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Everything else held constant, aggregate demand increases when ____.
A) net exports decrease
B) taxes increase
C) planned investment spending increases
D) the money supply decreases
Answer: C
Diff: 2 Type: MC Page Ref: 575
Skill: Recall
Objective List: 24.1 Interpret the aggregate demand and supply framework for the determination
of aggregate output and the inflation rate
Everything else held constant, which of the following does not cause aggregate demand to
increase?
A) An increase in net exports
B) An increase in government spending
C) An increase in taxes
D) An increase in consumer optimism
Answer: C
Diff: 2 Type: MC Page Ref: 575
Skill: Recall
Objective List: 24.1 Interpret the aggregate demand and supply framework for the determination
of aggregate output and the inflation rate
Explain through the component parts of aggregate demand why the aggregate demand curve
slopes down with respect to the inflation rate. Be sure to discuss two channels through which
changes in inflation rates affect demand.
Answer: A fall in the inflation rate lowers real interest rates. Lower rates increase investment,
thereby increasing aggregate demand. Lower interest rates also cause depreciation of the
domestic currency, increasing net exports and aggregate demand.
Diff: 2 Type: SA Page Ref: 572
Skill: Recall
Objective List: 24.1 Interpret the aggregate demand and supply framework for the determination
of aggregate output and the inflation rate
What are the factors that can shift the aggregate demand curve to the right?
Answer: These factors are:
a. An increase in the money supply
b. An increase in government spending
c. A decrease in taxes
d. An increase in net exports
e. An increase in consumer optimism
f. An increase in business optimism
Diff: 2 Type: SA Page Ref: 574
Skill: Recall
Objective List: 24.1 Interpret the aggregate demand and supply framework for the determination
of aggregate output and the inflation rate