Question 1

Which of the following best describes the equation for aggregate demand in an open economy?

Accepted Answer

$$Y = C + I + G + X - M$$

Question 2

Why does the aggregate demand (AD) curve slope downward?

Accepted Answer

Because as the price level falls, the quantity of real GDP demanded increases due to the wealth effect and substitution effects.

Question 3

Suppose the government increases its expenditure on goods and services. What is the most likely short-run effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts rightward.

Question 4

If the marginal propensity to consume (MPC) is $$0.8$$, what is the marginal propensity to save (MPS)?

Accepted Answer

$$0.2$$

Question 5

In the short-run macroeconomic equilibrium, what condition must be satisfied?

Accepted Answer

Aggregate demand equals aggregate supply at the intersection of the AD and SAS curves.

Question 6

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

Accepted Answer

An increase in the quantity of money.

Question 7

If the price level is fixed and aggregate planned expenditure exceeds real GDP, what will happen in the economy?

Accepted Answer

There will be an unplanned decrease in inventories, and firms will increase production.

Question 8

Given the following data: Disposable income increases by $$\400$ billion, and consumption increases by $$\$$300$$ billion. What is the marginal propensity to consume (MPC)?

Accepted Answer

$$0.75$$

Question 9

Which of the following best describes a recessionary gap?

Accepted Answer

Potential GDP exceeds real GDP.

Question 10

If the marginal propensity to import is $$0.25$$, what does this mean?

Accepted Answer

25% of any increase in real GDP is spent on imports.

Question 11

Which school of macroeconomic thought believes that the economy is self-regulating and always at full employment?

Accepted Answer

Classical

Question 12

Suppose the price of oil rises sharply. According to the AS-AD model, what is the most likely short-run effect?

Accepted Answer

The SAS curve shifts leftward, decreasing real GDP and raising the price level.

Question 13

If the government cuts taxes, what is the most likely effect on aggregate demand?

Accepted Answer

Aggregate demand increases because disposable income rises.

Question 14

In the long run, if the economy is initially at an above-full employment equilibrium, what adjustment occurs?

Accepted Answer

The money wage rate rises, shifting the SAS curve leftward.

Question 15

Which of the following is true about equilibrium expenditure in the Keynesian cross model?

Accepted Answer

It occurs where the aggregate expenditure curve crosses the 45° line.

Question 16

If actual aggregate expenditure is less than real GDP, what will happen to inventories and production?

Accepted Answer

Inventories will increase, and firms will decrease production.

Question 17

Which of the following is NOT a main influence on aggregate demand?

Accepted Answer

The money wage rate

Question 18

If the marginal propensity to consume (MPC) is $$0.6$$ and disposable income increases by $$\500$ billion, how much will consumption increase?

Accepted Answer

$$\300$ billion

Question 19

Which of the following statements about the business cycle and the AS-AD model is correct?

Accepted Answer

The business cycle occurs because aggregate demand and short-run aggregate supply fluctuate, but the money wage does not change rapidly enough.

Question 20

Which of the following is an example of an autonomous component of aggregate expenditure?

Accepted Answer

Planned investment

Aggregate Supply, Aggregate Demand, and Expenditure Multipliers: Core Concepts and Applications

Study Guide - Practice Questions

Study Guide - Flashcards