QUESTION 1

Which of the following isnota reason why the Aggregate Demand Curve(AD) slopes downward?

a)Wealth Effect

b)Interest Effect

c)TheClassicalDichotomy/MonetaryNeutrality

d)The Exchange Rate Effect

QUESTION 2

The Natural Rate pf Output is the amount of RealGDP produced

a)when there is no unemployment

b)when the economy is at its natural rate of investment

c)when the economy is atnatural rate of aggregate demand

d)when theeconomyis at its natural rate ofunemployment

QUESTION 3

Suppose the economy is initially in the long run equilibrium.Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply what happens to price and output in theshort run

a)Prices rise;output rises

b)Prices rise;output falls

c)Pricesfall;outputfalls

d)Prices fall; output rises

QUESTION 4

Suppose the economy is initially in the long run equilibrium.Then suppose there is a droughtthat destroys much ofthe wheat crops.According to the model of aggregate demand and aggregate supply what happens to price and output in theshort run

a)Prices rise;output rises

b)Prices rise;output falls

c)Prices fall;outputfalls

d)Prices fall;output rises

QUESTION 5

Stagflaton occurs when the economy experiences

a)falling prices andfallingoutput

b)falling prices andrisingoutput

c)risingpricesand rising output

d)rising prices and falling output

QUESTION 6

According to the model of aggregate demand and aggregate supply,in the long run,an increase in money supply should cause

a)prices torise and outputto rise

b)prices to fall andoutputto fall

c)prices to rise and output to remain unchanged

d)prices tofall andoutput to remain unchanged

QUESTION 7

Suppose the economy is initially in the long run equilibrium.Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply, what happens to price and output in thelongruna)Prices rise; output is unchangedfrom its initial value

b)Prices fall;output isunchangedfrom its initial value

c)Output rises; pricesare unchanged from its initial value

d)Output falls; prices areunchangedfrom its initial value

QUESTION 8

Keynesian liquidity preference theory of interest rate suggests that, the interest is determinedby

a)the supply and demand forloanablefunds

b)the supply anddemand for money

c)the supply and demand for labor

d)aggregatedemand and aggregatesupply

QUESTION 9

Suppose a wave of investors and consumerpessimism causes a reduction in spending. If the Federal Reserve chooses to engage in activist stabilization policy, it should

a)increase government spending and decrease tax

b)decrease government spending and increase tax

c)increasemoney supply and decrease interest rate

d)decrease money supply andincreaseinterestrate

QUESTION 10

Ifthe marginal propensityto consume (MPC) is 0.75, the value of the multiplier is

a)0.75

b)4

c)5

d)7.5