Question 1

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

Accepted Answer

Because higher price levels lead to lower values of consumption, investment, and net exports due to the wealth, interest-rate, and international-trade effects.

Question 2

Suppose the Bank of Canada raises interest rates. What is the most likely short-run effect on aggregate demand?

Accepted Answer

Aggregate demand will shift to the left because higher interest rates reduce consumption and investment spending.

Question 3

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

Accepted Answer

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

Question 4

A sudden increase in oil prices is best described as:

Accepted Answer

A supply shock that shifts the SRAS curve to the left.

Question 5

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 other factors constant.

Question 6

If firms and workers expect higher prices in the future, what happens to the short-run aggregate supply (SRAS) curve?

Accepted Answer

SRAS shifts to the left.

Question 7

Which of the following is NOT a component of aggregate demand?

Accepted Answer

Imports (M)

Question 8

In the long run, the level of real GDP is determined by:

Accepted Answer

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

Question 9

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

Accepted Answer

An increase in the growth rate of foreign GDP relative to domestic GDP.

Question 10

What is the effect of an increase in the availability of the factors of production (labour or capital) on the SRAS curve?

Accepted Answer

SRAS shifts to the right.

Question 11

Which of the following is a plausible real-world indicator of aggregate demand?

Accepted Answer

The Lipstick Index, which suggests lipstick sales rise as the economy declines.

Question 12

According to the Monetarist school of thought, what should the central bank focus on?

Accepted Answer

Increasing the quantity of money at a constant rate.

Question 13

Which of the following best describes the New Classical model?

Accepted Answer

It focuses on rational expectations and the importance of correct price level forecasts.

Question 14

If the exchange rate rises, what is the expected effect on Canadian net exports?

Accepted Answer

Net exports will decrease because exports become more expensive and imports become cheaper.

Question 15

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

Accepted Answer

Contracts make some wages and prices 'sticky', so they do not respond quickly to changes.

Question 16

During the 2020 COVID-19 recession, which shock played a larger role according to the observed changes in real GDP and the Consumer Price Index?

Accepted Answer

A demand shock, because prices fell and output fell.

Question 17

Which school of thought argues that fluctuations in real GDP are mainly caused by temporary shocks to productivity?

Accepted Answer

Real Business Cycle

Question 18

If the growth rate of domestic GDP increases relative to the growth rate of foreign GDP, what happens to Canadian net exports?

Accepted Answer

Net exports decrease because imports rise faster than exports.

Question 19

Which of the following would shift the SRAS curve to the left?

Accepted Answer

An unexpected increase in the price of a key natural resource.

Question 20

Which of the following is true about long-run macroeconomic equilibrium?

Accepted Answer

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

Aggregate Demand and Aggregate Supply: Foundations, Determinants, and Macroeconomic Equilibrium

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