Question 1

Suppose the price level in Canada rises unexpectedly. What is the most likely immediate effect on the real value of money held by the private sector?

Accepted Answer

It decreases, leading to lower autonomous consumption.

Question 2

If the domestic price level rises while the exchange rate remains unchanged, what happens to Canadian net exports?

Accepted Answer

Net exports decrease because Canadian goods become more expensive.

Question 3

Which of the following best describes the aggregate demand (AD) curve?

Accepted Answer

It shows combinations of real GDP and the price level for which desired aggregate expenditure equals actual national income.

Question 4

A downward shift in the AE curve due to a rise in the price level will result in which of the following movements on the AD curve?

Accepted Answer

A movement upward and to the left.

Question 5

What is the effect of an exogenous increase in the price level on equilibrium real GDP, according to the AE function?

Accepted Answer

It causes the AE function to shift downward, decreasing equilibrium GDP.

Question 6

Which of the following events would cause a leftward shift in the aggregate supply (AS) curve?

Accepted Answer

A rise in factor prices.

Question 7

If autonomous aggregate expenditure increases, what is the effect on the AD curve?

Accepted Answer

The AD curve shifts to the right.

Question 8

The simple multiplier measures the horizontal shift in the AD curve in response to a change in which of the following?

Accepted Answer

Autonomous desired expenditure.

Question 9

Which equation best represents the relationship between equilibrium GDP ($$Y$$), aggregate expenditure ($$AE$$), and the 45-degree line in the Keynesian cross diagram?

Accepted Answer

$$AE = Y$$

Question 10

Suppose there is a negative aggregate supply shock. What is the most likely effect on the price level and real GDP?

Accepted Answer

The price level increases and real GDP decreases.

Question 11

During the COVID-19 pandemic, both the AD and AS curves shifted leftward. What was the combined effect on real GDP?

Accepted Answer

Real GDP declined sharply.

Question 12

If the AS curve becomes steeper, what happens to the effect of an increase in aggregate demand on output and the price level?

Accepted Answer

The price effect increases and the output effect decreases.

Question 13

Which of the following is true about aggregate demand (AD) and aggregate supply (AS) shocks?

Accepted Answer

AD shocks cause real GDP and the price level to change in the same direction.

Question 14

What is the effect of a fall in the domestic price level on net exports, assuming the exchange rate is unchanged?

Accepted Answer

Net exports increase as Canadian goods become less expensive.

Question 15

Which of the following best describes macroeconomic equilibrium in the AD/AS model?

Accepted Answer

It occurs at the intersection of the AD and AS curves.

Question 16

If both aggregate demand and aggregate supply shocks occur simultaneously due to a change in the world price of raw materials, what determines the overall effect on real GDP?

Accepted Answer

The effect depends on the relative importance of the demand-side and supply-side effects.

Question 17

Which of the following would cause the AE curve to shift upward?

Accepted Answer

A fall in the price level.

Question 18

If the real value of money held by the private sector increases, what is the most likely effect on autonomous desired consumption?

Accepted Answer

It increases.

Question 19

Which of the following is a plausible real-world example of a negative aggregate supply shock?

Accepted Answer

A sudden increase in oil prices.

Question 20

Given the equation for the simple multiplier $$k = \frac{1}{1 - MPC}$$, where $$MPC is $$the marginal propensity to consume, what happens to the multiplier if $$MPC$$ increases?

Accepted Answer

The multiplier increases.

Real GDP and the Price Level in the Short Run (Chapter 8 Study Notes)

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