Aggregate Demand and Aggregate Supply

If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate supply curve should be vertical.

• True

• False

If a country’s central bank increases the money supply, the aggregate demand curve shifts to the left.

• True

• False

In the long run, an increase in government spending tends to increase output and prices.

• True

• False

According to the interest rate effect, aggregate demand slopes downward (negatively) because

• lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls.

• lower prices increase the value of money holdings and consumer spending increases

• lower prices decrease the value of money holdings and consumer spending decreases.

• lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases.

Which of the following would not cause a shift in the long-run aggregate supply curve?

• An increase in the available capital

• An increase in the available labourd

• An increase in the available technologye

• An increase in price expectations

• All of these answers shift the long-run aggregate supply curve

Which of the following is not a reason why the aggregate demand curve slopes downward?

• The exchange-rate effect

• The wealth effect.

• The classical dichotomy/monetary neutrality effects.

• The interest-rate effect

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to

• shift the short-run aggregate supply curve to the left.

• shift the aggregate demand curve to the right.

• shift the short-run aggregate supply curve to the right.

• shift the aggregate demand curve to the left.

According to the wealth effect, aggregate demand slopes downward (negatively) because

• lower prices increase the value of money holdings and consumer spending increases.

• lower prices decrease the value of money holdings and consumer spending decreases.

• lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases.

• lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls.

Suppose the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production. This is a demonstration of the

• sticky-wage theory of the short-run aggregate supply curve.

• classical dichotomy theory of the short-run aggregate supply curve.

• misperceptions theory of the short-run aggregate supply curve.

• sticky-price theory of the short-run aggregate supply curve.

Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the

• misperceptions theory of the short-run aggregate supply curve.

• classical dichotomy theory of the short-run aggregate supply curve.

• sticky-price theory of the short-run aggregate supply curve.

• sticky-wage theory of the short-run aggregate supply curve.