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Multiple choice economics questions

Aggregate demand slopes downward because
a. there are always substitute goods for anything.
b. of diminishing marginal utility.
c. of the effect of higher prices on consumers' wealth.
d. foreign goods can substitute for domestic goods.
e. Both c and d are correct.

A shift in aggregate supply would be caused by all of the following except
a. major discoveries of new natural gas reserves.
b. an epidemic that killed 1 million people.
c. new breakthroughs in the use of computers.
d. a change in the relative prices of most products.
e. a growing sense of pessimism about the future of the economy.

Which of the following is NOT a tool of fiscal policy?
a. Personal taxes
b. Corporate taxes
c. Transfer payments
d. Government purchases of goods and service
e. The money supply

Which of the following is said to occur when real GDP declines for two consecutive quarters?
a. Hyperinflation
b. A recession
c. Low unemployment
d. All of the above
With respect to aggregate supply and aggregate demand, what will be most likely to happen when quantity supplied exceeds the quantity demanded?
a. Hyperinflation
b. A recession
c. Lower unemployment rates
d. Full employment

When the price level falls in our economy relative to the price level in foreign economies, consumers tend to:
a. Buy more imported goods and fewer domestically produced goods.
b. Buy more imported goods and more domestic goods.
c. Buy fewer imported goods and more domestic goods.
d. Buy fewer imported goods and fewer domestic goods.

Which of the following best describes the term "resource allocation"?
a. Which goods and services society will produce with available land, labor,
and capital.
b. How society spends the income of individuals.
c. How society purchases resources.
d. How one spends one's income.

Solution Preview

Aggregate demand slopes downward because
a. there are always substitute goods for anything.
b. of diminishing marginal utility.
c. of the effect of higher prices on consumers' wealth.
d. foreign goods can substitute for domestic goods.
e. Both c and d are correct.
There are three basic reasons for the downward sloping aggregate demand curve.: Pigou's wealth effect, Keynes' interest-rate effect, and Mundell-Fleming's exchange-rate effect. The wealth effect refers to an increase in spending that accompanies an increase in wealth. The exchange-rate effect is more complicated and goes like this: as the price level drops, interest rates ...

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