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the aggregate demand aggregate supply model MCQs

Practise focused the aggregate demand aggregate supply model questions with marked answers for exam preparation and subject revision.

the aggregate demand aggregate supply model Mcqs
1. Which of the following would not cause a shift in the long-run aggregate supply curve ?
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A. An increase in the available capital

B. An increase in the available labour

C. All of these answers shift the long-run aggregate supply curve

D. An increase in price expectations
2. Suppose the economy is initially in long-run equilibrium Then suppose there is an increase in military spending due to rising international tensions According to the model of aggregate demand and aggregate supply what happens to prices and output in the short run ?
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A. Price rise; output rise

B. Price rise; output fall

C. Price fall; output falls

D. Price fall; output rises

3. Suppose the economy is initially in long-run equilibrium Then suppose there is an increase in military spending due to rising international tensions According to the model of aggregate demand and aggregate supply what happens to prices and output in the long run ?
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A. Output and the price level are unchanged from their initial values

B. Output falls; prices are unchanged from the initial value

C. Price fall; output is unchanged from its initial value

D. Prices rise; output is unchanged from its initial value
4. Suppose the economy is initially is long run equilibrium Then suppose there is a drought that destroys much of the wheat crop According to the model of aggregate demand and aggregate supply, what happens of prices and output in the short run ?
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A. Price fall; output falls

B. Price rise; output rises

C. Price rise; output falls

D. Price fall; output rises

5. Policy makers are said to accommodate an adverse supply shock if they ?
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A. fail to respond to the adverse supply shock and allow the economy to adjust on its own.

B. respond to the adverse supply shock by decreasing aggregate demand which lower prices

C. respond to the adverse supply shock by increasing aggregate demand, which further raises prices

D. respond to the adverse supply shock by decreasing short run aggregate supply

6. The natural rate of output is the amount of real GDP produced ?
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A. When the economy is at the natural rate of aggregate demand

B. When there is no no unemployment

C. When the economy is at the natural rate of investment

D. When the economy is at the natural rate of unemployment
7. Stagflation occurs when the economy experiences ?
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A. falling prices and falling output

B. falling prices and rising output

C. rising prices and falling output

D. rising prices and rising output

8. According to the model of aggregate supply and aggregate demand in the long run an increase in the money supply should cause ?
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A. Prices to rise and output to rise

B. prices to rise and output to remain unchanged

C. Price to fall and output to remain unchanged

D. Prices to fall and output to fall

9. According to the wealth effect aggregate demand slopes downward (negatively) because ?
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A. lower prices increase the value of money holding and consumers spending increase

B. lower prices increase money holding decrease lending, interest rates rise and investment spending falls

C. lower prices reduce money holding increase lending, interest rates fall and investment spending increase

D. lower prices decrease the value of money holding and consumers spending decrease

10. Refers to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policy makers allow the economy to adjust to the long run natural rate on its own, ?
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A. People will raise their price expectations and the short run aggregate supply will shift left

B. People will reduce their price expectations and aggregate demand will shift right

C. People will reduce their price expectations and the short run aggregate supply will shift right

D. People will raise their price expectations and aggregate demand will shift left

11. Which of the following events shifts the short run aggregate supply curve to the right ?
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A. a decrease in the money supply

B. an increase in government spending on military equipment

C. a drop-in oil prices

D. an increase in price expectations

E. None of these answers

12. Refers to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policy makers wished to move output to its long run natural rate they should attempt to ?
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A. Shift aggregate demand to the left

B. Shift short run aggregate supply to the left

C. shift short-run aggregate supply to the right

D. shift aggregate demand to the right
13. Suppose the price level falls but suppliers only notice that the price of their particular product has fallen Thinking there has been a fall in the relative price of their product they cut back on production, This is a demonstration of the ?
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A. classical dichotomy theory of the short run aggregate supply curve

B. sticky price theory of the short run aggregate supply curve

C. misperceptions theory of the short run aggregate supply curve

D. sticky wage theory of the short run aggregate supply curve

14. Suppose the economy is initially in long run equilibrium Then suppose there is a drought that destroys much of the wheat crop if policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model to aggregate demand and aggregate supply what happens to prices and output in the long run ?
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A. Output and the price level are unchanged from their initial values

B. Output falls; prices are unchanged from the initial value

C. Output rises; prices are unchanged from the initial value

D. Prices fall; output is unchanged from its initial value

15. Suppose the price level falls but because of fixed nominal wage contracts the real wage rises and firms cut back on production This is a demonstration of the ?
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A. sticky-wage theory of the short-run aggregate supply curve

B. sticky-price theory of the short run aggregate supply curve

C. classical dichotomy theory of the short-run aggregate supply curve

D. misperceptions theory of the short-run aggregate supply curve

16. Which of the following is not a reason why the aggregate demand curve slopes downward ?
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A. The classical dichotomy/monetary neutrality effect

B. The interest-rate effect

C. The wealth effect

D. The exchange-rate effect

17. In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to ?
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A. shift the aggregate demand curve to the right

B. shift the short-run aggregate supply curve to the right

C. shift the aggregate demand curve to the left

D. shift the short-run aggregate supply curve to the left

18. Which of the following statements is true regarding the long-run aggregate supply curve? The long-run aggregate supply cruve ?
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A. shifts right when the government raises the minimum wage

B. Is vertical because an equal change in all prices and wages leaves output unaffected

C. shifts left when the natural rate of unemployment falls

D. is positively sloped because price expectations and wages tend to be fixed is the long run

19. Which of the following statements about economic fluctuations is true ?
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A. None of these answers

B. A recession is when output rises above the natural rate of output

C. A variety of spending income, and output measures can be used to measure economic fluctuation because most macroeconomic quantitties tend to fluctuate together

D. A depression is a mild recession

20. According to the interest rate effect aggregate demand slopes downward (negatively) because ?
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A. lower prices increase the value of money holding and consumer spending increases

B. lower prices reduce money holdings increase lending interest rates fall, and investment spending increase

C. lower prices decrease the value of money holdings and consumers spending decreases

D. lower prices increase money holdings decrease lending interest rates rise, and investment spending falls