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Money, Banking, and Financial Markets Practice Test: Aggregate Demand and Supply Analysis
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Aggregate demand and aggregate supply are macroeconomic concepts that describe the relationship between the total demand and supply of goods and services in an economy. The aggregate demand-aggregate supply (AD-AS) model shows how these two concepts interact and how they change during an economic boom or recession. The model is represented graphically, with price level on the Y-axis and real GDP on the X-axis.  Aggregate demand: The total amount of spending people are willing to make on domestic goods and services at a given price level. This includes consumer spending, business spending,... Show more
Money, Banking, and Financial Markets Practice Test: Aggregate Demand and Supply Analysis
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25 Questions

1. According to aggregate demand and supply analysis, Americaʹs involvement in the VietnamWar had the effect of
2. Everything else held constant, a decrease in planned investment expenditure ________ aggregate ________.
3. Because shifts in aggregate demand are not viewed as being particularly important to aggregate output fluctuations, they do not see much need for activist policy to eliminate high unemployment. ʺTheyʺ refers to proponents of
4. Everything else held constant, a change in workersʹ expectations about the aggregate price level will cause ________ to change.
5. According to the quantity theory of money, a decrease in the money supply, ________ aggregate________, everything else held constant.
6. Suppose the U.S. economy is producing at the natural rate of output. An appreciation of theU.S. dollar will cause ________ in real GDP in the short run and ________ in the aggregate price level in the long run, everything else held constant. (Assume the appreciation causes no effects in the supply side of the economy.)
7. Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Fed will cause ________ in real GDP in the long run and ________ in the aggregate price level in the long run, everything else held constant.
8. Everything else held constant, when output is ________ the natural rate level, wages will begin to ________, decreasing short-run aggregate supply.
9. A reduction of aggregate demand may raise the natural rate of unemployment above the full employment level, meaning that the self-correcting mechanism will only be able to return the economy to the natural rate level of output and unemploymentnot to the full employment levels. Such a view is consistent with
10. A group of economists believe that the natural rate of output is affected by aggregate ________ shocks. They contend that the natural rate level of unemployment and output are subject to________, a departure from full employment levels as a result of past high unemployment.
11. The long-run rate of unemployment to which an economy always gravitates is the
12. Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the long run and ________ in the aggregate price level in the short run.
13. By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the price level causes
14. By looking at aggregate demand via its component parts, we can conclude that the aggregate demand curve is downward sloping because
15. Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the U.S. dollar will cause ________ in real GDP in the short run and ________ in the aggregate price level in the long run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy.)
16. Which of the following increases aggregate supply in the short-run, everything else held constant?
17. Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Fed will cause ________ in real GDP the the short run and ________ in the aggregate price level in the short run, everything else held constant.
18. Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause ________ in real GDP in the long run and ________ in the aggregate price level in the long run, everything else held constant.
19. Everything else held constant, aggregate demand increases when
20. According to aggregate demand and supply analysis, the rising oil prices coupled with the subprime financial crisis in 2007-2008 caused the unemployment rate to ________ and the level of real aggregate output to ________.
21. Everything else held constant, an increase in net taxes ________ aggregate ________.
22. The aggregate supply curve shows the relationship between
23. Everything else held constant, a decrease in net taxes ________ aggregate ________.
24. According to aggregate demand and supply analysis, the negative demand shock of 2000 -2004 had the effect of
25. The quantity theory of money is derived from

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