Question 1

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

Accepted Answer

Because as the price level rises, consumption, investment, and net exports all decrease, reducing the quantity of real GDP demanded.

Question 2

Suppose the Federal Reserve increases interest rates. What is the most likely short-run effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts to the left because higher interest rates reduce consumption and investment.

Question 3

Which equation correctly represents the components of aggregate demand?

Accepted Answer

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

Question 4

A sudden increase in oil prices causes the short-run aggregate supply (SRAS) curve to shift to the left. What is the most likely short-run macroeconomic outcome?

Accepted Answer

Stagflation, characterized by higher inflation and higher unemployment.

Question 5

If households become more optimistic about their future incomes, what is the most likely effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts to the right because consumption spending increases.

Question 6

Which of the following is NOT a reason why the short-run aggregate supply (SRAS) curve is upward sloping?

Accepted Answer

Government purchases are independent of the price level.

Question 7

In the long run, which of the following determines the position of the long-run aggregate supply (LRAS) curve?

Accepted Answer

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

Question 8

Suppose the U.S. dollar appreciates relative to foreign currencies. What is the most likely effect on U.S. net exports and aggregate demand?

Accepted Answer

Net exports decrease, shifting AD to the left.

Question 9

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, holding all else constant.

Question 10

If the price level increases, which of the following effects will most directly reduce investment spending?

Accepted Answer

The interest-rate effect.

Question 11

Which of the following events would shift the short-run aggregate supply (SRAS) curve to the right?

Accepted Answer

A positive technological change that increases productivity.

Question 12

During the 2007-2009 recession, which combination of events contributed to the leftward shift of the aggregate demand curve?

Accepted Answer

A financial crisis and a decline in residential investment spending.

Question 13

Suppose the economy is initially in long-run equilibrium. If aggregate demand increases, what sequence of events will occur in the short run and long run?

Accepted Answer

Short run: output and price level rise; Long run: SRAS shifts left, restoring output to potential GDP at a higher price level.

Question 14

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

Accepted Answer

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

Question 15

If the price of an important natural resource suddenly falls, what is the most likely effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

SRAS shifts to the right.

Question 16

Which of the following is an example of a supply shock?

Accepted Answer

A sudden increase in oil prices due to geopolitical conflict.

Question 17

If the growth rate of domestic GDP is higher than the growth rate of foreign GDP, what is the likely effect on net exports and aggregate demand?

Accepted Answer

Net exports fall, shifting AD to the left.

Question 18

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

Accepted Answer

An increase in the price of oil.

Question 19

Which of the following best describes the 'wealth effect'?

Accepted Answer

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

Question 20

Which of the following is most likely to shift the aggregate demand curve to the right?

Accepted Answer

A decrease in personal income taxes.

Aggregate Demand and Aggregate Supply Analysis – Study Notes

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