Aggregate Demand and Supply Test

What is Aggregate Demand (AD)?

• The total supply of goods and services in an economy
• The total quantity of all goods and services demanded at various price levels
• The difference between exports and imports
• The government's total spending in an economy

Why does the Real Wealth Effect cause the AD curve to slope downward?

• Higher prices increase the value of savings over the long term
• Lower prices encourage more borrowing
• Higher prices cause exports to increase
• Higher prices reduce the purchasing power of saved money

Which scenario would likely cause a rightward shift in the AD curve?

• An increase in income taxes
• A decrease in government spending
• A stock market boom
• An appreciation of the U.S. dollar

How does an increase in interest rates affect Aggregate Demand?

• It increases consumer spending
• It encourages more borrowing
• It decreases investment spending
• It increases exports

What is the Net Exports Effect's impact on AD when domestic prices rise?

• Exports become cheaper for foreigners
• Imports become relatively cheaper for domestic consumers
• Both imports and exports increase due to the value of the dollar
• Neither imports nor exports are affected

How do government transfer payments affect Aggregate Demand?

• They have no effect on AD
• They decrease AD directly
• They increase AD through increased consumer spending
• They decrease consumer confidence

What happens to AD when the U.S. dollar appreciates?

• Exports increase and AD rises
• Imports decrease and AD rises
• AD increases due to higher consumer confidence
• AD decreases due to reduced net exports

Which factor would NOT cause a shift in the AD curve?

• Changes in government spending over the course of the year
• Changes in consumer confidence
• Movement along the existing curve due to price changes
• Changes in business investment over the long run

How does fear of a recession impact Aggregate Demand?

• Increases consumer spending
• Decreases consumer confidence and spending
• Has no effect on AD
• Increases business investment due to more people saving money

What is the relationship between inflation and interest rates in the Interest Rate Effect?

• Banks lower interest rates during inflation
• Interest rates must be higher than inflation for real profits
• Inflation and interest rates move in opposite directions
• Interest rates have no relationship with inflation