10. What role does the government play in aggregate demand?
A. The government has no role in aggregate demand.
B. The government buys and sells stock.
C. The government can increase or decrease spending, thereby affecting aggregate demand.
D. The government can only influence aggregate supply.
E. The government can manipulate inflation rates.- If the aggregate demand curve were in range 2 and total spending decreased, what would happen to the economy?
A. Inflation would become a problem.
B. Unemployment would rise.
C. The economy would be at productive capacity.
D. The economy would be experiencing lower levels of unemployment.
E. The economy would shift into range 3.
12. Which one of the following would cause aggregate demand to shift?
A. Substitution
B. Complementary-good prices
C. An increase in resources
D. An increase in technology
E. A change in consumer spending13. How do subsidies affect aggregate supply?
A. They can make it cheaper for firms to produce their products, thereby allowing them to increase supply.
B. They can increase taxes.
C. They can help decrease taxes.
D. They allow firms to pay the government excess revenue.
E. None of the above.14. What type of employment is present in range 1?
A. High employment
B. Low employment
C. Full employment
D. Cyclical employment
E. Range 1 has no impact on employment15. Which one of the following is a determinant of aggregate supply?
A. Input costs
B. Consumer expectations
C. Prices
D. Substitute goods
E. Tastes or preferencesAnswers to Review Questions
- E.Remember that “investment” involves the purchase of capital for firms. When firms purchase capital, sewing
machines in our example, they do so with the hopes of increasing efficiency. - C.An increase in government spending is an increase in total spending. An increase in total spending will
increase aggregate demand. A rise in the income tax rate will lower aggregate demand, and expectations of
58 surpluses will lower aggregate demand now and increase it later.
Part II: Macroeconomics