Suppose a decrease in price increases quantity demanded from 8 to 12. Using the mid-point formula, the percentage change in quantity demanded is:

Answer the following questions true (T) or false (F)

1. An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to decrease the money supply. 2. To complement actions by the Fed to reduce inflation, Congress and the President can cut spending and/or raise taxes. 3. The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

Answer the following statement(s) true (T) or false (F)

1. The aggregate demand curve can shift to the right or left due to changes in price levels. 2. A decrease in a nation’s population will increase aggregate demand. 3. A fall in incomes abroad can reduce U.S. net exports and cause a leftward shift in the U.S. aggregate demand curve. 4. Input prices are said to be sticky in the long run. 5. The misperception effect involves a false perception about relative prices.