Question 1

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

Accepted Answer

Because as the price level rises, the real value of household wealth declines, interest rates rise, and net exports fall.

Question 2

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

Accepted Answer

The AD curve shifts to the left because investment spending decreases.

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

A decrease in the price level in the U.S. will most likely cause which of the following according to the international-trade effect?

Accepted Answer

U.S. exports become less expensive, increasing net exports.

Question 5

Which of the following would cause a shift of the short-run aggregate supply (SRAS) curve to the left?

Accepted Answer

Firms and workers expecting higher future price levels.

Question 6

In the long run, the level of real GDP is determined by which of the following?

Accepted Answer

The number of workers, the level of technology, and the capital stock.

Question 7

If the government increases personal income taxes, what is the most likely effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts to the left because consumption falls.

Question 8

Which of the following best describes long-run macroeconomic equilibrium?

Accepted Answer

It occurs when the AD and SRAS curves intersect at the LRAS level.

Question 9

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

Accepted Answer

A leftward shift of the SRAS curve, causing stagflation.

Question 10

Which of the following is a key difference between the Keynesian and Monetarist schools of thought?

Accepted Answer

Keynesians emphasize the stickiness of wages and prices, while Monetarists focus on the money supply.

Question 11

Suppose the U.S. dollar appreciates relative to other currencies. What is the most likely effect on U.S. net exports and aggregate demand?

Accepted Answer

Net exports decrease, shifting AD to the left.

Question 12

Which of the following is an example of a fiscal policy action that would shift the aggregate demand curve to the right?

Accepted Answer

The government increases its purchases of goods and services.

Question 13

If workers and firms underestimate the future price level, what is the likely short-run effect on the SRAS curve?

Accepted Answer

SRAS shifts to the right.

Question 14

Which of the following best describes the real business cycle model?

Accepted Answer

It argues that aggregate supply is vertical even in the short run and that productivity shocks drive fluctuations.

Question 15

During the 2020 recession, which component of aggregate demand increased, contrary to typical recessions?

Accepted Answer

Residential investment.

Question 16

Which of the following is a plausible multi-step scenario: If the government increases spending and households become more optimistic about the future, what is the likely effect on the AD curve and the short-run equilibrium?

Accepted Answer

AD shifts right, and equilibrium output rises.

Question 17

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

Accepted Answer

All firms and workers instantly adjust to price level changes.

Question 18

According to the dynamic aggregate demand and aggregate supply model, what is the usual cause of inflation?

Accepted Answer

Total spending increases faster than production.

Question 19

Which school of thought argues that central bank-induced low interest rates cause the business cycle by prompting overinvestment?

Accepted Answer

Austrian school.

Aggregate Demand and Aggregate Supply Analysis: Macroeconomics Study Guide

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