Multiple-Choice Questions

1. Equilibrium real national income and the equilibrium level of prices are established where

A. aggregate demand equals aggregate supply.

B. aggregate demand is greatest.

C. the difference between aggregate demand and aggregate supply produces

stable prices.

D. aggregate quantity demanded equals aggregate quantity supplied.

2. Aggregate demand is a measure of

A. planned spending by consumers on durable consumer goods.

B. planned spending by all groups in the economy at each level of prices and

real income.

C. planned spending by governments together with net exports at each level

of real income.

D. planned spending by investors (firms) at each level of anticipated interest

rates.

3. The four components of aggregate demand include all except which one of the following?

A. Consumption expenditures

B. Investment expenditures

C. Gross exports

D. Government expenditures

4. If the cost of credit increases or if credit becomes less available

A. aggregate demand will grow as consumer spending increases.

B. aggregate demand will diminish as consumer spending decreases.

C. aggregate demand will diminish as firms produce fewer goods and

services.

D. aggregate demand will be unaffected because consumers do not consider

interest costs in making consumer purchases.

E. both B and C are correct.

5. Which one of the followings doesn't affect consumption?

A. Income.

B. Expectations.

C. Cost and availability of credit.

D. The cost of capital goods.

6. Which of the following would cause a decrease in aggregate supply?

A. A decrease in resource prices.

B. An increase in productivity.

C. An increase in oil prices.

D. An improvement in technology.

7. A decrease in aggregate demand, ceteris paribus, will have what effect on real national income and the price level?

A. Real national income will rise, the price level will fall.

B. Real national income will rise, the price level will rise.

C. Real national income will fall, the price level will rise.

D. Real national income will fall, the price level will fall.

8.Which one of the following is not a determinant of aggregate demand?

A. Consumption expenditures.

B. Investment expenditures.

C. Technology.

D. Net exports.

9. Which one of the following is not a determinant of aggregate supply?

A. Cost and availability of resources.

B. Capacity and investment plans.

C. Productivity.

D. Disposable income.

10. An improvement in technology will

A. increase aggregate demand.

B. decrease aggregate demand.

C. increase aggregate supply.

D. decrease aggregate supply.

True/False Questions

11. T F Among other factors, aggregate demand is determined by consumption,

investment, and government expenditures.

12. T F Among other things, the aggregate supply curve is determined by cost of

resources, technology, and productivity.

13. T F If firms' expectations about future economic activity become more

optimistic, the aggregate supply curve shifts to the right.

14. T F Equilibrium between aggregate supply and aggregate demand is always at

full employment.