Question 1

Suppose the aggregate demand (AD) in an economy is given by $$Y = 1000 - 2p$$, where $$Y is $$real GDP demanded and $$p is $$the price level. If the price level increases from $$p = 100 to$$ $$p = 200$$, what happens to real GDP demanded?

Accepted Answer

It decreases from $$800 to$$ $$600.$$

Question 2

Which of the following best explains why the Aggregate Supply (AS) curve is assumed to be non-linearly upward sloping in the short run?

Accepted Answer

Because as output increases, costs rise at an increasing rate due to capacity constraints and diminishing returns.

Question 3

If there is an increase in household wealth, what is the likely effect on the Aggregate Expenditure Function (AEF) and the Aggregate Demand (AD) curve?

Accepted Answer

AEF shifts upward and AD shifts to the right.

Question 4

Which of the following would cause the Aggregate Supply (AS) curve to shift to the right?

Accepted Answer

An improvement in technology.

Question 5

Stagflation is best described as a situation in which an economy experiences:

Accepted Answer

High inflation and low output.

Question 6

If foreign income decreases, what is the most likely effect on Net Exports (NX), the Aggregate Expenditure Function (AEF), and the Aggregate Demand (AD) curve?

Accepted Answer

NX decreases, AEF shifts downward, and AD shifts to the left.

Question 7

The Simple Multiplier describes how much the ________ shifts when there is a change in ________.

Accepted Answer

Aggregate Demand (AD); autonomous spending

Question 8

Short-run equilibrium in the AD-AS model exists where:

Accepted Answer

$$AD = AS$$

Question 9

Suppose the economy is initially at equilibrium. If there is a positive shock to Aggregate Demand (AD), what happens to the equilibrium price level and output, assuming the AS curve is non-linear and upward sloping?

Accepted Answer

Both the price level and output increase, but the magnitude depends on the slope of the AS curve at the initial equilibrium.

Question 10

If input costs rise significantly, what is the expected effect on the Aggregate Supply (AS) curve and the new equilibrium in the AD-AS model?

Accepted Answer

AS shifts left, leading to a higher price level and lower output.

Question 11

Which of the following would most likely cause the Aggregate Demand (AD) curve to shift to the right?

Accepted Answer

An increase in autonomous spending.

Question 12

An economy is experiencing excess supply. Which of the following must be true, and what is the likely adjustment process?

Accepted Answer

$$AS \u003e AD$$; prices and output will fall until equilibrium is restored.

Question 13

If the price level increases, what is the immediate effect on the Aggregate Expenditure Function (AEF) and the Aggregate Demand (AD) curve?

Accepted Answer

AEF shifts downward and AD shifts to the left.

Question 14

Which of the following is NOT a factor that shifts the Aggregate Supply (AS) curve?

Accepted Answer

Changes in the price level.

Question 15

Suppose the simple multiplier ($$SM) is$$ $$4. If $$autonomous spending increases by $$\20$, by how much will equilibrium output (Y$) increase?

Accepted Answer

$$\80$

Question 16

If consumer and business confidence increases, what is the likely effect on the Aggregate Expenditure Function (AEF) and the Aggregate Demand (AD) curve?

Accepted Answer

AEF shifts upward and AD shifts to the right.

Question 17

Which of the following best describes the effect of better technology on the Aggregate Supply (AS) curve and equilibrium in the AD-AS model?

Accepted Answer

AS shifts right, leading to a lower price level and higher output.

Question 18

Which of the following equations represents the relationship between the price level ($$p) $$and real GDP ($$Y) $$demanded in the given study materials?

Accepted Answer

$$Y = 1000 - 2p$$

Question 19

If the economy is experiencing excess demand, what is the likely adjustment process?

Accepted Answer

Prices and output will rise until equilibrium is restored.

Question 20

Which of the following best describes the new interpretation of the simple multiplier in the context of Aggregate Demand (AD)?

Accepted Answer

Changes in autonomous spending cause shifts in the AD curve.

Lecture 5: Finding Macroeconomic Equilibrium

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