Q: Which formula represents the calculation of disposable income?

$$\text{Disposable Income} = \text{Aggregate Income} - \text{Taxes} + \text{Transfer Payments}$$

Question 1

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

Accepted Answer

It is vertical because potential GDP does not depend on the price level.

Question 2

Suppose the money wage rate increases while all other factors remain constant. What is the most likely effect on the short-run aggregate supply (SAS) curve?

Accepted Answer

The SAS curve shifts leftward.

Question 3

Which equation correctly represents aggregate demand in an open economy?

Accepted Answer

$$Y = C + I + G + X - M$$

Question 4

If the price level rises, what is the expected impact on the quantity of real GDP demanded, according to the wealth effect?

Accepted Answer

It decreases because the real value of wealth falls.

Question 5

A fall in the foreign exchange rate (the value of the domestic currency) will most likely have which effect on aggregate demand?

Accepted Answer

Increase aggregate demand by making exports cheaper and imports more expensive.

Question 6

Which of the following scenarios would cause both the LAS and SAS curves to shift rightward?

Accepted Answer

An advance in technology.

Question 7

In the short-run macroeconomic equilibrium, what condition must be met?

Accepted Answer

Aggregate demand equals short-run aggregate supply.

Question 8

Which of the following best explains the international substitution effect?

Accepted Answer

A rise in the price level increases the price of domestic goods relative to foreign goods, leading to more imports and fewer exports.

Question 9

If the economy is in an above full-employment equilibrium, what is most likely to happen in the long run?

Accepted Answer

The money wage rate will rise, shifting the SAS curve leftward.

Question 10

Which school of thought believes that the economy is self-regulating and always at full employment?

Accepted Answer

Classical

Question 11

Suppose the government increases transfer payments and cuts taxes. What is the most likely effect on aggregate demand?

Accepted Answer

Aggregate demand increases due to higher disposable income.

Question 12

Which of the following is NOT a reason for changes in potential GDP?

Accepted Answer

An increase in the money wage rate.

Question 13

If aggregate demand increases faster than potential GDP, what is the likely macroeconomic outcome?

Accepted Answer

Inflation

Question 14

Which formula represents the calculation of disposable income?

Accepted Answer

$$	ext{Disposable Income} = 	ext{Aggregate Income} - 	ext{Taxes} + 	ext{Transfer Payments}$$

Question 15

A recessionary gap is best described as:

Accepted Answer

The amount by which potential GDP exceeds real GDP.

Question 16

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

Accepted Answer

A decrease in government expenditure.

Question 17

According to the Keynesian view, what is required to achieve and maintain full employment?

Accepted Answer

Active help from fiscal and monetary policy.

Question 18

If the price level falls, what is the expected effect on the interest rate and aggregate demand, according to the intertemporal substitution effect?

Accepted Answer

Interest rate falls and aggregate demand increases.

Question 19

Which of the following is a plausible real-world example of stagflation?

Accepted Answer

High inflation combined with rising unemployment.

Question 20

A monetarist would most likely argue that to maintain full employment, monetary policy should:

Accepted Answer

Be steady and avoid rapid changes in the money supply.

Aggregate Supply and Aggregate Demand: Macroeconomic Equilibrium, Growth, and Fluctuations

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