Question

1. A decrease in expected returns on investment will most likely shift the AD curve to the:

A. Right because C will increase

B. Left because C will decrease

C. Right because I will increase

D. Left because I will decrease

2. An increase in personal income taxes would shift AD to the:

A. Right because C will increase

B. Left because C will decrease

C. Right because G will increase

D. Left because G will decrease

3. An increase in expected future income will:

A. Increase aggregate demand and aggregate supply

B. Decrease aggregate demand and aggregate supply

C. Increase aggregate supply

D. Increase aggregate demand

4. A decrease in government spending will cause a(n):

A. Increase in the quantity of real output demanded

B. Decrease in the quantity of real output demanded

C. Decrease in aggregate demand

D. Increase in aggregate demand

5. If the dollar appreciates in value relative to foreign currencies:

A. Aggregate demand decreases because C decreases

B. Aggregate demand increases because C increases

C. Aggregate demand decreases because net exports decrease

D. Aggregate demand increases because net exports increase

6. If the national incomes of our trading partners increase, then our:

A. Aggregate demand decreases because C decreases

B. Aggregate demand increases because C increases

C. Aggregate demand decreases because net exports decrease

D. Aggregate demand increases because net exports increase

Answer 1

A decrease in expected returns on investment will make investment less profitable, hence people will invest less and investment component of aggregate demand decreases, hence aggregate demand decreases and AD curve will shift leftward. Hence the answer will be:

D. Left because I will decrease.

An increase in personal income taxes will lower level of disposable income, hence consumption which is a function of disposable income, will decrease, as consumption decreases, aggregate demand will decrease and AD curve will shift leftward. Hence the answer will be:

B. Left because C will decrease.

An increase in expected future income will:

D. Increase aggregate demand.

A decrease in government spending will cause a(n):

As government spending is a component of aggregate demand, as government spending decreases, aggregate demand decreases and AD curve will shift leftward. Hence the answer will be:

C.Decrease in aggregate demand.

If the dollar appreciates in value relative to foreign currencies it will cause a decline in the net export and as net export is a component of aggregate demand, aggregate demand will decline. Hence the answer will be:

C. Aggregate demand decreases because net export decrease.

If the national incomes of our trading partners increase, then trading partner will import greater amounts from us and our level of export will increase, hence net export will increase and as net export is a component of aggregate demand, aggregate demand will increase. Hence the answer will be:

D. Aggregate demand increases because net export increase.