REFERENCE

A. MULTIPLE CHOICE

1. Most economists use the aggregate demand and aggregate supply model primarily to analyze

a.short-run fluctuations in the economy.

b. the effects of macroeconomic policy on the prices of individual goods.

c. the long-run effects of international trade policies.

d. productivity and economic growth.

2. During a recession the economy experiences

a. rising employment and income.

b. rising employment and falling income.

c. rising income and falling employment.

d.falling employment and incom

e.

3. Other things the same, a decrease in the price level makes consumers feel

a. less wealthy, so the quantity of goods and services demanded falls.

b. less wealthy, so the quantity of goods and services demanded rises.

c.more wealthy, so the quantity of goods and services demanded rises.

d. more wealthy, so the quantity of goods and services demanded falls.

4. The effect of an increase in the price level on the aggregate-demand curve is represented by a

a. shift to the right of the aggregate-demand curve.

b. shift to the left of the aggregate-demand curve.

c.movement to the left along a given aggregate-demand curve.

d. movement to the right along a given aggregate-demand curv

e.

5. When a bank loans out $1,000, the money supply

a. does not change.

b. decreases.

c.increases.

d. may do any of the abov

e.

6. Shifts in the aggregate-demand curve can cause fluctuations in

a. neither the level of output nor the level of prices.

b. the level of output, but not in the level of prices.

c. the level of prices, but not in the level of output.

d. the level of output and in the level of prices.

7. Monetary policy

a. must be described in terms of interest-rate targets.

b. must be described in terms of money-supply targets.

c. can be described either in terms of the money supply or in terms

of the interest rate.

d. cannot be accurately described in terms of the interest rate or in

terms of the money supply.

8. Government purchases are said to have a

a. multiplier effect on aggregate supply.

b.multiplier effect on aggregate demand.

c. liquidity-enhancing effect on aggregate supply.

d. liquidity-enhancing effect on aggregate demand.

9. The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

a. multiplier effect.

b. crowding-out effect.

c. accelerator effect.

d. Ricardian equivalence effect.

10. People will want to hold less money if the price level

a. increases or if the interest rate increases.

b. decreases or if the interest rate decreases.

c. increases or if the interest rate decreases.