The aggregate supply curve:

Multiple Choice

• is downward-sloping, because real purchasing power decreases as the price level falls
• shows the various amounts of real output that businesses are willing and able to produce at each price level
• is vertical
• is downward-sloping, because real purchasing power increases as the price level falls
• is explained by the wealth and foreign trade effects

If aggregate demand increases and aggregate supply decreases, the price level:

Multiple Choice

• will increase, but real output may either increase or decrease
• will decrease, but real output will necessarily stay the same
• will decrease, but real output may either increase or decrease
• and real output will both increase
• and real output will both decrease

During an economic expansion:

Multiple Choice

• imports tend to decrease
• households and businesses spend less due to growing pessimism about the future
• exports tend to decrease
• households and businesses spend more due to growing optimism about the future
• the aggregate demand curve shifts leftward

The spending multiplier is calculated using the formula:

Multiple Choice

• 1/MPC
• (1 - MPW)/MPW
• (1 - MPC) MPW
• (1 - MPW)/MPC
• 1/MPW

The multiplier effect means that:

Multiple Choice

• a small decline in MPC can cause aggregate demand to rise by several times that amount
• an increase in spending can cause aggregate demand to change by a larger amount
• an increase in consumption leads to a larger increase in investment
• an increase in consumption can result in a larger increase in government purchases
• consumption is typically several times larger than withdrawals