Question 1

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

Accepted Answer

Because as the price level falls, the real value of money increases, allowing consumers to buy more goods and services (wealth effect).

Question 2

Suppose the government increases its spending on infrastructure projects. What is the most likely effect on the aggregate demand curve?

Accepted Answer

The AD curve will shift to the right because government spending is a direct component of aggregate demand.

Question 3

Which of the following equations correctly represents aggregate demand?

Accepted Answer

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

Question 4

If the exchange rate of a country’s currency falls, making its exports cheaper and imports more expensive, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand will increase because net exports $$(X - M)$$ will rise.

Question 5

A movement along the aggregate demand curve is caused by:

Accepted Answer

A change in the general price level.

Question 6

Which of the following would cause a leftward shift of the aggregate demand curve?

Accepted Answer

A decrease in consumer wealth due to a stock market crash.

Question 7

If personal income taxes are increased, what is the most likely effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease because disposable income and consumption fall.

Question 8

Suppose in a given year, a country has the following values (in billions): $$C = 5000$$, $$I = 1200$$, $$G = 2000$$, $$X = 800$$, $$M = 1000. $$What is the value of aggregate demand?

Accepted Answer

$$8000$$

Question 9

Which of the following scenarios would most likely cause a rightward shift in the aggregate demand curve?

Accepted Answer

A significant increase in business investment due to improved confidence.

Question 10

If the marginal propensity to consume (MPC) increases, what is the likely effect on aggregate demand, all else equal?

Accepted Answer

Aggregate demand will increase because a higher MPC means more income is spent.

Question 11

Which of the following best describes the effect of a fall in interest rates on aggregate demand?

Accepted Answer

It increases aggregate demand by making borrowing cheaper and saving less attractive.

Question 12

A country’s exports are $$300$$ billion and imports are $$350$$ billion. What is the value of net exports $$(X - M)$$, and how does this affect aggregate demand?

Accepted Answer

$$-50$$ billion; net exports reduce aggregate demand.

Question 13

Which of the following would NOT cause a shift in the aggregate demand curve?

Accepted Answer

A change in the general price level.

Question 14

If a country experiences a fall in state welfare spending, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease due to lower disposable income for households.

Question 15

Suppose the following changes occur in an economy: exports increase by $$100$$ billion, imports increase by $$50$$ billion, and government spending increases by $$30$$ billion. By how much does aggregate demand change?

Accepted Answer

$$80$$ billion increase

Question 16

Which of the following is a direct component of aggregate demand?

Accepted Answer

Investment spending by firms on capital goods

Question 17

If business confidence falls due to fears of a recession, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease as investment spending falls.

Question 18

Which of the following best describes the relationship between the price level and real GDP on the aggregate demand curve?

Accepted Answer

As the price level falls, real GDP demanded increases.

Question 19

If the government cuts personal income taxes and increases its own spending simultaneously, what is the combined effect on aggregate demand?

Accepted Answer

Aggregate demand will increase due to higher disposable income and higher government spending.

Question 20

Which of the following is most likely to cause a contraction (movement up) along the aggregate demand curve?

Accepted Answer

A rise in the general price level.

Aggregate Demand: Concepts, Components, and Curve Analysis

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