Question 1

Which of the following best explains why the Long-Run Aggregate Supply (LAS) curve is vertical?

Accepted Answer

Because in the long run, changes in the price level do not affect the quantity of real GDP supplied; real GDP equals potential GDP.

Question 2

Suppose the potential GDP of an economy is $1000 billion. If the price level increases but all other factors remain constant, what happens to the LAS curve?

Accepted Answer

The LAS curve does not shift; it remains vertical at $1000 billion.

Question 3

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

Accepted Answer

An increase in the full-employment quantity of labor.

Question 4

The short-run aggregate supply (SAS) curve is upward sloping because:

Accepted Answer

A rise in the price level increases the quantity of real GDP supplied in the short run.

Question 5

Which equation correctly represents the aggregate demand for real GDP ($Y$)?

Accepted Answer

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

Question 6

If the expected future income of households increases, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand increases because people consume more today.

Question 7

A fall in the foreign exchange rate will most likely:

Accepted Answer

Increase aggregate demand by making domestic goods cheaper for foreigners.

Question 8

Which of the following is NOT a reason for a rightward shift in the potential GDP (and thus the LAS curve)?

Accepted Answer

A temporary increase in the price level.

Question 9

If real GDP is below equilibrium GDP, what will firms typically do?

Accepted Answer

Increase production to reach equilibrium.

Question 10

Long-run macroeconomic equilibrium occurs when:

Accepted Answer

The AD and LAS curves intersect.

Question 11

Which of the following fiscal policy actions would increase aggregate demand?

Accepted Answer

A decrease in income taxes.

Question 12

If the central bank increases the money supply, what is the most likely effect on aggregate demand?

Accepted Answer

Aggregate demand increases due to higher buying power.

Question 13

Suppose the economy experiences a technological advance. What is the expected effect on the LAS and SAS curves?

Accepted Answer

Both LAS and SAS curves shift to the right.

Question 14

Which of the following best describes the relationship between the price level and the quantity of real GDP demanded, as shown by the AD curve?

Accepted Answer

The AD curve slopes downward, indicating an inverse relationship.

Question 15

If the government increases its purchases of goods and services, which curve shifts and in which direction?

Accepted Answer

The AD curve shifts to the right.

Question 16

Which of the following would most likely cause a leftward shift in the aggregate demand curve?

Accepted Answer

A decrease in consumer confidence about future income.

Question 17

If the price level increases but the money wage rate and other input prices remain constant, what happens in the short run?

Accepted Answer

The quantity of real GDP supplied increases along the SAS curve.

Question 18

Which of the following is a direct result of economic growth in the context of aggregate supply?

Accepted Answer

A rightward shift of the LAS curve.

Question 19

A rise in the expected inflation rate will most likely:

Accepted Answer

Increase aggregate demand as people buy more before prices rise.

Question 20

If the intersection of the AD and SAS curves occurs at a real GDP below potential GDP, what is likely to happen in the economy?

Accepted Answer

Unemployment will be above the natural rate, and firms will increase production.

Aggregate Supply and Aggregate Demand: Macroeconomic Equilibrium and Growth

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