Problem 1
Which of the following help to explain why the aggregate demand curve slopes downward? a. When the domestic price level rises, our goods and services become more expensive to foreigners. b. When government spending rises, the price level falls. c. There is an inverse relationship between consumer expectations and personal taxes. d. When the price level rises, the real value of financial assets (like stocks, bonds, and savings account balances) declines.
Problem 2
Which of the following will shift the aggregate demand curve to the left? a. The government reduces personal income taxes. b. Interest rates rise. c. The government raises corporate profit taxes. d. There is an economic boom overseas that raises the incomes of foreign households.
Problem 3
Label each of the following descriptions as being either an immediate-short- run aggregate supply curve, a short-run aggregate supply curve, or a long-run aggregate supply curve. a. A vertical line. b. The price level is fixed. c. Output prices are flexible, but input prices are fixed. d. A horizontal line. e. An upsloping curve. f. Output is fixed.
Problem 4
Which of the following will shift the aggregate supply curve to the right? a. A new networking technology increases productivity all over the economy. b. The price of oil rises substantially. c. Business taxes fall. d. The government passes a law doubling all manufacturing wages.
Problem 6
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? In each case, use a diagram to show the expected effects on the equilibrium price level and the level of real output, assuming that the price level is flexible both upward and downward. a. A widespread fear by consumers of an impending economic depression. b. A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output. c. A reduction in interest rates at each price level. d. A major increase in spending for health care by the federal government. e. The general expectation of coming rapid inflation. f. The complete disintegration of OPEC, causing oil prices to fall by one- half. g. A 10 percent across-the-board reduction in personal income tax rates. h. A sizable increase in labor productivity (with no change in nominal wages). i. \(A 12\) percent increase in nominal wages (with no change in productivity). j. An increase in exports that exceeds an increase in imports (not due to tariffs).
Problem 7
True or False: Decreases in AD normally lead to decreases in both output and the price level.
Problem 8
Assume that \((a)\) the price level is flexible upward but not downward and \((b)\) the economy is currently operating at its full-employment output. Other things equal, how will each of the following affect the equilibrium price level and equilibrium level of real output in the short run? a. An increase in aggregate demand. b. A decrease in aggregate supply, with no change in aggregate demand. c. Equal increases in aggregate demand and aggregate supply. d. A decrease in aggregate demand. e. An increase in aggregate demand that exceeds an increase in aggregate supply.
Problem 9
True or False: If the price of oil suddenly increases by a large amount, AS will shift left, but the price level will not rise thanks to price inflexibility.
