Question 1

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

Accepted Answer

It is vertical at potential GDP, indicating output 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 economy?

Accepted Answer

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

Question 4

A rise in the price level, with all other factors constant, will have which effect according to the wealth effect?

Accepted Answer

It decreases the quantity of real GDP demanded.

Question 5

If the price level rises and the money wage rate does not change, what happens to the quantity of real GDP supplied in the short run?

Accepted Answer

It increases.

Question 6

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

Accepted Answer

An advance in technology.

Question 7

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

Accepted Answer

The money wage rate.

Question 8

If the foreign exchange rate falls, what is the expected effect on aggregate demand in the U.S.?

Accepted Answer

Aggregate demand increases due to higher exports and lower imports.

Question 9

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

Accepted Answer

Classical

Question 10

In the AS-AD model, what is the result if aggregate demand increases faster than long-run aggregate supply?

Accepted Answer

Inflation

Question 11

Which of the following scenarios best illustrates a recessionary gap?

Accepted Answer

Potential GDP exceeds real GDP.

Question 12

What is the immediate effect on the SAS curve if oil prices rise sharply?

Accepted Answer

The SAS curve shifts leftward.

Question 13

Which of the following policies would a Keynesian economist most likely advocate during a recession?

Accepted Answer

Increasing government spending and cutting taxes.

Question 14

If the interest rate falls, what is the expected effect on the quantity of real GDP demanded?

Accepted Answer

It increases.

Question 15

Which of the following is a component of aggregate demand?

Accepted Answer

Government expenditure

Question 16

A monetarist believes the economy will operate at full employment if:

Accepted Answer

Monetary policy is not erratic and money growth is steady.

Question 17

Which effect explains why a rise in the price level leads to higher interest rates and lower borrowing?

Accepted Answer

Intertemporal substitution effect

Question 18

In the short-run macroeconomic equilibrium, what happens if real GDP is below equilibrium GDP?

Accepted Answer

Firms increase production and raise prices.

Question 19

Which of the following would cause the AD curve to shift rightward?

Accepted Answer

An increase in government expenditure.

Question 20

If the economy is at above-full employment equilibrium, what adjustment occurs in the long run?

Accepted Answer

The money wage rate rises until the SAS curve passes through the long-run equilibrium point.

Aggregate Supply and Aggregate Demand: Macroeconomic Equilibrium, Growth, and Policy

Study Guide - Practice Questions