Macroeconomics
Quiz 8
Aggregate Supply and Aggregate Demand
Answer the following 7 questions using the graphs below.
1. The shift shown in part (D) may have been caused by:
a. a fall in oil and energy prices
b. a reduction in aggregate supply
c. a decline in personal taxes
d. an increase in government spending
e. a decrease in government spending
f. an increase in business taxes
g. an increase in consumer wealth
h. a decrease in interest rates
2. The shift shown in part (C) may have been caused by:
a. a fall in oil and energy prices
b. a reduction in aggregate supply
c. a decline in personal taxes
d. an increase in government spending
e. a decrease in government spending
f. an increase in household indebtedness
g. a decrease in business profit expectations
3. Which of the diagrams best portrays demand driven inflation?
a. (A)
b. (B)
c. (C)
d. (D)
4. The shift shown in part (A) may have been caused by:
a. an increase in business regulation
b. a decline in productivity
c. a decrease in the capital stock and a decline in labor force
d. an increase in business subsidies or a reduction in business taxes
e. an increase in the prices of imported products
5. The economy experiences an increase in the price level and a decrease in real domestic output – stagflation.
Which of the above diagrams portrays this situation?
a. (A)
b. (B)
c. (C)
d. (D)
6. What is a likely explanation for stagflation in previous question?
a. productivity has increased
b. business taxes have decreased
c. prices of raw materials have increased
d. government expenditures decreased
7. The headline “The stock market plunge is weighing heavily on both businesses and consumers” refers to a
decrease in consumer wealth. Which diagram describes this situation?
a. (A)
b. (B)
c. (C)
d. (D)
8. The main goal of macroeconomic policy is to:
a. Move the economy toward potential GDP.
b. Continue to increase GDP.
c. Balance the federal budget.
d. Expand the trade surplus.
e. Raise the value of the dollar
9. Which combination of factors would most likely increase aggregate demand?
A)
an increase in household indebtedness and a decrease in foreign demand for products
B)
an increase in consumer wealth and a decrease in interest rates
C)
an increase in personal taxes and a decrease in government spending
D)
an increase in business taxes and a decrease in profit expectations
10. Draw two separate AD-AS diagrams to show the effect of the following two policies on output and price
level:
a. The government borrows money and spends some of it on unproductive activities (leaf-raking)
and some on productive activities (building new roads).
b. Personal income taxes and business taxes increase.