Question 1

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

Accepted Answer

Because as the price level rises, the wealth effect, interest rate effect, and international trade effect all reduce the quantity of real GDP demanded.

Question 2

Suppose the U.S. government increases its spending on infrastructure projects. Which of the following best describes the effect on the aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts to the right.

Question 3

If the price level in the U.S. increases while incomes in foreign countries remain unchanged, what is the most likely effect on U.S. net exports?

Accepted Answer

Net exports decrease due to the international trade effect.

Question 4

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

Accepted Answer

A sudden increase in oil prices (negative supply shock).

Question 5

What is the equation for real GDP in terms of its components?

Accepted Answer

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

Question 6

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

Accepted Answer

It occurs when the aggregate demand and short-run aggregate supply curves intersect at the long-run aggregate supply level.

Question 7

During the 1970s, OPEC significantly increased oil prices. According to the aggregate supply and demand model, what was the likely short-run effect on the U.S. economy?

Accepted Answer

The SRAS curve shifted to the left, causing higher prices and lower output (stagflation).

Question 8

Which of the following is NOT a reason why the aggregate demand curve is downward sloping?

Accepted Answer

The sticky wage effect.

Question 9

Suppose a new technology increases productivity across all industries. What is the most likely effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

The SRAS curve shifts to the right.

Question 10

If households become more pessimistic about the future and reduce their spending, what happens in the aggregate demand and supply model?

Accepted Answer

The aggregate demand curve shifts to the left.

Question 11

Which of the following best describes stagflation?

Accepted Answer

A combination of inflation and recession, usually resulting from a negative supply shock.

Question 12

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

Accepted Answer

A change in the price level, holding all components of real GDP constant.

Question 13

Suppose the economy is initially in long-run equilibrium. A pandemic causes a sudden decrease in the availability of labor and capital. What is the most likely short-run effect?

Accepted Answer

The SRAS curve shifts to the left, leading to higher prices and lower output.

Question 14

Which of the following is a key assumption of New Keynesian economics?

Accepted Answer

Prices and wages are sticky and do not adjust instantly to changes in economic conditions.

Question 15

If foreign incomes rise faster than U.S. incomes, what is the likely effect on U.S. aggregate demand?

Accepted Answer

Aggregate demand increases as foreigners buy more U.S. goods and services.

Question 16

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

Accepted Answer

It is vertical because, in the long run, output is determined by factors of production and technology, not the price level.

Question 17

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

Accepted Answer

A decrease in input prices, such as a fall in oil prices.

Question 18

Suppose the economy experiences a negative supply shock. In the short run, what combination of changes in real GDP and the price level is most likely?

Accepted Answer

Real GDP decreases and the price level increases.

Question 19

Which of the following events contributed to the recession of 2007-2009, according to the aggregate demand and supply model?

Accepted Answer

The end of the housing bubble, the financial crisis, and a rapid increase in oil prices.

Question 20

Which of the following best describes the effect of an increase in the availability of factors of production (such as labor and capital) on the short-run aggregate supply curve?

Accepted Answer

The SRAS curve shifts to the right, allowing more production at any price level.

Aggregate Demand and Aggregate Supply: Fluctuations in Real GDP and Price Level

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