Question 1

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

Accepted Answer

Because as the price level rises, input prices rise more slowly due to contracts, slow wage adjustments, and menu costs, making production more profitable in the short run.

Question 2

Suppose the Federal Reserve increases interest rates. According to the aggregate demand and aggregate supply model, what is the most likely short-run effect on real GDP and the price level?

Accepted Answer

Aggregate demand decreases, leading to lower real GDP and a lower price level.

Question 3

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

Accepted Answer

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

Question 4

A sudden increase in oil prices is an example of which of the following, and what is its likely short-run effect on the economy?

Accepted Answer

A supply shock; it shifts the short-run aggregate supply curve to the left, causing stagflation.

Question 5

If households expect their future incomes to rise, what is the most likely effect on the aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts to the right.

Question 6

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

Accepted Answer

It occurs when the aggregate demand and short-run aggregate supply curves intersect at the long-run aggregate supply level.

Question 7

During the 2007-2009 recession, which component of aggregate demand behaved unusually compared to previous recessions?

Accepted Answer

Consumption spending fell relative to potential GDP.

Question 8

If the U.S. dollar appreciates relative to foreign currencies, what is the likely effect on U.S. net exports and aggregate demand?

Accepted Answer

Net exports decrease, shifting aggregate demand to the left.

Question 9

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

Accepted Answer

Firms instantly adjust all wages and prices to new market conditions.

Question 10

Suppose the economy is initially in long-run equilibrium. If aggregate demand suddenly decreases, what is the sequence of events that restores long-run equilibrium?

Accepted Answer

SRAS shifts right as wages and prices adjust downward, restoring equilibrium at a lower price level and potential GDP.

Question 11

Which of the following government actions is an example of fiscal policy that would shift the aggregate demand curve to the right?

Accepted Answer

The government increases its purchases of goods and services.

Question 12

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

Accepted Answer

SRAS shifts to the left.

Question 13

Which of the following best describes the wealth effect?

Accepted Answer

As the price level rises, the real value of household wealth decreases, leading to lower consumption.

Question 14

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

Accepted Answer

A change in the price level due to a supply shock.

Question 15

If the availability of capital and labor increases in an economy, what is the likely effect on the short-run aggregate supply curve?

Accepted Answer

SRAS shifts to the right.

Question 16

Which of the following scenarios best illustrates the interest-rate effect?

Accepted Answer

A rise in the price level increases the demand for money, causing interest rates to rise and investment to fall.

Question 17

Which of the following is true about the long-run aggregate supply (LRAS) curve?

Accepted Answer

It is vertical because potential GDP is determined by resources, technology, and capital, not the price level.

Question 18

A supply shock causes the SRAS curve to shift left. If policymakers respond by increasing aggregate demand, what is the likely long-run outcome?

Accepted Answer

Output returns to potential GDP, but the price level is permanently higher.

Question 19

Which of the following statements about the effects of a financial crisis on recessions is supported by recent research?

Accepted Answer

Recessions caused by financial crises tend to be larger and more long-lasting than those caused by other factors.

Aggregate Demand and Aggregate Supply Analysis (Chapter 13 Study Notes)

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