Question 1

Which of the following best explains why the short-run aggregate supply (SRAS) curve is upward sloping?

Accepted Answer

Because as the price level rises, firms' input prices rise more slowly, increasing profitability and encouraging higher output.

Question 2

Suppose the marginal propensity to consume (MPC) is 0.8. What is the value of the multiplier?

Accepted Answer

$$Multiplier = \frac{1}{1-0.8} = 5$$

Question 3

A sudden increase in oil prices causes the SRAS curve to shift to the left. What is the most likely short-run macroeconomic outcome?

Accepted Answer

Higher inflation and higher unemployment (stagflation)

Question 4

Which of the following is NOT included in the calculation of GDP?

Accepted Answer

The value of a computer chip sold to a computer manufacturer

Question 5

If the nominal GDP is $22 trillion and the GDP deflator is 110, what is the real GDP?

Accepted Answer

$$Real\ GDP = \frac{Nominal\ GDP}{Price\ Index/100} = \frac{22}{1.10} = 20\ trillion$$

Question 6

Which of the following would cause the aggregate demand curve to shift to the right?

Accepted Answer

An increase in foreign demand for U.S. goods

Question 7

If the unemployment rate falls because the labor force shrinks, what does this imply about the labor market?

Accepted Answer

The decline in unemployment is due to discouraged workers leaving the labor force.

Question 8

Which of the following best describes the long-run aggregate supply (LRAS) curve?

Accepted Answer

It is vertical because output is determined by resources and technology, not prices.

Question 9

If the government increases its budget deficit, what is the likely effect on the market for loanable funds?

Accepted Answer

The supply curve shifts left, raising the real interest rate and reducing investment.

Question 10

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker whose job was replaced by automation and who lacks the skills for new jobs

Question 11

If aggregate expenditures (AE) are less than GDP, what will happen to inventories and GDP in the next period?

Accepted Answer

Inventories will rise, and GDP will decrease.

Question 12

Which of the following is a cost of unanticipated inflation?

Accepted Answer

Lenders are hurt more than debtors

Question 13

Which of the following would most likely increase labor productivity in the long run?

Accepted Answer

Investment in new technology and worker training

Question 14

If the real interest rate is 3% and the nominal interest rate is 5%, what is the inflation rate?

Accepted Answer

$$Inflation\ Rate = Nominal\ Rate - Real\ Rate = 5\% - 3\% = 2\%$$

Question 15

Which of the following would cause the supply of loanable funds to shift to the right?

Accepted Answer

Tax benefits for saving, such as 401(k) accounts

Question 16

During the COVID-19 pandemic, both the SRAS and AD curves shifted to the left. What was the effect on real GDP and the price level?

Accepted Answer

Real GDP decreased and the price level decreased.

Question 17

Which of the following best describes the business cycle?

Accepted Answer

The short-run fluctuations in real GDP around its long-run trend

Question 18

If the U.S. dollar strengthens relative to other currencies, what is the likely effect on U.S. net exports?

Accepted Answer

Net exports will decrease because U.S. goods become more expensive abroad.

Question 19

Which of the following is the best measure for comparing the standard of living across countries and over time?

Accepted Answer

Real GDP per capita

Aggregate Demand, Aggregate Supply, and Macroeconomic Fluctuations: Core Concepts in Macroeconomics

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