Question 1

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

Accepted Answer

A vertical line representing the real output of goods and services after full adjustment has occurred.

Question 2

What is the primary reason the aggregate demand (AD) curve slopes downward?

Accepted Answer

Because higher prices reduce total planned spending through the real-balance effect, interest rate effect, and open economy effect.

Question 3

Suppose the economy experiences an increase in capital accumulation and improvements in technology. What is the likely effect on the LRAS curve?

Accepted Answer

The LRAS curve shifts rightward.

Question 4

Which of the following is NOT a reason for the downward slope of the aggregate demand curve?

Accepted Answer

The substitution effect between goods.

Question 5

If the aggregate demand curve shifts rightward at the same rate as the LRAS curve, what happens to the price level?

Accepted Answer

The price level remains constant.

Question 6

Which of the following best explains secular deflation?

Accepted Answer

A persistent decline in prices resulting from economic growth with stable aggregate demand.

Question 7

What is the effect on equilibrium real GDP and the price level if the LRAS curve shifts rightward while the AD curve remains stationary?

Accepted Answer

Real GDP increases and the price level falls.

Question 8

Which of the following scenarios would most likely cause a leftward shift in the LRAS curve?

Accepted Answer

A reduction in capital stock due to natural disasters.

Question 9

Suppose the government implements a tax reduction and people become more optimistic about future incomes. What is the likely effect on the aggregate demand curve?

Accepted Answer

The AD curve shifts rightward.

Question 10

Which of the following equations correctly represents the equilibrium condition in the long run?

Accepted Answer

$$ AD = LRAS $$

Question 11

If the price level rises, which of the following effects would NOT contribute to a decrease in aggregate demand?

Accepted Answer

The income effect.

Question 12

Which of the following is a plausible cause of supply-side inflation?

Accepted Answer

A decline in labor force participation.

Question 13

In the context of the open economy effect, what happens when the domestic price level rises?

Accepted Answer

Net exports decrease.

Question 14

Which of the following would shift the aggregate demand curve to the left?

Accepted Answer

A decrease in the money supply.

Question 15

If the quantity of money in circulation grows faster than the increase in LRAS, what is the likely macroeconomic outcome?

Accepted Answer

Inflation.

Question 16

Which of the following best describes the difference between aggregate demand and the demand for a single good?

Accepted Answer

Aggregate demand refers to total planned expenditures on all goods and services, while demand for a single good refers to one market only.

Question 17

Which of the following is an example of a real-world event that would likely shift the LRAS curve to the right?

Accepted Answer

A major technological innovation in renewable energy.

Question 18

Suppose Iceland’s government invests in geothermal infrastructure, attracting private investment and boosting productivity. What is the likely effect on Iceland’s LRAS curve?

Accepted Answer

The LRAS curve shifts rightward.

Question 19

Which of the following policies would most likely help avoid secular deflation in a growing economy?

Accepted Answer

Increasing the money supply to match the growth in LRAS.

Question 20

If Japan’s government reduces average work hours to increase productivity per hour, what is the expected macroeconomic effect?

Accepted Answer

A rightward shift in the LRAS curve.

Real GDP and the Price Level in the Long Run: Study Notes

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