Question 1

Which of the following best describes the long-run aggregate supply (LAS) curve?

Accepted Answer

It is vertical because potential GDP is independent of the price level.

Question 2

Suppose the money wage rate increases. What is the immediate effect on the short-run aggregate supply (SAS) curve?

Accepted Answer

The SAS curve shifts leftward.

Question 3

Which equation correctly represents aggregate demand in an open economy?

Accepted Answer

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

Question 4

If the price level rises, which of the following effects will decrease the quantity of real GDP demanded?

Accepted Answer

The intertemporal substitution effect, because higher interest rates reduce borrowing and spending.

Question 5

Which of the following will shift both the long-run aggregate supply (LAS) and short-run aggregate supply (SAS) curves to the right?

Accepted Answer

An advance in technology.

Question 6

A recessionary gap occurs when:

Accepted Answer

Potential GDP exceeds real GDP.

Question 7

Which of the following policies would most likely increase aggregate demand?

Accepted Answer

A tax cut that increases disposable income.

Question 8

In the short-run macroeconomic equilibrium, which condition must be met?

Accepted Answer

Aggregate demand equals short-run aggregate supply.

Question 9

If foreign income increases, what is the likely effect on the domestic aggregate demand curve?

Accepted Answer

It shifts rightward because exports increase.

Question 10

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

Accepted Answer

Classical

Question 11

Suppose the central bank increases the quantity of money. What is the most likely short-run effect on aggregate demand and the price level?

Accepted Answer

Aggregate demand increases and the price level rises.

Question 12

Which of the following best explains stagflation?

Accepted Answer

A period of high inflation and high unemployment.

Question 13

If the price level falls, which of the following is most likely to occur according to the wealth effect?

Accepted Answer

People feel richer and increase spending.

Question 14

Which of the following would NOT cause a shift in the aggregate demand curve?

Accepted Answer

A change in the price level.

Question 15

A rightward shift of the aggregate demand curve, with no change in aggregate supply, will most likely result in:

Accepted Answer

Higher real GDP and higher price level.

Question 16

Which of the following is a key difference between the classical and Keynesian schools of thought?

Accepted Answer

Keynesian economists believe prices and wages are sticky, requiring policy intervention.

Question 17

If the economy is in an above-full employment equilibrium, what is likely to happen in the long run?

Accepted Answer

The money wage rate will rise and the SAS curve will shift leftward.

Question 18

Which of the following scenarios best illustrates the international substitution effect?

Accepted Answer

A rise in the domestic price level makes domestic goods more expensive, increasing imports and decreasing exports.

Question 19

Which of the following would cause both the LAS and SAS curves to shift leftward?

Accepted Answer

A decrease in the full-employment quantity of labor.

Question 20

If aggregate demand increases faster than potential GDP, what is the most likely outcome?

Accepted Answer

Inflation and economic growth.

Aggregate Supply and Aggregate Demand: Foundations and Fluctuations in Macroeconomics

Study Guide - Practice Questions