20120423115843969201204231202187222184 Chapter 33 Aggregate Demand and Aggregate Supply TRUE/FALSE 1. According to classical macroeconomic theory, changes in the money supply change nominal but not real variables. ANS: T DIF: 1 REF: 33-2 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Classical economics MSC: Definitional 2. Because economists understand what things change GDP, they can predict recessions with a fair amount of accuracy. ANS: F DIF: 1 REF: 33-1 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Economic fluctuations MSC: Analytical 3. Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together. ANS: T DIF: 1 REF: 33-1 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Economic fluctuations MSC: Interpretive 4. Like real GDP, investment fluctuates, but it fluctuates much less than real GDP.. ANS: F DIF: 1 REF: 33-1 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Economic fluctuations | Investment MSC: Definitional 5. When output rises, unemployment falls. ANS: T DIF: 1 REF: 33-1 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Economic fluctuations | Unemployment MSC: Definitional 6. An increase in the money supply causes output to rise in the long run. ANS: F DIF: 1 REF: 33-2 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Monetary neutrality MSC: Definitional 7. Most economists believe that classical theory describes the world in the short run but not in the long run. ANS: F DIF: 1 REF: 33-2 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Classical dichotomy MSC: Interpretive 8. A change in the money supply changes only nominal variables in the long run. ANS: T DIF: 1 REF: 33-2 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Monetary neutrality MSC: Definitional 9. The explanations for the slopes of the aggregate demand and short-run aggregate supply curves are the same as the explanations for the slopes of demand and supply curves for specific goods and services. ANS: F DIF: 1 REF: 33-2 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Aggregate demand slope | Short-run aggregate supply slope MSC: Definitional 10. The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level. ANS: T DIF: 2 REF: 33-2 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Aggregate-demand curve MSC: DefinitionalChapter 33/Aggregate Demand and Aggregate Supply  2185 11. A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate demand curve slopes downward. ANS: T DIF: 1 REF: 33-3 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Wealth effect MSC: Analytical 12. Other things the same, a decrease in the price level makes the interest rate decrease, which leads to a depreciation of the dollar in the foreign-currency exchange. ANS: T DIF: 2 REF: 33-3 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Wealth effect | Exchange-rate effect MSC: Analytical 13. The exchange-rate effect is the idea that a higher U.S. price level causes the value of the dollar to increase in foreign exchange markets, and this effect contributes to the downward slope of the aggregate-demand curve. ANS: T DIF: 2 REF: 33-3 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Aggregate demand slope MSC: Interpretive 14. The downward slope of the aggregate demand curve is based on logic that as the price level rises, consumption, investment, and net exports all fall. ANS: T DIF: 2 REF: 33-3 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Aggregate demand slope MSC: Interpretive 15. Aggregate demand shifts to the left if the money supply increases. ANS: F DIF: 1 REF: 33-3 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Aggregate demand shifts | Monetary policy MSC: Applicative 16. A decrease in the money supply causes the interest rate to rise so that investment falls. ANS: T DIF: 2 REF: 33-3 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Aggregate demand shifts | Money supply MSC: Analytical 17. If speculators bid up the value of the dollar in the market for foreign-currency exchange, U.S. aggregate demand would shift to the left. ANS: T DIF: 2 REF: 33-3 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Aggregate demand shifts | Net exports MSC: Analytical 18. The effect of a change in the value of the dollar in the foreign exchange market due to a change in the price level helps explain the slope of aggregate demand, but does not shift it. The effects of a change in the value of the dollar in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve. ANS: T DIF: 3 REF: 33-3 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Aggregate-demand curve MSC: Analytical 19. An increase in the money supply shifts the long-run aggregate supply curve to the right. ANS: F DIF: 1 REF: 33-4 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Long-run aggregate supply | Monetary policy MSC: Applicative 20. Technological progress shifts the long-run aggregate supply curve to the right. ANS: T DIF: 1 REF: 33-4 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Economic growth and inflation MSC: Applicative2186  Chapter 33/Aggregate Demand and Aggregate Supply 21. Other things the same, technological progress raises the price level.. ANS: F DIF: 2 REF: 33-4 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Economic growth and inflation MSC: Applicative 22. Because the price level does not affect the long-run determinants of real GDP, the long-run aggregate-supply is vertical. ANS: T DIF: 1 REF: 33-4 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Long-run aggregate supply MSC: Interpretive 23. We could explain continued increases in both output and the price level by supposing that only aggregate demand shifted right over time. ANS: F DIF: 2 REF: 33-4 NAT: Analytic LOC: