Question 1

Suppose the U.S. government increases its purchases of goods and services by $200 billion, with no change in taxes or monetary policy. According to the aggregate demand and aggregate supply model, what is the most likely immediate effect on the aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts to the right.

Question 2

Which of the following best explains why the short-run aggregate supply (SRAS) curve is upward sloping?

Accepted Answer

Some input prices, such as wages, are sticky and do not adjust immediately to changes in the price level.

Question 3

If the price level in the United States rises relative to other countries, what is the likely effect on U.S. net exports, according to the international-trade effect?

Accepted Answer

Net exports will decrease because exports fall and imports rise.

Question 4

Which equation correctly represents the components of aggregate demand?

Accepted Answer

$Y = C + I + G + NX$

Question 5

During the Covid-19 recession, which component of aggregate demand increased, helping to offset declines in other components?

Accepted Answer

Residential investment

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

If stricter immigration laws reduce the number of workers in the U.S., what happens to the long-run aggregate supply (LRAS) curve?

Accepted Answer

The LRAS curve shifts to the left.

Question 8

Which of the following is NOT a reason why wages and prices are 'sticky' in the short run?

Accepted Answer

Firms and workers always perfectly predict future price levels.

Question 9

Suppose the expected future price level increases. What is the likely effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

The SRAS curve shifts to the left.

Question 10

Which of the following best describes the 'wealth effect'?

Accepted Answer

When the price level falls, the real value of household wealth rises, leading to higher consumption.

Question 11

If the value of the U.S. dollar appreciates relative to the Swedish krona, what is the likely effect on U.S. exports to Sweden and U.S. aggregate demand?

Accepted Answer

U.S. exports to Sweden decrease and U.S. aggregate demand decreases.

Question 12

Which of the following will shift the aggregate demand curve to the right, ceteris paribus?

Accepted Answer

An increase in disposable income

Question 13

In the long run, the level of real GDP supplied (potential GDP) is determined by:

Accepted Answer

The number of workers, the capital stock, and the level of technology.

Question 14

Suppose a negative supply shock, such as a sudden increase in oil prices, shifts the SRAS curve to the left. What is the most likely short-run outcome?

Accepted Answer

Stagflation: higher prices and lower real GDP.

Question 15

If the economy is initially in long-run equilibrium and aggregate demand increases, what is the likely sequence of events in the short run and long run?

Accepted Answer

Short run: real GDP rises above potential and price level increases; long run: SRAS shifts left, restoring GDP to potential at a higher price level.

Question 16

Which of the following is a correct statement about the long-run aggregate supply (LRAS) curve?

Accepted Answer

The LRAS curve is vertical because potential GDP does not depend on the price level.

Question 17

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 18

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

The SRAS curve shifts to the left.

Question 19

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

Accepted Answer

A technological improvement that increases productivity.

Question 20

Suppose the economy experiences a negative demand shock. In the short run, what is the likely effect on real GDP and the price level?

Accepted Answer

Both real GDP and the price level decrease.

Aggregate Demand and Aggregate Supply: Principles of Macroeconomics (ECON 1104)

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