Question 1

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

Accepted Answer

An increase in the price level raises the interest rate, which reduces investment and consumption spending.

Question 2

Suppose the U.S. dollar appreciates relative to other currencies. What is the most likely effect on U.S. net exports and aggregate demand?

Accepted Answer

Net exports decrease, shifting the aggregate demand curve to the left.

Question 3

Which equation correctly represents the components of aggregate demand?

Accepted Answer

$Y = C + I + G + NX$

Question 4

If the Federal Reserve increases interest rates, what is the expected effect on the aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts 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

An increase in the price level increases the real value of money, encouraging more production.

Question 6

A negative supply shock, such as a sudden increase in oil prices, will most likely cause which of the following in the short run?

Accepted Answer

A leftward shift of the SRAS curve, leading to higher prices and lower real GDP (stagflation).

Question 7

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

Accepted Answer

The LRAS curve shifts to the left.

Question 8

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

Accepted Answer

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

Question 9

Suppose the government increases its purchases of goods and services. What is the immediate effect on the aggregate demand curve?

Accepted Answer

The aggregate demand curve shifts to the right.

Question 10

Which of the following is true 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 11

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

Accepted Answer

Residential investment

Question 12

If workers and firms expect the price level to rise 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 13

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 14

Suppose the economy is initially in long-run equilibrium. If there is a sudden increase in aggregate demand, what happens in the short run?

Accepted Answer

Real GDP rises above potential GDP and the price level increases.

Question 15

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 16

If the price level in the United States falls relative to other countries, what is the likely effect on U.S. net exports?

Accepted Answer

U.S. exports will rise, imports will fall, and net exports will increase.

Question 17

Which of the following best describes 'stagflation'?

Accepted Answer

A combination of inflation and recession caused by a negative supply shock.

Question 18

If the government decreases personal income taxes, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand increases due to higher disposable income and consumption.

Question 19

Which of the following is true about potential GDP?

Accepted Answer

Potential GDP refers to the level of real GDP in the long run when the economy is at full employment.

Question 20

Suppose a country experiences a decrease in the availability of capital (e.g., machinery and equipment). What is the likely effect on the long-run aggregate supply (LRAS) curve?

Accepted Answer

The LRAS curve shifts to the left.

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

Study Guide - Practice Questions

Study Guide - Flashcards