Question 1

Which of the following best explains why the aggregate demand (AD) curve slopes downward?

Accepted Answer

Because higher price levels reduce the real value of household wealth, increase interest rates, and make exports less competitive.

Question 2

Suppose the Federal Reserve increases interest rates. What is the most likely short-run effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts to the left because consumption and investment spending decrease.

Question 3

Which equation correctly represents the components of real GDP in the aggregate demand model?

Accepted Answer

$$Y = C + I + G + NX$$

Question 4

If the U.S. dollar appreciates relative to foreign currencies, what is the expected effect on U.S. net exports and the aggregate demand curve?

Accepted Answer

Net exports will fall, shifting the AD curve to the left.

Question 5

Which of the following would cause a movement along the aggregate demand curve, rather than a shift of the curve?

Accepted Answer

A change in the price level, holding all else constant.

Question 6

Why is the long-run aggregate supply (LRAS) curve vertical?

Accepted Answer

Because in the long run, real GDP is determined by the number of workers, technology, and capital stock, not the price level.

Question 7

Which of the following is NOT a reason why the short-run aggregate supply (SRAS) curve is upward sloping?

Accepted Answer

All firms can instantly adjust their prices and wages.

Question 8

If workers and firms expect the price level to rise in the future, what is the likely effect on the SRAS curve?

Accepted Answer

The SRAS curve will shift to the left.

Question 9

A negative supply shock, such as a sudden increase in oil prices, will most likely cause which of the following?

Accepted Answer

A leftward shift of the SRAS curve.

Question 10

During the 2020 recession, which component of aggregate demand experienced the largest decline?

Accepted Answer

Consumption of services

Question 11

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

Accepted Answer

An increase in consumer optimism about future income

Question 12

If productivity increases in the economy, what is the expected effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

The SRAS curve shifts to the right.

Question 13

Which of the following best describes the wealth effect?

Accepted Answer

As the price level rises, the real value of household wealth decreases, leading to less consumption.

Question 14

Which of the following would cause the SRAS curve to shift to the right?

Accepted Answer

A decrease in the price of an important natural resource

Question 15

Suppose the government increases personal income taxes. What is the likely effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts to the left because consumption decreases.

Question 16

Which of the following is a component of aggregate demand that is typically determined by policy makers and is independent of the price level?

Accepted Answer

Government purchases

Question 17

If the labor force increases, what is the expected effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

The SRAS curve shifts to the right.

Question 18

Which of the following best describes a supply shock?

Accepted Answer

An unexpected event that causes the short-run aggregate supply curve to shift.

Question 19

If firms and workers have underestimated the price level in the past and are now adjusting, what is the likely effect on the SRAS curve?

Accepted Answer

The SRAS curve shifts to the left.

Question 20

Which of the following is most likely to shift the long-run aggregate supply (LRAS) curve to the right?

Accepted Answer

An increase in the capital stock

Aggregate Demand and Aggregate Supply Analysis: Study Guide

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