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

Accepted Answer

The aggregate demand curve will shift to the left.

Question 3

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

Accepted Answer

Net exports decrease and aggregate demand shifts to the left.

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 due to low interest rates and stimulus checks?

Accepted Answer

Residential investment

Question 6

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 7

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

Accepted Answer

When the price level falls, the real value of household wealth rises, increasing consumption.

Question 8

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

Accepted Answer

The SRAS curve will shift to the left.

Question 9

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 capital stock.

Question 10

Suppose firms and workers expect the price level to rise by 4% next year. What is the likely effect on the short-run aggregate supply (SRAS) curve today?

Accepted Answer

The SRAS curve will shift to the left.

Question 11

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

Accepted Answer

A technological improvement that increases productivity

Question 12

In the long run, the level of real GDP is determined by:

Accepted Answer

The number of workers, the capital stock, and technology

Question 13

Which of the following best describes 'stagflation'?

Accepted Answer

A combination of inflation and recession caused by a supply shock

Question 14

If the economy is initially in long-run equilibrium and there is a sudden negative supply shock (such as a sharp increase in oil prices), what is the most likely short-run outcome?

Accepted Answer

The price level rises and real GDP falls

Question 15

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

Accepted Answer

A decrease in personal income taxes

Question 16

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

Accepted Answer

Net exports will rise

Question 17

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

Accepted Answer

It is vertical because potential GDP does not depend on the price level.

Question 18

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 19

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

Accepted Answer

A change in the price level

Question 20

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

Accepted Answer

The SRAS curve will shift to the right.

Aggregate Demand and Aggregate Supply: Principles and Applications

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