Economics of Money, Banking, and Financial Markets, 11e, Global Edition (Mishkin) Chapter 23 Aggregate Demand and Supply Analysis
23.1 Aggregate Demand
1) The aggregate demand curve is the total quantity of an economy's
A) intermediate goods demanded at different inflation rates. B) intermediate goods demanded at a particular inflation rate.
C) final goods and services demanded at a particular inflation rate.
D) final goods and services demanded at different inflation rates.
Answer: D
AACSB: Reflective Thinking
2) The total quantity of an economy's final goods and services demanded at different inflation rates is
A) the aggregate supply curve. B) the aggregate demand curve. C) the Phillips curve.
D) the aggregate expenditure function. Answer: B
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3) One way to derive aggregate demand is by looking at its four component parts, which are
A) consumer expenditures, planned investment spending, government spending, and net exports.
B) consumer expenditures, actual investment spending,
government spending, and net exports.
C) consumer expenditures, planned investment spending, government spending, and gross exports.
D) consumer expenditures, planned investment spending, government spending, and taxes. Answer: A
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4) By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the inflation rate causes
A) an increase in real interest rates, an increase in investment spending, and a decline in aggregate output demand.
B) a decline in real interest rates, a decrease in investment spending, and an increase in aggregate output demand.
C) a decline in real interest rates, an increase in investment spending, and an increase in aggregate output demand.
D) an increase in real interest rates, a decline in investment spending, and a decline in aggregate output demand.
Answer: C
AACSB: Analytical Thinking
5) By looking at aggregate demand via its component parts, we can conclude that the aggregate demand curve is downward sloping because
A) a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending.
B) a lower inflation rate causes the real interest rate to rise, and stimulates planned investment spending.
C) a higher inflation rate causes the real interest rate to fall, and stimulates planned investment spending.
D) a higher inflation rate causes the real interest rate to rise, and stimulates planned investment spending.
Answer: A
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6) Which of the followings is NOT true about the word \"autonomous\" that economists use?
A) Changes in autonomous components are associated with movements along a curve.
B) Changes in autonomous components are associated with shifts of a curve.
C) The autonomous component of a variable is exogenous. D) The autonomous component of a variable is independent of other variables in the model. Answer: A
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7) Which of the followings is NOT true about the word \"autonomous\" that economists use?
A) Changes in autonomous components are associated with shifts of a curve.
B) The autonomous component of a variable is exogenous. C) The autonomous component of a variable is independent of other variables in the model.
D) The autonomous component of a variable is induced by other variables in the model. Answer: D
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8) Everything else held constant, an autonomous monetary policy easing ________ aggregate
________.
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: A
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9) Everything else held constant, an autonomous monetary policy tightening ________ aggregate ________.
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: B
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10) Everything else held constant, when financial frictions increase, the real cost of borrowing ________ so that planned investment spending ________ at any given inflation rate.
A) increases; falls B) decreases; falls C) decreases; rises D) increases; rises Answer: A
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11) Everything else held constant, an increase in financial frictions ________ aggregate
________.
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: B
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12) Everything else held constant, an increase in government spending ________ aggregate ________.
A) increases; demand
B) decreases; demand C) decreases; supply D) increases; supply Answer: A
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13) Everything else held constant, a decrease in government spending ________ aggregate ________.
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: B
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14) Everything else held constant, a decrease in net taxes ________ aggregate ________.
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: A
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15) Everything else held constant, an increase in net taxes ________ aggregate ________.
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: B
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16) Everything else held constant, a balanced budget
increase in government spending (that is, an increase in government spending that is matched by an identical increase in net taxes) will
A) increase aggregate demand, but not by as much as if just government spending increases.
B) increase aggregate demand by more than if just government spending increases.
C) not affect aggregate demand. D) decrease aggregate demand. Answer: A
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17) Everything else held constant, an increase in net exports ________ aggregate ________.
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: A
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18) Everything else held constant, a decrease in net exports ________ aggregate ________.
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: B
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19) Everything else held constant, an increase in planned investment expenditure ________ aggregate ________.
A) increases; demand
B) decreases; demand C) decreases; supply D) increases; supply Answer: A
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20) Everything else held constant, a decrease in planned investment expenditure ________ aggregate ________.
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: B
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21) Everything else held constant, aggregate demand increases when
A) taxes are cut.
B) government spending is reduced. C) animal spirits decrease. D) the money supply is reduced. Answer: A
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22) Everything else held constant, aggregate demand increases when
A) net exports decrease. B) taxes increase.
C) planned investment spending increases. D) the money supply decreases. Answer: C
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23) Everything else held constant, which of the following
does NOT cause aggregate demand to increase?
A) an increase in net exports
B) an increase in government spending C) an increase in taxes
D) an increase in consumer optimism Answer: C
AACSB: Analytical Thinking
24) Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate. Be sure to discuss two channels through which changes in inflation rates affect demand.
Answer: A fall in the inflation rate lowers real interest rates. Lower rates increase investment, thereby increasing aggregate demand. Lower interest rates also cause depreciation of the domestic currency, increasing net exports and aggregate demand.
AACSB: Reflective Thinking
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