Question 1

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

Accepted Answer

A curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government.

Question 2

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

Accepted Answer

$Y = C + I + G + NX$

Question 3

If the price level increases, what is the most likely effect on net exports according to the international-trade effect?

Accepted Answer

Net exports decrease because U.S. exports become more expensive and imports become relatively cheaper.

Question 4

Which of the following would cause a shift to the left in the aggregate demand curve?

Accepted Answer

A decrease in government purchases ($G$)

Question 5

What is the primary reason why the short-run aggregate supply (SRAS) curve is upward sloping?

Accepted Answer

Contracts make some wages and prices 'sticky', so they do not respond quickly to changes in demand or supply.

Question 6

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

Accepted Answer

The aggregate demand curve shifts to the left.

Question 7

Which of the following best explains why higher price levels lead to lower consumption?

Accepted Answer

Higher price levels reduce the real value of household wealth.

Question 8

If the expected future price level increases, what is the most likely effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

The SRAS curve shifts to the left.

Question 9

During the 2020 recession, which component of aggregate demand changed the most according to the provided data?

Accepted Answer

Residential investment

Question 10

Which of the following is NOT a variable that shifts the short-run aggregate supply (SRAS) curve?

Accepted Answer

An increase in the price level

Question 11

Suppose there is an unexpected increase in oil prices. What is the most likely effect on the SRAS curve?

Accepted Answer

The SRAS curve shifts to the left due to higher input costs.

Question 12

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

Accepted Answer

The economy is in short-run equilibrium and GDP is at its full-employment level.

Question 13

Which of the following would shift the aggregate demand curve to the right?

Accepted Answer

An increase in government purchases ($G$)

Question 14

If firms expect the price level to rise by 3 percent next year, what is the most likely effect on wages and the SRAS curve?

Accepted Answer

Firms and workers will adjust wages upward, shifting the SRAS curve to the left.

Question 15

Which of the following is a plausible reason why recessions caused by financial crises tend to be longer and more severe?

Accepted Answer

Housing is the biggest long-run component of GDP, and financial crises disrupt housing markets.

Question 16

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, capital stock, or technology.

Question 17

If the government increases business taxes, what is the most likely effect on the SRAS curve?

Accepted Answer

The SRAS curve shifts to the left due to higher costs of production.

Question 18

Which of the following is a result of a decrease in aggregate demand in both the short run and long run?

Accepted Answer

Short-run equilibrium moves from point A to B, and long-run equilibrium moves from B to C, with lower price level and output.

Question 19

Which of the following is NOT a reason why the SRAS curve is upward sloping?

Accepted Answer

Aggregate demand is always greater than aggregate supply.

Question 20

If productivity increases, what is the most likely effect on the SRAS curve?

Accepted Answer

The SRAS curve shifts to the right because more output can be produced at every price level.

Aggregate Demand and Aggregate Supply: Macroeconomic Fluctuations and Equilibrium

Study Guide - Practice Questions