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 consumption, investment, and net exports due to the wealth, interest-rate, and international-trade effects.

Question 2

Suppose the Federal Reserve increases interest rates. What is the most likely short-run effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts to the left because investment and consumption spending decrease.

Question 3

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

Accepted Answer

A change in the price level, holding all else constant.

Question 4

If the U.S. dollar appreciates relative to foreign currencies, what is the expected effect on U.S. net exports and the aggregate demand curve?

Accepted Answer

Net exports will decrease, shifting the AD curve to the left.

Question 5

Which of the following is NOT a reason why the short-run aggregate supply (SRAS) curve is upward sloping?

Accepted Answer

Government purchases are a component of aggregate demand.

Question 6

What happens to the short-run aggregate supply (SRAS) curve if workers and firms expect the price level to rise in the future?

Accepted Answer

The SRAS curve shifts to the left.

Question 7

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

Accepted Answer

An increase in the labor force or capital stock.

Question 8

During the 2020 recession, which component of aggregate demand increased, contrary to typical recessions?

Accepted Answer

Residential investment.

Question 9

Suppose a sudden increase in oil prices occurs. What is the most likely short-run effect on the economy?

Accepted Answer

The SRAS curve shifts to the left, causing stagflation (higher prices and lower real GDP).

Question 10

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

Accepted Answer

$$Y = C + I + G + NX$$

Question 11

If the government increases personal income taxes, what is the expected effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts to the left because consumption spending falls.

Question 12

Which of the following best describes long-run macroeconomic equilibrium?

Accepted Answer

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

Question 13

According to the dynamic aggregate demand and aggregate supply model, what is the usual cause of inflation?

Accepted Answer

Total spending increases faster than production.

Question 14

Which school of thought argues that most fluctuations in real output are caused by changes in the money supply and advocates a constant monetary growth rule?

Accepted Answer

Monetarism.

Question 15

A supply shock causes the SRAS curve to shift left. If policymakers do not intervene, what is the likely long-run outcome?

Accepted Answer

The SRAS curve will eventually shift back to the right as wages and prices adjust, restoring full employment.

Question 16

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 17

If households become more optimistic about their future incomes, what is the expected effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts to the right because consumption and residential investment increase.

Question 18

Which of the following would cause the SRAS curve to shift to the right?

Accepted Answer

An increase in the labor force or capital stock.

Question 19

During the 2007–2009 recession, which of the following factors contributed to the leftward shift of the SRAS curve?

Accepted Answer

A rapid increase in oil prices.

Question 20

According to the Austrian school, what is the primary cause of the business cycle?

Accepted Answer

Central bank-induced low interest rates causing overinvestment.

Aggregate Demand and Aggregate Supply Analysis: Macroeconomics Chapter 13 Study Notes

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