What is the effect of an increase in investment? When investment increases, O A. aggregate demand increases and income increases. The increase in income induces an increase in consumption expenditure so aggregate demand increases by more than the initial increase in investment O B. aggregate demand increases and aggregate supply increases investment O C. aggregate demand increases by an amount equal to the increase O D. aggregate supply increases. The increase in aggregate supply is greater than the increase in investment because capital increases, which increases potential GDP

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Why is the aggregate demand curve downsloping? Specify how your explanation differs from the explanation for the downsloping demand curve for a single product. What role does the multiplier play in shifts of the aggregate demand curve?

How do fluctuations in aggregate demand and short-run aggregate supply bring fluctuations in real GDP around potential GDP? Starting from a full-employment equilibrium, a decrease in aggregate demand and creates gap. O A. increases real GDP above potential GDP; an inflationary OB. decreases real GDP below potential GDP; an inflationary OC. increases real GDP above potential; a recessionary O D. decreases real GDP below potential GDP; a recessionary _, short-run aggregate , and the economy returns to a full-employment In the long run, the money wage rate supply equilibrium. O A. rises; increases B. falls; decreases C. rises; decreases D. falls; increases

Suppose that the level of GDP increased by $100 billion in an economy where the marginal propensity to consume is 0.5. The initial change in spending must have been: O $5 billion O $100 billion O $50 billion O $500 billion

A decrease in the price of foreign oil will affect the U.S. economy by O a. decreasing aggregate supply. O b. increasing aggregate demand. O c. increasing aggregate supply. O d. decreasing aggregate demand

QUESTION 6 Potential GDP Aggregate expenditure AE, 45° Y. Real GDP (Y) When real GDP is greater than Yo in the diagram above: O A. - inventories will decrease OB. ·Aggregate expenditure will be less than Real GDP OC. Aggregate expenditure will be equal to Real GDP OD. O D. inventories will increase QUESTION 7 Y G Xn $1,000 $1,400 1,400 1,400 1,400 1,400 $0 $800 -$200 2,500 5,000 7,500 10,000 2,300 3,800 5,300 6,800 1,000 1,000 1,000 1,000 -200 -200 -200 -200 Suppose you are given the data in the table above for a hypothetical economy. All data are in billions of dollars. Yis actual real GDP, and C, Ip, G, and Xn are the consumption, planned investment, government purchases, and net exports components of aggregate expenditures, respectively. Calculate the equilibrium GDP (give your answer in billions of $) Aggregate Expenditure

Which of the following is not an argument by those who oppose tax-law changes to encourage saving? O A. Saving is not very responsive to changes in the tax rate. O B. Saving is not an important determinant of a nation's ability to produce output. OC. Reducing the budget deficit instead of changing the tax laws could raise saving. O D. Changes in the tax laws to induce saving would distribute the tax burden less fairly.

changes in step with the price level to Long run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the maintain full employment O A. interest rate O B. real wage rate O C. money wage rate O D. quantity of money Short-run aggregate supply is the relationship between the quantity of supplied and the when the money wage rate, the prices of other resources, and potential GDP remain constant O A. potential GDP, price level O B. real GDP, price level O C. nominal GDP, exchange rate O D. real GDP, interest rate

Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?