Question 1

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

Accepted Answer

An increase in real wealth, such as from a housing market boom

Question 2

Suppose the economy experiences a technological advancement. Which of the following best describes the impact on the aggregate supply curves?

Accepted Answer

Both the long-run aggregate supply (LRAS) and SRAS curves shift to the right

Question 3

If there is an unanticipated increase in aggregate demand, what is the most likely short-run effect on output and the price level?

Accepted Answer

Output increases and the price level rises

Question 4

Which equation best represents the relationship between aggregate demand and real GDP in the AD-AS model?

Accepted Answer

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

Question 5

A temporary, unanticipated increase in short-run aggregate supply (SRAS) due to favorable weather will most likely result in:

Accepted Answer

A lower price level and higher real GDP

Question 6

If actual inflation is less than anticipated inflation, what is the likely effect on firms?

Accepted Answer

Firms will incur losses and reduce output

Question 7

Which of the following best describes the long-run effect of an unanticipated increase in aggregate demand?

Accepted Answer

A higher price level with output returning to long-run potential

Question 8

A negative supply shock, such as a sudden increase in oil prices, will initially cause:

Accepted Answer

SRAS to shift left, raising the price level and reducing output

Question 9

Which of the following is an example of an anticipated change in macroeconomics?

Accepted Answer

A widely expected tax cut announced a year in advance

Question 10

If the economy is temporarily producing below its long-run potential output $$Y_F$$, which of the following adjustments is most likely to occur according to the AD-AS model?

Accepted Answer

Interest rates will fall, shifting AD right, and resource prices will fall, shifting SRAS right

Question 11

During the Great Recession of 2008-2009, which of the following contributed to the severity of the downturn according to the AD-AS model?

Accepted Answer

A substantial reduction in both stock and housing prices, decreasing aggregate demand

Question 12

Which of the following best describes the effect of a permanent adverse supply shock?

Accepted Answer

SRAS shifts left temporarily, but LRAS eventually shifts left as well, reducing long-run output

Question 13

Which of the following scenarios would most likely lead to a leftward shift in the aggregate demand curve?

Accepted Answer

A decrease in consumer confidence about the future

Question 14

If the actual rate of inflation is greater than what was anticipated, what is the likely short-run effect on firms?

Accepted Answer

Firms will experience higher profits and expand output

Question 15

Which of the following is NOT a factor that would shift the long-run aggregate supply (LRAS) curve to the right?

Accepted Answer

A temporary reduction in resource prices

Question 16

Suppose the economy is at full employment and experiences a sudden, unanticipated decrease in aggregate demand. In the short run, what will happen to output and unemployment?

Accepted Answer

Output will fall and unemployment will rise above the natural rate

Question 17

Which of the following best explains why anticipated increases in long-run aggregate supply (LRAS) do not disrupt macroeconomic equilibrium?

Accepted Answer

Decision makers can adjust their plans in advance, so output expands smoothly

Question 18

Which of the following is an example of a supply shock?

Accepted Answer

A bumper crop due to unexpectedly good weather

Question 19

If the economy is temporarily producing above its long-run potential output $$Y_F$$, what is the likely adjustment process according to the AD-AS model?

Accepted Answer

Higher interest rates will reduce AD and higher resource prices will reduce SRAS, returning output to $$Y_F$$

Dynamic Change, Economic Fluctuations, and the AD-AS Model

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