Give an explanation for each best answer.

1.A rightward shift of the AD curve in the very steep upper part of the upsloping AS curve will:

A.increase real output by more than the price level.

B.increase the price level by more than real output.

C.reduce real output by more than the price level.

D.reduce the price level by more than real output.

2.The fear of unwanted price wars may explain why many firms are reluctant to:

A.reduce wages when a decline in aggregate demand occurs.

B.reduce prices when a decline in aggregate demand occurs.

C.expand production capacity when an increase in aggregate demand occurs.

D.provide wage increases when labor productivity rises.

3.The foreign purchases effect suggests that an increase in the Canadian price level relative to other countries will:

A.increase the amount of Canadian real output purchased.

B.increase Canadian imports and decrease Canadian exports

C.increase both Canadian imports and Canadian exports.

D.decrease both Canadian imports and Canadian exports.

4.Which set of events would most likely decrease aggregate demand?

A.A reduction in the excess capital of the existing capital stock

B.A reduction in business and personal tax rates

C.An increase in investment spending

D.An increase in personal income tax rates

5.The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

A.Both input and output prices are fixed

B.Neither input nor output prices are fixed

C.Input prices are flexible but output prices are fixed

D.Input prices are fixed but output prices are flexible

6.A fall in the price of capital goods will shift the aggregate:

A.Demand curve leftward

B.Demand curve rightward

C.Supply curve rightward

D.Supply curve leftward

7.A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n):

A.Decrease in the level of income

B.Increase in the price level

C.Increase in the level of income

D.Decrease in the price level

8.Efficiency wages are associated with:

A.A price level that is inflexible upward

B.A price level that is inflexible downward

C.A domestic output that cannot be increased

D.A domestic output that cannot be decreased

9.The economy experiences an increase in the price level and a decrease in real domestic output. Which is a likely explanation?

A.Productivity has increased

B.Input prices have increased

C.Excess capacity has decreased

D.Government regulations have been reduced

10.If at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a:

A.Surplus and the price level will rise

B.Surplus and the price level will fall

C.Shortage and the price level will rise

D.Shortage and the price level will fall