3.1 Aggregate Demand

Which of the following explains the slope of the aggregate demand curve?

I. the wealth effect of a change in aggregate price level

II. the interest rate effect of a change in the aggregate price level

III. the product-substitution effect of a change in the aggregate price level

• I only

• II only

• III only

• I and II only

• I, II, and III

Which of the following will shift the aggregate demand curve to the right?

• a decrease in wealth

• pessimistic consumer expectations

• a decrease in the existing stock of capital

• contractionary fiscal policy

• a decrease in the quantity of money

Decreases in the stock market decrease aggregate demand by decreasing which of the following?

• consumer wealth

• the price level

• the stock of existing capital goods

• interest rates

• tax revenues

Which of the following government policies will shift the aggregate demand curve to the left?

• a decrease in the quantity of money

• an increase in government purchases of goods and services

• a decrease in taxes

• a decrease in interest rates

• an increase in government transfers

Which of the following will occur if the government reduces defense spending?

• aggregate demand will increase

• aggregate demand will decrease

• there will be no change in aggregate demand or supply

• aggregate supply will increase

• aggregate supply will decrease

Which of the following will occur if an increase in interest rates leads to a decrease in investment spending?

• aggregate demand will increase

• aggregate demand will decrease

• there will be no change in aggregate demand or supply

• aggregate supply will increase

• aggregate supply will decrease

Which of the following will occur as a result of an increase in the aggregate price level?

• aggregate demand will increase

• aggregate demand will decrease

• there will be no change in aggregate demand or aggregate supply

• aggregate supply will increase

• aggregate supply will decrease

As a result of the wealth effect, a higher aggregate price level will reduce which of the following?

• households' purchasing power

• interest rates

• investment spending

• nominal wages

• aggregate demand

The interest rate effect of a decrease in aggregate price level will increase which of the following?

• the purchasing power of money holdings

• investment spending

• interest rates

• aggregate supply

• aggregate demand

As a result of higher interest rates, consumers buy less interest sensitive goods like automobiles. This is an example of the

• wealth effect

• foreign purchases effect

• interest rate effect

• all of the above

• none of the above