Question 1

Which of the following changes cause the aggregate demand curve to shift to the left? Choose all that apply.

1. An increase in the price level
2. A decrease in wealth
3. An increase in exports
4. A decrease in workers' optimism about job security
5. An increase in the interest rate
6. A decrease in government spending

Question 2

Which of the following changes causes the short-run aggregate supply curve to shift to the right? Choose all that apply.

1. An increase in the price level
2. A decrease in input prices
3. An increase in aggregate demand
4. A decrease in business taxes
5. An increase in productivity
6. A decrease in the money supply

Question 3

Calculate the spending multiplier in each of the following situations under the assumption that there are no taxes or imports:

1. The MPS = 0.10
2. The MPS = 0.05
3. The MPC = 0.75
4. Half of all new income is saved

Question 4

Suppose the government spends $10 billion that it already has on hand to improve the nations railway system. If the marginal propensity to consume is 0.80, what will the total increase in spending the after the multiplier process is complete?

Question 7

The short-run aggregate supply curve can have three ranges; the Keynesian range, the upward-sloping range, and the classical range. In which range does an increase in aggregate demand cause each of the following?

1. An increase in both the price level and real GDP
2. An increase in the price level but not real GDP
3. An increase in real GDP but not the price level.

Question 9

Draw a graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply. Label the curves and axes. Label the price level as PL1 and the real GDP as Y1.

1. Show how the graph will change if the money supply decreases. Label the new price level as PL2 and the new real GDP as Y2 .
2. Show what happens in the long run to bring the equilibrium of aggregate demand and short-run aggregate supply back to a point on the long-run aggregate supply curve. Label the new price level as PL3.
3. Explain why the change that you drew for part (b) occurred.