Question 1

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

Accepted Answer

Higher price levels decrease export spending and consumption spending.

Question 2

If the domestic price level rises, what is the most likely effect on Canadian exports and imports?

Accepted Answer

Exports decrease, imports increase.

Question 3

Suppose there is an increase in household expectations of future income. Using the aggregate demand and supply model, what is the most likely short-run effect?

Accepted Answer

Aggregate demand shifts right, leading to higher output and higher price level.

Question 4

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

Accepted Answer

Factor prices

Question 5

A negative supply shock, such as a sudden increase in oil prices, will most likely cause which of the following changes in the aggregate supply and demand model?

Accepted Answer

Aggregate supply shifts left, price level rises, output falls.

Question 6

If the Canadian dollar appreciates relative to foreign currencies, what is the most likely effect on Canadian exports and aggregate demand?

Accepted Answer

Exports decrease, aggregate demand decreases.

Question 7

Given the aggregate supply curve is steeper at higher levels of output, what does this imply about the effect of an aggregate demand shock on output and price level?

Accepted Answer

A demand shock will have a smaller effect on output and a larger effect on price level.

Question 8

Which equation best represents the relationship between aggregate expenditure (AE), output (Y), and price level (P) in the context of an aggregate demand shock?

Accepted Answer

$$AE = C + I + G + (X - M)$$

Question 9

If business expectations for future income improve, which of the following is the most likely result in the aggregate demand and supply model?

Accepted Answer

Aggregate demand shifts right, increasing output and price level.

Question 10

If domestic income is growing faster than foreign income, what is the most likely effect on imports and aggregate demand?

Accepted Answer

Imports increase, aggregate demand decreases.

Question 11

Which of the following events would most likely cause the aggregate supply curve to shift to the left?

Accepted Answer

Deterioration in technology and labor

Question 12

Suppose the government increases taxes. What is the most likely effect on aggregate demand?

Accepted Answer

Aggregate demand shifts left.

Question 13

Which of the following best describes macroeconomic equilibrium in the aggregate demand and supply model?

Accepted Answer

It occurs where aggregate demand equals aggregate supply.

Question 14

If there is an increase in autonomous expenditure, what happens to the aggregate expenditure (AE) curve and the price level?

Accepted Answer

AE curve shifts upward, but the rise in price level causes it to shift part of the way down again.

Question 15

Which of the following is a direct result of an aggregate demand shock, as shown in Figure 8-7?

Accepted Answer

A movement along the aggregate supply curve to a new equilibrium with higher output and price level.

Question 16

If the aggregate supply curve becomes steeper, what happens to the division of the effects of an aggregate demand shift between output and price level?

Accepted Answer

The output effect becomes smaller, and the price effect becomes larger.

Question 17

Which of the following scenarios would most likely cause the aggregate demand curve to shift to the right?

Accepted Answer

Increase in export spending

Question 18

If a country experiences a negative aggregate supply shock, what is the expected impact on the aggregate expenditure (AE) curve?

Accepted Answer

AE curve shifts downward.

Question 19

Which of the following best describes the effect of an increase in factor costs on the aggregate supply curve?

Accepted Answer

Aggregate supply shifts left.

Aggregate Demand and Supply: Determinants, Shocks, and Macroeconomic Equilibrium

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