Multiple Choice Questions:
1. Which of the following is true?
a. A lower price level shifts the aggregate expenditure function upward, moving the economy down along the aggregate demand curve.
b. A lower price level shifts the aggregate expenditure function upward, shifting the aggregate demand curve to the right.
c. A lower price level shifts the aggregate expenditure function downward, moving the economy up along the aggregate demand curve.
d. A lower price level shifts the aggregate expenditure function downward, shifting the aggregate demand curve to the right.
2. Equilibrium output would tend to rise when?
a. Autonomous expenditures increase.
b. The MPC increases.
c. Either autonomous expenditures increase or the MPC increases.
d. Neither autonomous expenditures increase nor the MPC increases.
3. If the MPC equals 0.5?
a. The expenditure multiplier will equal 2.
b. A $5 billion increase in investment would tend to increase output by $10 billion.
c. The expenditure multiplier is less than if the MPC = 0.8.
d. All of the above are true.
4. Investment can depend on?
a. Expectations.
b. Taxes.
c. Interest rates.
d. Current income.
e. All of the above.
5. When the price level falls?
a. Consumption increases because real wealth increases.
b. Investment rises because interest rates decline.
c. Net exports rise because exchange rates decline.
d. All of the above are true.
6. Which of the following would shift both the aggregate expenditure function and aggregate demand?
a. An increase in consumption because disposable income rose.
b. An increase in consumption because the price level fell.
c. An increase in consumption because of increased consumer optimism.
d. All of the above would shift both the aggregate expenditure function and aggregate demand.
7. If the economy was operating on a completely flat segment of the short-run aggregate supply curve, an increase in aggregate demand would?
a. Increase output and increase the price level.
b. Increase output and decrease the price level.
c. Decrease output and increase the price level.
d. Decrease output and decrease the price level.
e. Do none of the above.