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 real value of household wealth falls, interest rates rise, and net exports decrease.

Question 2

Suppose the U.S. government increases its spending on infrastructure projects. What is the most likely immediate effect on the aggregate demand curve?

Accepted Answer

The AD curve will shift to the right.

Question 3

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

Accepted Answer

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

Question 4

If the price level in the U.S. increases while foreign price levels remain constant, what is the likely effect on U.S. net exports according to the international trade effect?

Accepted Answer

U.S. net exports will decrease because U.S. goods become relatively more expensive.

Question 5

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

Accepted Answer

A technological improvement that increases productivity.

Question 6

What is the main difference between the long-run aggregate supply (LRAS) curve and the short-run aggregate supply (SRAS) curve?

Accepted Answer

The LRAS curve is vertical, while the SRAS curve is upward sloping.

Question 7

Suppose a negative supply shock occurs, such as a sudden increase in the price of oil. What is the most likely short-run effect on the economy?

Accepted Answer

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

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 of output.

Question 9

If the economy is experiencing stagflation, which of the following is most likely true?

Accepted Answer

The economy is experiencing both high inflation and high unemployment due to a negative supply shock.

Question 10

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

Accepted Answer

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

Question 11

A positive supply shock, such as a sudden decrease in input prices, will most likely have which effect on the short-run aggregate supply curve and the price level?

Accepted Answer

SRAS shifts to the right and the price level falls.

Question 12

Which of the following is NOT a reason for the downward slope of the aggregate demand curve?

Accepted Answer

The substitution effect.

Question 13

If foreign incomes increase more rapidly than U.S. incomes, what is the likely effect on U.S. aggregate demand?

Accepted Answer

U.S. aggregate demand will increase because U.S. exports will rise.

Question 14

Which of the following best describes the concept of 'full employment' in the context of long-run macroeconomic equilibrium?

Accepted Answer

It is the level of employment where only structural and frictional unemployment exist.

Question 15

During the 2007-2009 recession, which of the following was NOT a main factor causing the downturn?

Accepted Answer

A major technological breakthrough.

Question 16

Suppose the central bank increases the money supply. According to the interest rate effect, what is the likely impact on aggregate demand?

Accepted Answer

Aggregate demand will increase because higher money supply lowers interest rates, stimulating investment.

Question 17

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

Accepted Answer

The government increases income taxes.

Question 18

If firms expect higher future profits, what is the likely effect on the aggregate demand curve?

Accepted Answer

Aggregate demand will shift to the right as investment increases.

Question 19

Which of the following best describes the 'stickiness' emphasized by New Keynesian economics?

Accepted Answer

Some prices and wages are slow to adjust, leading to short-run fluctuations in output and employment.

Question 20

A supply shock causes the SRAS curve to shift left. If policymakers want to restore output to its full employment level, which policy would be most effective?

Accepted Answer

Increase government spending to shift aggregate demand right.

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

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