain the downward slope of the aggregate demand curve?

a. The real wealth effect

b. The interest effect

c. The open economy effect

d. All of the above

e. None of the above

7. Which of the following will result as part of the interest rate effect when the price level rises?

a. Money demand will increase.

b. Interest rates will increase.

c. The dollar amount of investment will decrease.

d. A lower quantity of real GDP will be demanded.

e. All of the above will result.

8. Which of the following will not decrease when the price level falls?

a. Money demand

b. The real interest rate

c. The real level of investment

d. A and b

e. B and c