ECO372T Economics Study Questions 4
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Question 18
Determine the effect on aggregate demand for each of the scenarios described below.
a. All European countries experience an economic expansion, raising incomes in each of the European countries. This causes:
multiple choice 1
an increase in aggregate demand, shifting the aggregate demand curve to the right.
a decrease in aggregate demand, shifting the aggregate demand curve to the left.
a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.
a movement along the aggregate demand curve to the right, indicating an increase in the quantity of real GDP demanded.
b. The government decides to decrease the amount it spends on the military. This causes:
multiple choice 2
a decrease in aggregate demand, shifting the aggregate demand curve to the left.
an increase in aggregate demand, shifting the aggregate demand curve to the right.
a movement along the aggregate demand curve to the right, indicating an increase in the quantity of real GDP demanded.
a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.
Question 19
The long-run aggregate supply curve is vertical because:
multiple choice
firms cannot change prices or input prices in the long run.
some input prices are sticky in the long run.
all input prices are flexible in the long run.
all input prices are sticky in the long run.
Question 20
For each of the examples below, determine the effect on aggregate demand.
a. In order to reduce the deficit, the government decides to increase the level of taxes in the economy. This causes:
multiple choice 1
an increase in aggregate demand, shifting the aggregate demand curve to the right.
a movement along the aggregate demand curve to the right, indicating an increase in the quantity of real GDP demanded.
a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.
a decrease in aggregate demand, shifting the aggregate demand curve to the left.
b. The economy experiences a sustained expansion in stock prices for the majority of companies in the country. This causes:
multiple choice 2
a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.
a movement along the aggregate demand curve to the right, indicating an increase in the quantity of real GDP demanded.
a decrease in aggregate demand, shifting the aggregate demand curve to the left.
an increase in aggregate demand, shifting the aggregate demand curve to the right.
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