Question 168. The ratchet effect means that:

168. The ratchet effect means that:

A) when aggregate supply increases, the price level decreases.

B) when aggregate supply decreases, the price level increases.

C) when aggregate demand decreases, the price level remains constant.

D) when aggregate demand increases, the price level remains constant.

Use the following to answer question 169:

Type: G Level: Easy E: 198 MA: 198

169. Refer to the above graph. The ratchet effect would suggest that:

A) if AD₁ moves to AD₂, the new equilibrium would be at b.

B) if AD₁ moves to AD₂, the new equilibrium would be at c.

C) if AD₂ moves to AD₁, the new equilibrium would be at a.

D) if AD₂ moves to AD₁, the new equilibrium would be at b.

Last Word Questions

Type: A Level: Easy E: 201 MA: 201 Status: New

170. Major increases in oil prices in the mid-1970s, and in the late 1970s created:

A) an increase in long-run aggregate supply. C) adverse aggregate supply shocks.

B) a reduction in the unemployment rate. D) beneficial aggregate demand shocks.

Type: A Level: Moderate E: 201 MA: 201 Status: New

171. In the late 1980s and throughout most of the 1990s, oil prices:

A) increased over the entire period.

B) remained relatively constant over the entire period.

C) created an adverse aggregate supply shock to the economy.

D) created a beneficial aggregate supply boost to the economy.

Type: A Level: Moderate E: 201 MA: 201 Status: New

172. Why did the increase in oil prices in the late 1990s and early years of the 2000s notproduce substantial cost-push inflation?

A) Other determinants of aggregate supply offset the negative effects of oil price increases.

B) Monetary policy was procyclical during the period, thus boosting the economy.

C) The amount of energy consumed rose as a percentage of GDP.

D) The economy became more dependent on manufacturing as the basis for economic growth.

True/False Questions

Type: A Level: Moderate E: 189 MA: 189

173. Aggregate demand is a schedule which shows the various amounts of goods and services that only consumers and businesses desire to purchase at each possible price level.

Type: A Level: Difficult E: 188-189 MA: 188-189 Status: New

174. The aggregate demand curve shows that when the price level rises, the quantity of real GDP demanded decreases.

Type: A Level: Moderate E: 188-189 MA: 188-189

175. A rise in the price level decreases the real value of financial assets with fixed money values and, as a result, decreases spending by the holders of these assets.

Type: A Level: Easy E: 188-189 MA: 188-189

176. The interest rate effect indicates that, given the supply of money, a higher price level will decrease the demand for money, thereby increasing the interest rate and reducing those consumption and investment purchases which are interest-rate sensitive.

Type: A Level: Difficult E: 190 MA: 190

177. A change in household indebtedness will cause a movement along an existing aggregate demand curve.

Type: A Level: Difficult E: 191 MA: 191

178. An increase in net exports reduces aggregate demand.

Type: A Level: Easy E: 190-191 MA: 190-191

179. An increase in real interest rates will increase aggregate demand.

Type: A Level: Moderate E: 190 MA: 190

180. An increase in consumer wealth will decrease aggregate demand.

Type: A Level: Moderate E: 190-191 MA: 190-191