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 household wealth rises, interest rates tend to fall, and net exports increase due to relatively lower domestic prices (wealth, interest-rate, and international-trade effects).

Question 2

Suppose the government increases its purchases by $100 billion. Using the aggregate demand and aggregate supply (AD-AS) model, what is the most likely short-run effect on real GDP and the price level?

Accepted Answer

Both real GDP and the price level increase.

Question 3

Which of the following would cause the long-run aggregate supply (LRAS) curve to shift to the right?

Accepted Answer

An increase in the labor force or technological advancement.

Question 4

If the economy is experiencing a negative supply shock (such as a natural disaster), what is the likely short-run effect on the short-run aggregate supply (SRAS) curve and equilibrium output?

Accepted Answer

SRAS shifts left; equilibrium output decreases.

Question 5

Which of the following is NOT a function of money?

Accepted Answer

Source of economic growth

Question 6

A country has the following data: Exports = $$500 billion, Imports = 600 $$billion. What are its net exports?

Accepted Answer

$-100 billion

Question 7

If the money supply is $$2,000 billion and the monetary base is 500 $$billion, what is the value of the money multiplier?

Accepted Answer

$$4$$

Question 8

Which of the following best describes the main difference between M1 and M2 monetary aggregates?

Accepted Answer

M1 includes currency in circulation and checking deposits; M2 includes M1 plus small-denomination time deposits and noninstitutional money market mutual fund shares.

Question 9

Suppose the nominal GDP is $$20 trillion and the real GDP is 16 $$trillion. What is the GDP deflator?

Accepted Answer

$$125$$

Question 10

If the inflation rate is $$3\%$$ and the nominal interest rate is $$7\%$$, what is the real interest rate?

Accepted Answer

$$4\%$$

Question 11

Which of the following is a likely consequence of a central bank engaging in open market purchases of government securities?

Accepted Answer

The money supply increases and interest rates fall.

Question 12

A bank has $$100 million in deposits and is required to keep 10 $$million as reserves. If the bank loans out $5 million, what are its new reserves?

Accepted Answer

$$5 million$$

Question 13

Which of the following is a key prediction of the quantity theory of money, assuming velocity and real output are constant?

Accepted Answer

An increase in the money supply leads to a proportional increase in the price level.

Question 14

If the labor force is 200 million and the number of unemployed workers is 10 million, what is the unemployment rate?

Accepted Answer

$$5\%$$

Question 15

Which of the following is NOT a goal of monetary policy as outlined by the Federal Reserve?

Accepted Answer

Maximizing government revenue

Question 16

Which of the following best describes the self-corrective mechanism in the AD-AS model after a negative demand shock?

Accepted Answer

Input prices fall, shifting SRAS right until long-run equilibrium is restored.

Question 17

Which of the following is a characteristic of fiat money?

Accepted Answer

It has value because the government declares it to be legal tender.

Question 18

Suppose the price level in 2020 is 120 and in 2021 is 132. What is the inflation rate between 2020 and 2021?

Accepted Answer

$$10\%$$

Question 19

Which of the following is a key difference between the Keynesian and Monetarist schools of thought?

Accepted Answer

Keynesians emphasize the importance of aggregate demand management, while Monetarists emphasize the role of the money supply.

Question 20

If real GDP grows from $$10,000 to$$ $$10,500 in $$one year, what is the economic growth rate?

Accepted Answer

$$5\%$$

Macroeconomics Exam 2 Study Guide: Aggregate Demand & Supply, Money, and Monetary Policy

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