A) The price level will fall a lot and Real GDP will fall a little.

B) The price level will fall a little and Real GDP will fall a lot.
C) The price level will fall a little and Real GDP will rise a lot.
D) The price level will fall a little and Real GDP will rise a little.
E) Both the price level and Real GDP will fall about the same amount.

19) If the economy is close to full employment, what will be the result of an increase in
aggregate demand?

A) The price level will increase only a little, and Real GDP will increase a lot.
B) The price level will increase a lot, and Real GDP will increase only a little.
C) Both the price level and Real GDP will increase only a little.
D) Both the price level and Real GDP will increase a lot.

20) Which of the following is true regarding the aggregate demand curve?

A) It is upward-sloping because production costs rise as real output increases.

B) It is downward-sloping because production costs decline as real output increases.
C) It is upward-sloping because at higher output levels total spending is higher.
D) It is downward-sloping because a lower price means higher real wealth and therefore
people will purchase more.
E) It is downward-sloping because at lower prices total incomes are higher.

21) The aggregate demand curve is downward sloping due to all of these factors EXCEPT:

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 A) Real balances effect.
B) Because a lower price means higher real wealth and therefore people will purchase
more.
C) Foreign trade effect.
D) Because people prefer to buy more expensive goods.

22) The aggregate demand curve is downward sloping due to all of these factors EXCEPT:

A) Interest rate effect.

B) Foreign trade effect.
C) Factor price effect.
D) Real balances effect.

23) Which of the following is true regarding the aggregate demand curve?

A) It is vertical at the full-employment level of GDP.

B) It is horizontal when there is considerable unemployment in the economy.
C) It is downward-sloping because of the interest-rate, real balances, and foreign-trade
effects.
D) It is downward-sloping because production costs decrease as real output increases.
E) It is upward-sloping because as output increases, aggregate expenditures increase.

24) What does the interest-rate effect mean?

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 A) That an increase in the money supply will increase the rate of interest and cause
investment to fall.
B) That a decrease in prices will reduce the rate of interest which will cause investment to
increase.
C) That an increase in the price level will decrease interest rates and decrease
consumption and investment spending.
D) That an increase in the price level will decrease the demand for money and spending.
E) That an increase in Real GDP will increase the price level.

25) Why are the interest-rate, foreign-trade and real balances effects important?

A) They help explain the shape of the aggregate supply curve.

B) They help explain why demand-management policies are ineffective in fighting
stagflation.
C) They help explain shifts in the aggregate supply curve.
D) They help explain the shape of the aggregate demand curve.
E) They help explain shifts in the aggregate demand curve.

26) What does the foreign-trade effect suggest will happen if there is a decrease in the
Canadian price level relative to other countries?

A) It will increase the volume of both Canadian exports and imports.

B) It will decrease the volume of both Canadian exports and imports.
C) It will increase the volume of Canadian exports but decrease the volume of imports.
D) It will decrease the volume of Canadian exports but increase the volume of imports.

27) What does the interest-rate effect explain?

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 A) The shape of the aggregate demand curve.
B) The shape of the aggregate supply curve.
C) The change in the aggregate demand curve.
D) The change in the aggregate supply shifts.
E) The change in economic growth.

28) What does the foreign-trade effect explain?

A) The shape of the aggregate demand curve.

B) The shape of the aggregate supply curve.
C) The change in the aggregate demand curve.
D) The change in the aggregate supply curve.
E) The change in economic growth.

29) All of the following, except one, is another way of thinking of full-employment GDP.
Which is the exception?

A) It is the level of GDP at the natural rate of unemployment.

B) It is often referred to as long-run aggregate supply.
C) It is the level of GDP when cyclical unemployment is zero.
D) It is the same as Potential GDP.
E) It is the level of GDP when frictional and structural unemployment is zero.

30) What does macroeconomic equilibrium imply?

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 A) The point where Real GDP is at capacity.
B) The point where the quantity of Real GDP demanded equals the quantity of Real GDP
supplied.
C) It is where the aggregate demand curve intersects the LAS curve.
D) It is possible only at various price levels.
E) Full employment GDP.

31) What does macroeconomic equilibrium imply?

A) AS = LAS
B) AD = AS
C) AD = LAS
D) AD = AS = LAS

32) If at a certain price level, the AS exceeds the AD then what are the implications?

A) There is a shortage of goods and services, and eventually prices will increase.
B) There is a surplus of goods and services, and eventually prices will increase.
C) There is a shortage of goods and services, and eventually prices will decrease.
D) There is a surplus of goods and services, and eventually prices will decrease.

33) When does macroeconomic equilibrium occur?

A) When exports equal imports.

B) When the aggregate supply equals the long-run Aggregate Supply.
C) When the aggregate quantity demanded is equal to the aggregate quantity supplied.
D) When the aggregate demand equals the long-run Aggregate Supply.

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