Question 1

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

Accepted Answer

It is vertical at the full employment level of real GDP: $$Y = Y^*$$

Question 2

If the real GDP decreases when the price level rises, which curve is being described?

Accepted Answer

The aggregate demand curve

Question 3

The vertical axis for an aggregate demand curve measures which of the following?

Accepted Answer

Price level: $$P$$

Question 4

Higher interest rates tend to:

Accepted Answer

Reduce the quantity of goods and services demanded because they increase the cost of borrowing money.

Question 5

A drop in the foreign exchange value of the dollar will likely cause:

Accepted Answer

An increase in aggregate demand.

Question 6

Because we have full employment at the level of potential output, the long-run aggregate supply curve:

Accepted Answer

Is vertical at potential output: $$Y = Y^*$$

Question 7

The aggregate production function is best described as:

Accepted Answer

The relationship between the inputs to production available in the economy and the total output of an economy: $$Y = F(K, L, T)$$

Question 8

An increase in government spending leads to an increase in real national income. This is an example of:

Accepted Answer

The multiplier effect.

Question 9

If the marginal propensity to consume (MPC) is 0.8, what is the value of the simple spending multiplier?

Accepted Answer

$$\frac{1}{1 - MPC} = \frac{1}{1 - 0.8} = 5$$

Question 10

Which of the following would most likely cause the aggregate demand curve to shift to the right?

Accepted Answer

An increase in the money supply.

Question 11

Suppose the marginal propensity to save (MPS) is 0.2. What is the value of the multiplier?

Accepted Answer

$$\frac{1}{MPS} = \frac{1}{0.2} = 5$$

Question 12

A permanent reduction in investment spending leads to:

Accepted Answer

A more than proportional decrease in real national income.

Question 13

Which of the following is NOT a component of aggregate demand?

Accepted Answer

Taxes

Question 14

If the marginal propensity to consume (MPC) decreases, what happens to the multiplier?

Accepted Answer

The multiplier decreases: $$Multiplier = \frac{1}{1 - MPC}$$

Question 15

Which of the following best describes economic growth?

Accepted Answer

A sustained increase in the standard of living as measured by real GDP per capita.

Question 16

If the marginal propensity to consume (MPC) is 0.75, what is the marginal propensity to save (MPS)?

Accepted Answer

0.25

Question 17

Which of the following would most likely shift the long-run aggregate supply curve to the right?

Accepted Answer

An increase in productivity due to technological innovation.

Question 18

A government grant that gives an inventor the exclusive right or privilege to make, use, or sell their invention is known as:

Accepted Answer

A patent.

Question 19

If the marginal propensity to consume (MPC) is 0.9, what is the value of the multiplier?

Accepted Answer

$$\frac{1}{1 - 0.9} = 10$$

Question 20

Which of the following is a likely result of a fall in aggregate demand coupled with a stable aggregate supply?

Accepted Answer

A recession

Macroeconomics: Aggregate Supply, Demand, Economic Growth, and Related Concepts – Study Guide

Study Guide - Practice Questions