Question 1

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

Accepted Answer

Because higher price levels lead to lower values of consumption, investment, and net exports through the wealth, interest-rate, and international-trade effects.

Question 2

Suppose the Bank of Canada raises interest rates. What is the most likely short-run effect on aggregate demand?

Accepted Answer

Aggregate demand will shift to the left because investment and consumption spending decrease.

Question 3

Which equation correctly represents real GDP in the aggregate demand model?

Accepted Answer

$Y = C + I + G + NX$

Question 4

A decrease in the expected future price level will most likely cause which of the following?

Accepted Answer

A rightward shift of the short-run aggregate supply (SRAS) curve.

Question 5

If Canadian real GDP grows faster than real GDP in other countries, what is the expected effect on net exports and aggregate demand?

Accepted Answer

Net exports will fall, shifting aggregate demand to the left.

Question 6

Which of the following would cause a movement along the aggregate demand curve, rather than a shift?

Accepted Answer

A change in the price level due to inflation.

Question 7

Which factor does NOT affect the position of the long-run aggregate supply (LRAS) curve?

Accepted Answer

The price level.

Question 8

A sudden increase in oil prices is an example of which type of macroeconomic event?

Accepted Answer

A supply shock.

Question 9

According to the wealth effect, what happens to household consumption when the price level rises?

Accepted Answer

Household consumption decreases because the real value of nominal assets falls.

Question 10

Which of the following policies is considered monetary policy?

Accepted Answer

The Bank of Canada changes the money supply to influence interest rates.

Question 11

If firms and workers expect higher prices in the future, what is the likely effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

SRAS shifts to the left.

Question 12

Which of the following is true about the long-run macroeconomic equilibrium?

Accepted Answer

It occurs when the AD and SRAS curves intersect at the LRAS level.

Question 13

Which school of thought argues that most fluctuations in real output are caused by changes in the money supply?

Accepted Answer

Monetarist model.

Question 14

According to the real business cycle model, what is the main source of fluctuations in real GDP?

Accepted Answer

Temporary shocks to productivity.

Question 15

If the exchange rate (value of the Canadian dollar) rises, what is the expected effect on aggregate demand?

Accepted Answer

Aggregate demand shifts to the left because net exports fall.

Question 16

Which of the following would shift the short-run aggregate supply (SRAS) curve to the right?

Accepted Answer

A decrease in the price of a key natural resource.

Question 17

Suppose the government decreases personal income taxes. What is the most likely effect on aggregate demand?

Accepted Answer

Aggregate demand shifts to the right because consumption spending increases.

Question 18

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

Accepted Answer

Keynesians emphasize sticky wages and prices, while New Classical economists emphasize rational expectations.

Question 19

A supply shock causes the SRAS curve to shift left. What is the likely short-run effect on the economy?

Accepted Answer

Higher price level and lower real GDP (stagflation).

Question 20

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

Accepted Answer

A change in the price level.

Aggregate Demand and Aggregate Supply Analysis – Study Notes

Study Guide - Practice Questions

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