A.   The fallacy of composition is not present and savings increases total income.

B.   Individuals at the micro level attempt to increase their total savings, but at the macro level this reduces income in the economy, which reduces total savings for these individuals.

C.   Individuals at the micro level attempt to decrease their total savings, but at the macro level this increases income in the economy, which increases total savings for these individuals.

D.   The increase in the total amount of savings leads to an increase in investment.

A.   Vertical

B.   Horizontal

C.   Upward sloping

D.   Downward sloping

A.   Because potential output is vertical, which means the AD curve should be vertical.

B.   All of the available answers are correct.

C.   Because as the price level drops, and goods and services become less expensive, wages are also declining. This decrease in wages cancels out the decrease in the prices of goods and services.

D.   Because as the price level increases, and goods and services become less expensive, wages are also increasing. This increase in wages cancels out the decrease in the prices of goods and services.

A.   As the price level increases people have extra money, which is removed from banks and this leads to a drop in interest rates.  The drop in interest rates leads to an increase in investment.

B.   As the price level drops people have extra money, which is deposited into banks and this leads to a drop in interest rates.  The drop in interest rates leads to an increase in investment.

C.   As the price level drops people have less money, which is deposited into banks and this leads to an increase in interest rates.  The increase in interest rates leads to an increase in investment.

D.   None of the available answers

A.   Net exports to decrease because U.S. produced goods and services have become less expensive for rest of the world.

B.   Net exports to increase because U.S. produced goods and services have become more expensive for rest of the world.

C.   Net exports to increase because U.S. produced goods and services have become less expensive for rest of the world.

D.   Wages to increase because domestic industries are less competitive.

A.   Shift upwards

B.   Shift to the right

C.   Slope downward

D.   Shift to the left

A.   Because the profits for firms that export goods and services can increase, which can increase employment and investment.

B.   Because an increase in the price level will cause people to feel poorer, which will decrease aggregate expenditures.

C.   Because the profits for firms that export goods and services can decrease, which can decrease employment and investment.

D.   Because a decrease in the price level will cause people to feel poorer, which will increase aggregate expenditures.

A.   When the price level drops, which causes people to expect further increases in the prices of goods and services.  This expectation causes people to increase their consumption.

B.   When the price level drops the prices of assets can increase.  This can increase present day consumption and investment.

C.   When the price level increases, which causes people to reduce consumption and expect further increases in the prices of goods and services. This expectation creates a negative feedback effect and can cause dramatic recessions.

D.   When the price level drops, which causes people to expect further decreases in the prices of goods and services.  This expectation causes people to reduce their consumption in order to purchase goods and services at a later date and at a lower price.

A.   Aggregate expenditures will decrease at any given price level.

B.   The AD curve will become steeper.

C.   Aggregate expenditures will stay constant at any given price level.

D.   Aggregate expenditures will increase at any given price level.

A.   Shift the U.S. aggregate demand curve to the left.

B.   Cause the U.S. to move up its aggregate demand curve.

C.   Shift the U.S. aggregate demand curve to the right.

D.   Cause the U.S. to move down its aggregate demand curve.

A.   Become steeper

B.   Shift left

C.   Become horizontal

D.   Shift right

A.   Become flatter

B.   Become steeper

C.   Shift to the left

D.   Shift to the right

A.   The recipients of the government spending will in turn save that money, which will cause a multiplier effect to occur.

B.   An increase in government spending will cause the AD curve to shift left.

C.   An increase in government spending will cause the AD curve to become steeper.

D.   The recipients of the government spending will in turn spend that money in the economy, which will cause a multiplier effect to occur.

A.   The SAS curve becomes steeper.

B.   Input prices increase.

C.   Input prices are held constant.

D.   Input prices decrease.

A.   Productivity increases

B.   Wages increase

C.   Oil prices fall.

D.   Input prices decline

A.   Input prices increase

B.   Wages decrease

C.   Productivity declines

D.   Wages increase

A.   Horizontal because it shows that in the long run a higher price level will not bring about higher output.

B.   Vertical because it shows that in the long run higher output will not bring about a higher price level.

C.   Horizontal because it shows that in the long run higher output will not bring about a higher price level.

D.   Vertical because it shows that in the long run a higher price level will not bring about higher output.