Sample Multiple Choice Questions for Chapter 15

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
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1. According to classical economic theory, changes in the money supply affect

a. real GDP.
b. real interest rates.
c. the price level.
d. All of the above are correct.
2. Most economists believe that classical economic theory is a good description of the world
a. in neither the short nor long run.
b. in the short run and in the long run.
c. in the short run, but not in the long run.
d. in the long run, but not in the short run.
3. A fall in the economy's overall level of prices tends to
a. raise both the quantity demanded and supplied of goods and services.
b. raise the quantity demanded of goods and services, but lower the quantity supplied.
c. lower the quantity demanded of goods and services, but raise the quantity supplied.
d. lower both the quantity demanded and the quantity supplied of goods and services.
4. The effect of an increase in the price level 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 curve.
5. The downward slope of the aggregate demand curve shows that an increase in the
a. money supply causes the aggregate quantity of goods and services demanded to increase.
b. money supply causes the aggregate quantity of goods and services demanded to decrease.
c. price level causes the aggregate quantity of goods and services demanded to increase.
d. price level causes the aggregate quantity of goods and services demanded to decrease.
6. An increase in the price level makes consumers feel less wealthy. As a result,
a. aggregate demand shifts right.
b. aggregate demand shifts left.
c. there is a movement to right along a given aggregate demand curve.
d. there is a movement to the left along a given aggregate demand curve.
7. A decrease in the price level makes the dollars people hold worth
a. more, so they spend more.
b. more, so they spend less.
c. less, so they spend more.
d. less, so they spend less.
8. If the price level rises, the value of money
a. rises while foreign exchange rates and interest rates rise.
b. rises while foreign exchanger rates and interest rates fall.
c. falls while foreign exchange rates and interest rate rise.
d. falls while foreign exchange rates and interest rates fall.
9. An increase in the price level induces people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.

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c. more money, so they lend more, and the interest rate falls.
d. more money, so they lend less, and the interest rate rises.
A decrease in U.S. interest rates leads to
a. a depreciation of the dollar that leads to greater net exports.
b. a depreciation of the dollar that leads to smaller net exports.
c. an appreciation of the dollar that leads to greater net exports.
d. an appreciation of the dollar that leads to smaller net exports.
Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire
a. increased consumption, which shifts the aggregate demand curve right.
b. increased consumption, which shifts the aggregate demand curve left.
c. decreased consumption, which shifts the aggregate demand curve right.
d. decreased consumption, which shifts the aggregate demand curve left.
When taxes increase, consumption decreases as shown by
a. a movement to the left along a given aggregate demand curve.
b. shifting aggregate demand to the left.
c. shifting aggregate supply the left.
d. which does none of the above.
When the government spends more, the initial effect is that
a. aggregate demand shifts right.
b. aggregate demand shifts left.
c. aggregate supply shifts right.
d. aggregate supply shifts left.
Aggregate demand shifts right when the government
a. raises personal income taxes.
b. increases the money supply.
c. repeals an investment tax credit.
d. All of the above are correct.
An increase in which of the following (assuming the increase was not due to a price level change) shifts aggregate
demand to the right?
a. consumption
b. investment
c. government expenditures
d. All of the above are correct.
The long-run aggregate supply curve
a. is determined by the things that determine output in the classical model.
b. is located at the point where unemployment is zero.
c. shifts to the right when the price level increases.
d. Is positioned at the point where the economy would cease to grow.
Which of the following would make the price level decrease and real GDP increase?
a. long-run aggregate supply shifts right
b. long-run aggregate supply shifts left
c. aggregate demand shifts right
d. aggregate demand shifts left
Which of the following shifts short-run aggregate supply right?
a. an increase in the minimum wage
b. an increase in immigration from abroad
c. an increase in the price of oil
d. an increase in the actual price level
If the economy is initially in long-run equilibrium, then shifts in aggregate demand affect prices

a. and output in both the short and long run.

b. and output only in the short run.
c. in the long and short run, but affect output only in the short run.
d. in the long and short run, but affect output only in the long run.
____ 20. Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic
contraction caused by a shift in aggregate supply could use policy to shift
a. aggregate supply to the right.
b. aggregate supply to the left.
c. aggregate demand to the right.
d. aggregate demand to the left.

Sample test ch. 15

Answer Section
MULTIPLE CHOICE
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C
D
B
C
D
D
A
C
D
A
A
B
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B
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C