1. During a recession the economy experiences
a. rising employment and income.
b. rising employment and falling income.
c. rising income and falling employment.
d. falling employment and income.

2. Most economists use the aggregate demand and aggregate supply model primarily to analyze
a. short-run fluctuations in the economy.
b. the effects of macroeconomic policy on the prices of individual goods.
c. the long-run effects of international trade policies.
d. productivity and economic growth.

3. The classical dichotomy refers to the separation of
a. prices and nominal interest rates.
b. taxes and government spending.
c. decisions made by the public and decisions made by the government.
d. real and nominal variables.

4. According to classical macroeconomic theory, changes in the money supply affect
a. variables measured in terms of money and variables measured in terms of quantities or relative prices
b. variables measured in terms of money but not variables measured in terms of quantities or relative prices
c. variables measured in terms of quantities or relative prices, but not variables measured in terms of money
d. neither variables measured in terms of money nor variables measured in terms of quantities or relative prices

5. Most economists believe that money neutrality
a. does not hold in the short run.
b. does not hold in the long run.
c. does not hold in either the short run or long run.
d. holds in the short run and the long run.

6. The aggregate demand and aggregate supply graph has
a. quantity of output on the horizontal axis. Output can be measured by the GDP deflator.
b. quantity of output on the horizontal axis. Output can be measured by real GDP.
c. quantity of output on the vertical axis. Output can be measured by the GDP deflator.
d. quantity of output on the vertical axis. Output can be measured by real GDP.

7. Aggregate demand includes
a. the quantity of goods and services the government, households, firms, and customers abroad want to buy.
b. neither the quantity of goods and services the government, households, nor firms want to buy nor the quantity of goods and services customers abroad want to buy.
c. the quantity of goods and service the government wants to buy, but not the quantity of goods and services households, firms, or customers abroad want to buy.
d. the quantity of goods and services households and firms want to buy, but not the quantity of goods and services the government wants to buy.

8. Other things the same, a decrease in the price level motivates people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.
c. more money, so they lend more, and the interest rate rises.
d. more money, so they lend less, and the interest rate falls.

9. When the dollar depreciates, U.S.
a. net exports rise, which increases the aggregate quantity of goods and services demanded.
b. net exports rise, which decreases the aggregate quantity of goods and services demanded.
c. net exports fall, which increases the aggregate quantity of goods and services demanded.
d. net exports fall, which decreases the aggregate quantity of goods and services demanded.

10. Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
a. real wealth falls.
b. the interest rate rises.
c. the dollar depreciates.
d. None of the above is correct.

11. When taxes decrease, consumption
a. decreases as shown by a movement to the left along a given aggregate-demand curve.
b. decreases as shown by a shift of the aggregate demand curve to the left.
c. increases as shown by a movement to the right along a given aggregate-demand curve.
d. increases as shown by a shift of the aggregate demand curve to the right.

12. When taxes increase, consumption
a. increases, so aggregate demand shifts right.
b. increases, so aggregate supply shifts right.
c. decreases, so aggregate demand shifts left.
d. decreases, so aggregate supply shifts left.

13. When the money supply increases
a. interest rates fall and so aggregate demand shifts right.
b. interest rates fall and so aggregate demand shifts left.
c. interest rates rise and so aggregate demand shifts right.
d. interest rates rise and so aggregate demand shifts left.

14. When the Fed buys bonds
a. the supply of money increases and so aggregate demand shifts right.
b. the supply of money decreases and so aggregate demand shifts left.
c. the supply of money decreases and so aggregate demand shifts right.
d. the supply of money increases and so aggregate demand shifts left.

15. The initial impact of an increase in an investment tax credit is to shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.

16. Which of the following shifts aggregate demand to the left?
a. an increase in the price level.
b. households decide to save a larger fraction of their income.
c. an increase in net exports.
d. Congress passes a new investment tax credit.

17. Aggregate demand shifts right if at a given price level
a. taxes rise and shifts left if the money supply increases.
b. taxes rise and shifts right if the money supply increases.
c. taxes fall and shifts left if the money supply increases.
d. taxes fall and shifts right if the money supply increases.

18. If countries that imported goods and services from the United States went into recession, we would expect that U.S. net exports would
a. rise, making aggregate demand shift right.
b. rise, making aggregate demand shift left.
c. fall, making aggregate demand shift right.
d. fall, making aggregate demand shift left.

19. If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports
a. increase which shifts aggregate demand right.
b. increase which shifts aggregate demand left.
c. decrease which shifts aggregate demand right.
d. decrease which shifts aggregate demand left.

20. In which case can we be sure aggregate demand shifts left overall?
a. people want to save more for retirement and the Fed increases the money supply.
b. people want to save more for retirement and the Fed decreases the money supply.
c. people want to save less for retirement and the Fed increases the money supply.
d. people want to save less for retirement and the Fed decreases the money supply.