Question 1

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

Accepted Answer

An increase in the price level raises the interest rate, which reduces investment and consumption spending.

Question 2

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

Accepted Answer

Net exports decrease and aggregate demand shifts to the left.

Question 3

Which equation correctly represents the components of aggregate demand?

Accepted Answer

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

Question 4

If the Federal Reserve increases interest rates, what is the expected effect on the aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts to the left.

Question 5

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

Accepted Answer

An increase in the price level immediately increases the capital stock.

Question 6

A negative supply shock, such as a sudden increase in oil prices, will most likely cause which of the following in the short run?

Accepted Answer

A leftward shift of the SRAS curve, leading to higher prices and lower real GDP (stagflation).

Question 7

If stricter immigration laws reduce the number of workers in the U.S., what is the likely effect on the long-run aggregate supply (LRAS) curve?

Accepted Answer

The LRAS curve will shift to the left.

Question 8

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

Accepted Answer

When the price level falls, the real value of household wealth increases, leading to higher consumption.

Question 9

Which of the following will shift the aggregate demand curve to the right, ceteris paribus?

Accepted Answer

An increase in disposable income.

Question 10

In the long run, the level of real GDP supplied (potential GDP) is determined by:

Accepted Answer

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

Question 11

Suppose the government increases its purchases of goods and services. What is the immediate effect on the aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts to the right.

Question 12

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

Accepted Answer

The SRAS curve shifts to the left.

Question 13

During the Covid-19 recession, which component of aggregate demand increased, helping to offset declines in other components?

Accepted Answer

Residential investment.

Question 14

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

Accepted Answer

It is vertical because potential GDP does not depend on the price level.

Question 15

If the price level in the United States falls relative to other countries, what is the expected effect on U.S. net exports?

Accepted Answer

Net exports will rise.

Question 16

Suppose a negative demand shock causes the aggregate demand curve to shift left. In the short run, what happens to real GDP and the price level?

Accepted Answer

Both real GDP and the price level decrease.

Question 17

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

Accepted Answer

A sudden increase in oil prices.

Question 18

If the economy is initially in long-run equilibrium and firms become more optimistic about the future, what is the likely sequence of events in the short run and long run?

Accepted Answer

Aggregate demand shifts right, raising real GDP and the price level in the short run; eventually, SRAS shifts left, restoring long-run equilibrium at a higher price level.

Question 19

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 20

Which of the following best describes the 'interest-rate effect'?

Accepted Answer

An increase in the price level raises the interest rate and reduces investment spending.

Aggregate Demand and Aggregate Supply: Principles and Applications

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