Purdue University North Central
Review Questions - Chapter 11 - Aggregate Demand and Supply
(1) Which of the following is a measure of overall economic well-being (that is, a macro outcome) for the United States?
(a) The U.S. unemployment rate.
(b) An increase in the world price of oil caused by actions of the OPEC nations.
(c) An increase in the population growth rate in the U.S.
(d) An increase in spending by the federal government.
(2) Which of the following is a determinant of macro outcomes?
(a) Real Gross Domestic Product.
(b) The U.S. unemployment rate.
(c) Technological change.
(d) An increase in the rate of inflation.
(3) Which of the following characterizes the Classical view of the economy?
(a) Wages are flexible, but prices are not.
(b) The economy is inherently unstable.
(c) Flexible prices and wages will allow the economy to self-adjust to full employment.
(d) Prolonged depressions or recessions require government action to bring the economy back to full employment.
(4) Keynesian theory became important when Classical economic theory did not adequately explain:
(a) A prolonged economic expansion with inflation and low unemployment.
(b) A prolonged economic expansion with limited inflation and high unemployment.
(c) A prolonged recession with simultaneously low unemployment.
(d) A prolonged recession with simultaneously high unemployment.
(5) The aggregate demand curve is downward sloping because, other things being equal:
(a) people buy more goods and services at lower average incomes.
(b) as price level falls, each dollar you own will purchase more goods and services.
(c) a higher price level will induce producers to offer more output than otherwise.
(d) people buy more goods and services at higher average prices.
(6) The aggregate supply curve is upward sloping because:
(a) profits tend to increase during periods of increasing price levels.
(b) profits tend to increase during periods of decreasing price levels.
(c) the quantity of foreign goods and services demanded tends to increase as the price level in the United States rises.
(d) of the real balances effect.
(7) Which of the following shifts are likely to occur, ceteris paribus, if OPEC cuts off oil supplies to the U.S. and as a result, domestic energy prices rise?
(a) Aggregate supply decreases (shifts left).
(b) Aggregate supply increases (shifts right).
(c) Aggregate demand increases (shifts right).
(d) Aggregate demand decreases (shifts left).
(8) Which of the following shifts are likely to occur, ceteris paribus, if the U.S. government significantly increases spending on the space program?
(a) Aggregate supply decreases (shifts left).
(b) Aggregate supply increases (shifts right).
(c) Aggregate demand increases (shifts right).
(d) Aggregate demand decreases (shifts left).
(9) If an economy were experiencing a recession, the classical approach to achieving full employment would be to:
(a) increase government spending.
(b) increase the growth of the money supply.
(c) cut taxes.
(d) do nothing and wait for “natural” market forces to achieve full employment.
Consider Figure 1 in answering Question (10).
Figure 1
(10) In Figure 1, a shift in aggregate demand from AD(1) to AD(2), ceteris paribus, is most likely to cause:
(a) an increase in real output and an increase in the price level.
(b) an increase in real output and a decrease in the price level.
(c) a decrease in real output and a decrease in the price level.
(d) a decrease in real output and an increase in the price level.