4. What will happen in an economy if the demand for the economy's exports decreases? A) aggregate output will increase and the price level will decrease B) aggregate output will increase and the price level will increase aggregate output will decrease and the price level will decrease D) aggregate output will decrease and the price level will increase 5. Assume that in an economy, aggregate output decreases and the price level decreases. Then we know that A) the AD curve shifted to the left B) the AD curve shifted to the right C) the AS curve shifted to the left D) the AS curve shifted to the right 6. If aggregate demand increases at the same time that aggregate supply decreases, A) the price level increases, but we cannot be sure what change will occur in aggregate real output. B) both the price level and aggregate real output increase. C) aggregate real output increases, but we cannot be sure what change will occur in the price level. D) we cannot be sure what change will occur either in aggregate real output or in the price level. 7. The following table shows the aggregate supply and demand data for a country. Price Aggregate Aggregate Level Demand Supply 100 $10,000 $6,000 200 $9,000 $7,000 300 $8.000 $8,000 400 $7,000 $9,000 500 $6,000 $10,000 600 $5,000 $11,000 700 $4,000 $12,000 At the equilibrium level of output, A) prices are, on average, 300 times higher than they were in the base year. B) prices are, on average, 4 times higher than they were in the base year. C) prices are, on average, 3 times higher than they were in the base year. D) prices are, on average, 300 percent higher than they were in the base year. 8. Aggregate supply will increase if A) household wealth rises. B) government purchases of goods falls. C) the price of energy increases. D) the labor force becomes more productive.9. When the economy experiences stagflation, aggregate output is rising. A) True B) False 10. The wealth effect refers to the fact that wealthier individuals tend to spend more on foreign goods. A) True B) False 11. If an economy is operating at its full employment level of output, then the unemployment rate is equal to zero. A) true B) false 12. Aggregate demand curves slope downwards because as the price of a good increases, people will substitute and buy other goods instead. A) true B) falseI. Multiple choice count two points each. True/false count one point each. 1. Keynes' Law states that A) prices will adjust so that firms sell all of their merchandise B) aggregate demand equals aggregate supply C) demand creates its own supply D) supply creates its own demand Use the following to answer question 2: LRAS AS AS PA P1 Price Level (dollars) AD2 AD, 0 100 200 300 400 500 600 Real GDP (billions of dollars) 2. Refer to the figure above. The shift in aggregate demand from AD, to AD2 could have been caused by A) an increase in domestic exports. B) a decrease in the price level. C) a decrease in government spending. an increase in the price level. 3. In the short run, a decrease in aggregate demand: A) reduces aggregate output and increases the price level. B) increases aggregate output and reduces the price level. C) reduces aggregate output and the price level. D) increases aggregate output and the price level