1.The aggregate demand (AD) curve: A.is upward sloping because a higher price level is necessary to make production profitable as costs rise. B.is downward sloping because production costs decline as real output increases. C.shows the amount of real output (RGDP) that will be purchased at each possible price level D.is downward sloping and shows the amount of expenditures required to induce the production of each possible level of real output.

2. The aggregate demand curve shows a(n): 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

3. Consider the AD curve.If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes: A.the output effect. B.the real balances effect. C.the foreign-purchases effect. D.the shift-of-spending effect.

4.Consider the AD curve. The real-balances effect indicates that: A.an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B.a lower price level will increase the real value of many financial assets and therefore increase spending. C.a higher price level will increase the real value of many financial assets and therefore increase spending. D.a higher price level will decrease the real value of many financial assets and therefore increase spending.

5.Consider the AD curve. The interest-rate effect suggests that: A.a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. B.an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. C.an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. D.an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

6.The factors that cause the aggregate demand curve to increase or decrease (shift) are the: A.real-balances, interest-rate, and foreign purchases effects. B.determinants of aggregate supply. C.determinants of aggregate demand. D.sole determinants of the equilibrium price level and the equilibrium real output.

7.Ceteris paribus (all other things being equal), if U.S. government spending were to decrease, the U.S.: A.aggregate demand curve would shift to the right (increase). B.aggregate supply curve would shift to the left (decrease). C.aggregate supply curve would shift to the right (increase). D.aggregate demand curve would shift to the left (decrease).

8.Ceteris paribus, a decrease in investment spending will cause the AD curve to: A.decrease, indicating that less RGDP is purchased at each price level. B.do nothing. C.increase, indicating that more RGDP is purchased at each price level. D.increase and AS (aggregate supply) to increase quickly.

9.Ceteris paribus, an increase in consumer wealth caused by rising housing values will cause the AD curve to: A.decrease, indicating that less RGDP is purchased at each price level. B.do nothing. C.increase, indicating that more RGDP is purchased at each price level. D.decrease and AS (aggregate supply) to decrease quickly.

10.The economy's long-run aggregate supply curve: A.slopes upward and to the right. B.is vertical. C.is horizontal. D.slopes downward and to the right.

3 Price level 4 0 Real domestic outputAS, AS AS, Price level Real domestic output, GDP 0Real Domestic Real Domestic Output Demanded Price Level Output Supplied gin Billions) {Index Value) [In Billions) $3.000 350 $0,000 4,000 300 0.000 5.000 250 7.000 0,000 200 0.000 7.000 150 5.000 8.000 1 00 4,000 AS Price level P AD, AD 0 Real domestic outputAS AS2 AS2 AS Price level Price level AD AD 0 Real domestic output 0 Real domestic output (A) (B) AS AS Price level Price level AD, AD AD, 0 Real domestic output 0 Real domestic output (C) (D)