CECN 506 exam review|questions and answers|100% correct

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The aggregate demand curve: A) shows the amount of real output which will be purchased at each possible price level. B) shows the amount of expenditures required to induce the production of each possible level of real output. C) is downward sloping because production costs decline as real output increases? D) is upward sloping because a higher price level is necessary to make production profitable as production costs rise. Answer: A 2) The aggregate demand curve shows the: A) direct relationship between real-balances and real GDP purchased. B) direct relationship between the price level and real GDP produced. C) inverse relationship between interest rates and real GDP produced. D) inverse relationship between the price level and real GDP purchased. Answer: D 3) Other things being equal, the higher the price level, the lower the level of domestic output purchased. This occurs because of: A) the full-employment-unemployment rate. B) the sensitivity to demand-pull inflation. C) consumer spending on capital goods. D) the real-balances effect. Answer: D 4) The real-balances effect suggests that a: A) lower price level will increase the real value of many financial assets and therefore cause an increase in spending. B) lower price level will decrease the real value of many financial assets and therefore cause an increase in spending. C) lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending. D) higher price level will increase the real value of many financial assets and therefore cause an increase in spending. Answer: A 5) The real-balances effect indicates that: A) a higher price level will decrease the real value of many financial assets and therefore reduce spending. B) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. C) a higher price level will increase the real value of many financial assets and therefore increase spending. D) a lower price level will decrease the real value of many financial assets and therefore reduce spending. Answer: A 1 6) Which effect best explains the downward slope of the aggregate demand curve? A) a multiplier effect B) an income effect C) a real-balances effect D) a substitution effect Answer: C The following table is for a particular country in which C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. Each question is independent of the other questions. 7) Refer to the above table. The wealth