Question 1

Suppose the U.S. government increases its purchases of goods and services by $200 billion, with no change in taxes or monetary policy. According to the aggregate demand and aggregate supply model, what is the most likely immediate effect on the aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts to the right.

Question 2

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

Accepted Answer

Some input prices, such as wages, are sticky and do not adjust immediately to changes in the price level.

Question 3

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

Accepted Answer

Net exports will decrease because exports fall and imports rise.

Question 4

Which equation correctly represents the components of aggregate demand?

Accepted Answer

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

Question 5

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

Accepted Answer

Residential investment

Question 6

Suppose the Federal Reserve increases the money supply, causing interest rates to fall. What is the most likely effect on aggregate demand?

Accepted Answer

Aggregate demand shifts to the right because investment spending increases.

Question 7

If stricter immigration laws cause a significant number of workers to leave the United States, what is the most likely effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

The SRAS curve shifts to the left.

Question 8

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

Accepted Answer

Firms and workers always perfectly predict future price levels.

Question 9

Suppose the expected future price level increases. What is the most likely effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

The SRAS curve shifts to the left.

Question 10

Which of the following best describes the 'wealth effect' in the context of aggregate demand?

Accepted Answer

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

Question 11

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 12

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

Accepted Answer

An increase in interest rates

Question 13

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

Accepted Answer

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

Question 14

If the value of the U.S. dollar increases relative to other currencies, what is the most likely effect on U.S. aggregate demand?

Accepted Answer

Aggregate demand decreases because net exports fall.

Question 15

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

Accepted Answer

The intersection of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves.

Question 16

Suppose the economy is initially in long-run equilibrium. If there is a sudden increase in aggregate demand, what is the most likely sequence of events in the short run and long run?

Accepted Answer

Short run: real GDP rises above potential and prices rise; long run: SRAS shifts left, restoring GDP to potential but at a higher price level.

Question 17

Which of the following is a likely result of a decrease in the expected future price level, holding all else constant?

Accepted Answer

The short-run aggregate supply curve shifts to the right.

Question 18

Which of the following is NOT a component of aggregate demand?

Accepted Answer

Savings (S)

Question 19

If the price level increases, which of the following is most likely to occur according to the interest-rate effect?

Accepted Answer

Households and firms demand more money, causing interest rates to rise and investment to fall.

Question 20

Which of the following best describes the effect of a positive technological shock on the short-run aggregate supply curve?

Accepted Answer

The SRAS curve shifts to the right because productivity increases.

Aggregate Demand and Aggregate Supply: Principles and Applications

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