Question 1

Suppose the U.S. economy is in long-run equilibrium. If the Federal Reserve unexpectedly raises interest rates, what is the most likely short-run effect on real GDP and the price level?

Accepted Answer

Real GDP decreases and the price level falls.

Question 2

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

Accepted Answer

Because contracts, slow wage adjustments, and menu costs make some prices and wages 'sticky'.

Question 3

If the price of oil suddenly increases worldwide, what is the most likely immediate effect on the U.S. short-run aggregate supply curve?

Accepted Answer

The SRAS curve shifts to the left.

Question 4

Which of the following government actions would shift the aggregate demand curve to the right, ceteris paribus?

Accepted Answer

A decrease in interest rates.

Question 5

During the Covid-19 recession, why did D.R. Horton (a home builder) perform better than AMC (a movie theater chain)?

Accepted Answer

Because record low interest rates and stimulus checks boosted residential construction.

Question 6

Which of the following is the correct formula for real GDP in the aggregate demand model?

Accepted Answer

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

Question 7

If workers and firms expect the price level to rise in the future, what is the likely effect on the short-run aggregate supply curve?

Accepted Answer

The SRAS curve shifts to the left.

Question 8

Which of the following best describes the 'wealth effect' in the context of aggregate demand?

Accepted Answer

When the price level falls, the real value of household wealth rises, increasing consumption.

Question 9

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 and aggregate demand shifts left.

Question 10

Which of the following would NOT shift the long-run aggregate supply (LRAS) curve?

Accepted Answer

A change in the price level.

Question 11

If the economy is at long-run equilibrium and there is a sudden negative supply shock (such as a pandemic), what is the most likely short-run outcome?

Accepted Answer

The price level rises and real GDP falls.

Question 12

Which of the following is an example of a movement along the aggregate demand curve rather than a shift of the curve?

Accepted Answer

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

Question 13

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

Accepted Answer

When the AD and SRAS curves intersect at the LRAS level.

Question 14

If stricter immigration laws reduce the number of workers in the U.S., what is the likely effect on the long-run aggregate supply curve?

Accepted Answer

The LRAS curve shifts to the left.

Question 15

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

Accepted Answer

An improvement in technology.

Question 16

Which of the following is a likely result of stagflation caused by a negative supply shock?

Accepted Answer

Rising prices and falling output.

Question 17

If the price level decreases, which of the following is most likely to occur according to the aggregate demand and aggregate supply model?

Accepted Answer

A movement down along the aggregate demand curve, increasing real GDP demanded.

Question 18

Which of the following is NOT a reason why wages and prices might be 'sticky' in the short run?

Accepted Answer

Firms instantly adjust all prices and wages to market conditions.

Question 19

Suppose the government increases its purchases of goods and services. What is the most likely effect on the aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts to the right.

Question 20

Which of the following best describes potential GDP?

Accepted Answer

The level of real GDP in the long run when the economy is at full employment.

Aggregate Demand and Aggregate Supply: Short-Run and Long-Run Macroeconomic Fluctuations

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