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 likely effect on U.S. net exports, according to the international-trade effect?

Accepted Answer

Net exports will decrease.

Question 4

Which equation correctly represents the components of aggregate demand?

Accepted Answer

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

Question 5

A sudden increase in oil prices causes the SRAS curve to shift to the left. What is the most likely short-run outcome for the economy?

Accepted Answer

Stagflation: higher price level and lower real GDP.

Question 6

If workers and firms expect the price level to rise by 4% next year, what is the likely effect on the short-run aggregate supply (SRAS) curve today?

Accepted Answer

The SRAS curve shifts to the left.

Question 7

Which of the following would cause a movement up along a stationary aggregate demand curve?

Accepted Answer

An increase in the price level.

Question 8

Suppose stricter immigration laws force many workers to leave the United States. What is the likely effect on the long-run aggregate supply (LRAS) curve?

Accepted Answer

The LRAS curve shifts to the left.

Question 9

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

Accepted Answer

Savings (S)

Question 10

If the Federal Reserve increases interest rates, what is the most likely effect on aggregate demand?

Accepted Answer

Aggregate demand shifts to the left.

Question 11

During the Covid-19 recession, which component of aggregate demand increased due to record low interest rates and stimulus checks?

Accepted Answer

Residential investment

Question 12

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 13

Suppose the value of the U.S. dollar increases relative to the euro. What is the likely effect on U.S. exports and aggregate demand?

Accepted Answer

Exports decrease; aggregate demand decreases.

Question 14

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

Accepted Answer

A technological improvement that increases productivity.

Question 15

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 technology.

Question 16

Which of the following is a likely result if the government decreases personal income taxes, holding all else constant?

Accepted Answer

Aggregate demand shifts to the right.

Question 17

If the economy is initially in long-run equilibrium and there is a sudden decrease in aggregate demand, what is the most likely short-run effect?

Accepted Answer

Real GDP falls below potential GDP and unemployment rises.

Question 18

Which of the following best describes the long-run aggregate supply (LRAS) curve?

Accepted Answer

A vertical line at the level of potential GDP.

Question 19

Suppose a country experiences a negative supply shock, such as a natural disaster that destroys factories. What is the most likely effect on the SRAS curve and the economy in the short run?

Accepted Answer

The SRAS curve shifts to the left, causing higher prices and lower real GDP.

Question 20

Which of the following is a plausible reason why business cycles are not truly 'cycles' in the sense of being regular and predictable?

Accepted Answer

Business cycles vary greatly in length and severity, and are influenced by unpredictable shocks.

Aggregate Demand and Aggregate Supply: Principles of Macroeconomics (ECON 1104)

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