Question 1

Which of the following would cause a rightward shift in the Aggregate Demand (AD) curve?

Accepted Answer

An improvement in foreign GDP leading to higher net exports ($$NX)$$

Question 2

Suppose the price level ($$P) $$increases. According to the short-run aggregate supply (SRAS) curve, what is the most likely immediate effect on real GDP ($$Y) $$supplied, and why?

Accepted Answer

Real GDP supplied increases because input prices are 'sticky' and do not rise immediately

Question 3

Which of the following best explains why the Long-Run Aggregate Supply (LRAS) curve is vertical?

Accepted Answer

Because in the long run, input prices such as wages are flexible and adjust fully to changes in $$P$$

Question 4

A negative supply shock, such as a sudden increase in oil prices, will most likely:

Accepted Answer

Shift the SRAS curve to the left

Question 5

If the economy is experiencing a recessionary gap, which of the following is true in the short run?

Accepted Answer

Actual GDP is less than potential GDP

Question 6

Which of the following events would shift both the SRAS and LRAS curves to the right?

Accepted Answer

An increase in the labor force

Question 7

During a period of demand-pull inflation, what sequence of events occurs in the AD-AS model?

Accepted Answer

AD shifts right, actual GDP exceeds potential GDP, and unemployment falls

Question 8

Suppose the government increases spending ($$G) $$and decreases taxes ($$T) $$simultaneously. What is the most likely effect on the AD curve?

Accepted Answer

The AD curve shifts to the right

Question 9

Which of the following best describes the automatic mechanism that returns the economy to potential GDP after a recession?

Accepted Answer

Workers accept lower wages as the price level falls, shifting SRAS to the right

Question 10

If technological change increases productivity, what is the expected effect on the AD-AS model?

Accepted Answer

Both SRAS and LRAS curves shift to the right

Question 11

Which of the following scenarios best illustrates cost-push inflation?

Accepted Answer

A large increase in oil prices shifts the SRAS curve to the left

Question 12

In the long run, after a period of stagflation caused by a negative supply shock, what is the expected outcome for the price level and output?

Accepted Answer

The price level is higher and output returns to potential GDP

Question 13

Which of the following would NOT cause a shift in the Aggregate Demand (AD) curve?

Accepted Answer

A change in the price level ($$P)$$

Question 14

If workers expect higher future prices and negotiate higher wages, what is the likely effect on the SRAS curve?

Accepted Answer

SRAS shifts to the left

Question 15

Which of the following best describes the relationship between the price level ($$P) $$and real GDP ($$Y) on $$the AD curve?

Accepted Answer

Negative relationship: as $$P$$ increases, $$Y$$ decreases

Question 16

A country experiences an increase in both its labor force and capital stock. What is the most likely effect on its long-run equilibrium?

Accepted Answer

Potential real GDP increases as both SRAS and LRAS shift right

Question 17

Which of the following is true at the long-run macroeconomic equilibrium?

Accepted Answer

SRAS and AD curves intersect at a point on the LRAS curve

Question 18

Suppose the economy is at full employment and then experiences a sudden increase in aggregate demand. In the long run, what is the expected adjustment process?

Accepted Answer

SRAS shifts left as workers demand higher wages, returning output to potential GDP

Question 19

Which of the following is an example of a movement along the Aggregate Demand (AD) curve rather than a shift?

Accepted Answer

A decrease in the price level ($$P) $$leading to higher real GDP demanded

Question 20

If the economy is experiencing both high inflation and high unemployment due to a negative supply shock, this situation is best described as:

Accepted Answer

Stagflation

Question 21

Which of the following would most likely cause a leftward shift in the SRAS curve but not the LRAS curve?

Accepted Answer

An unexpected increase in oil prices

Aggregate Demand and Aggregate Supply: Curves, Shifts, and Macroeconomic Equilibrium

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