Question 1

Which of the following best explains why the Long-Run Aggregate Supply (LAS) curve is vertical?

Accepted Answer

Because potential GDP is independent of the price level in the long run.

Question 2

Suppose the economy's potential GDP increases due to technological advancement. What happens to the LAS and SAS curves?

Accepted Answer

Both the LAS and SAS curves shift to the right.

Question 3

Which equation correctly represents the aggregate demand for real GDP ($$Y$$)?

Accepted Answer

$$Y = C + I + G + X - M$$

Question 4

If the price level increases with no change in potential GDP, what happens to the LAS curve?

Accepted Answer

There is no movement or shift in the LAS curve.

Question 5

Which of the following would cause a rightward shift in the aggregate demand (AD) curve?

Accepted Answer

An increase in government purchases ($$G).$$

Question 6

The short-run aggregate supply (SAS) curve is upward sloping because:

Accepted Answer

A rise in the price level increases the quantity of real GDP supplied.

Question 7

Which of the following is NOT a reason for a change in potential GDP?

Accepted Answer

A temporary increase in the price level.

Question 8

If the real GDP is below equilibrium GDP, what is most likely to happen in the short run?

Accepted Answer

Firms will increase production to reach equilibrium.

Question 9

Which of the following best describes the effect of an increase in the expected future inflation rate on aggregate demand?

Accepted Answer

It increases aggregate demand as people buy more today to avoid higher prices in the future.

Question 10

A fall in the foreign exchange rate will most likely:

Accepted Answer

Increase aggregate demand by making domestic goods cheaper for foreigners.

Question 11

Which of the following fiscal policy actions would increase aggregate demand?

Accepted Answer

A decrease in personal income taxes.

Question 12

Long-run macroeconomic equilibrium occurs when:

Accepted Answer

The AD and LAS curves intersect.

Question 13

If the central bank increases the money supply, what is the most likely immediate effect on aggregate demand?

Accepted Answer

Aggregate demand increases due to higher buying power.

Question 14

Which of the following would NOT shift the aggregate demand curve?

Accepted Answer

A change in the price level.

Question 15

Suppose the government increases its purchases ($$G) $$and at the same time, the central bank raises interest rates. What is the likely net effect on aggregate demand?

Accepted Answer

The effect is uncertain; higher $$G$$ increases AD, but higher interest rates decrease AD.

Question 16

Which of the following is a direct result of economic growth in the context of aggregate supply?

Accepted Answer

A rightward shift of the LAS curve.

Question 17

If the full-employment quantity of labour increases, what happens to potential GDP and the LAS curve?

Accepted Answer

Potential GDP increases and the LAS curve shifts right.

Question 18

Which of the following best describes the relationship between the SAS and LAS curves in the short run?

Accepted Answer

The SAS curve is upward sloping, while the LAS curve is vertical.

Question 19

Which of the following scenarios would most likely shift the SAS curve to the right?

Accepted Answer

A decrease in the money wage rate.

Question 20

If an increase in foreign income leads to higher demand for a country's exports, what is the effect on the country's aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts to the right.

Aggregate Supply and Aggregate Demand: Macroeconomic Equilibrium and Growth

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