Question 1

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

Accepted Answer

Because as the price level falls, the wealth effect, interest-rate effect, and international-trade effect all increase the quantity of goods and services demanded.

Question 2

Suppose the government increases its purchases by $100 billion. Using the aggregate demand and aggregate supply (AD-AS) model, what is the most likely short-run effect on real GDP and the price level?

Accepted Answer

Both real GDP and the price level increase.

Question 3

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

Accepted Answer

A technological advancement that increases productivity.

Question 4

If the economy is experiencing a negative supply shock (such as a natural disaster), what is the likely short-run effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

SRAS shifts to the left.

Question 5

Which of the following is NOT a function of money?

Accepted Answer

Source of economic growth

Question 6

A country has the following data: Exports = $$500 billion, Imports = 600 $$billion. What are its net exports?

Accepted Answer

$$-100$$ billion

Question 7

Which of the following best describes the process of money creation in a fractional reserve banking system?

Accepted Answer

Banks lend out a portion of deposits, which are redeposited and re-lent, increasing the money supply.

Question 8

If the nominal interest rate is $$8\%$$ and the inflation rate is $$3\%$$, what is the real interest rate?

Accepted Answer

$$5\%$$

Question 9

Which of the following is included in M2 but NOT in M1?

Accepted Answer

Small-denomination time deposits

Question 10

Suppose the money supply is $$\2$$,000$$ and the monetary base is $$\$$500. $$What is the value of the money multiplier?

Accepted Answer

$$4$$

Question 11

If the growth rate of the money supply is $$10\%$$ and the growth rate of real output is $$3\%$$, what is the predicted inflation rate according to the quantity theory of money?

Accepted Answer

$$7\%$$

Question 12

Which of the following is a primary goal of monetary policy?

Accepted Answer

Price stability

Question 13

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

Accepted Answer

A decrease in government purchases

Question 14

If the price level in 2024 is $$120$$ and in 2023 it was $$100$$, what is the inflation rate?

Accepted Answer

$$20\%$$

Question 15

Which of the following is a characteristic of fiat money?

Accepted Answer

It has value because the government declares it to be legal tender.

Question 16

A bank has $$\1$$,000$$ in deposits and is required to keep 10$$\%$ as reserves. What is the maximum amount this bank can lend out?

Accepted Answer

$$\900$

Question 17

Which macroeconomic school of thought emphasizes the importance of aggregate demand management through government intervention during recessions?

Accepted Answer

Keynesian revolution

Question 18

If the labor force is $$200$$ million and the number of unemployed workers is $$10$$ million, what is the unemployment rate?

Accepted Answer

$$5\%$$

Question 19

Which of the following best describes a bank run?

Accepted Answer

A situation where many depositors withdraw their funds simultaneously due to fears of the bank's insolvency.

Question 20

Suppose the real GDP in 2022 was $$\5$$,000$$ billion and in 2023 it was $$\$$5,500$$ billion. What is the economic growth rate?

Accepted Answer

$$10\%$$

Macroeconomics Exam 2 Study Guide: Aggregate Demand & Supply, Money, and Monetary Policy

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