Q: Which equation represents planned spending on aggregate demand?

$$\text{AD} = C + I + G + (X - IM)$$

Q: Which formula represents net exports in the aggregate demand equation?

$$\text{Net Exports} = X - IM$$

Question 1

Which of the following best describes the purpose of economic models in macroeconomics?

Accepted Answer

To segregate constant factors from fluctuating ones and develop logical ways of thinking about economic changes.

Question 2

In the context of the aggregate supply and aggregate demand model, what is the outcome when the economy hits the targets of potential GDP, full employment, and stable prices?

Accepted Answer

The economy is in long-run macroeconomic equilibrium.

Question 3

Which equation represents planned spending on aggregate demand?

Accepted Answer

$$	ext{AD} = C + I + G + (X - IM)$$

Question 4

What happens to the short-run aggregate supply curve (SAS) when input prices rise?

Accepted Answer

SAS shifts leftward.

Question 5

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

Accepted Answer

Government transfer payments

Question 6

If the economy is experiencing a negative supply shock, what are the likely outcomes for real GDP, unemployment, and inflation?

Accepted Answer

Real GDP decreases, unemployment increases, inflation increases.

Question 7

Which curve in the AS/AD model is vertical and why?

Accepted Answer

The long-run aggregate supply curve (LAS), because potential GDP does not change with price level.

Question 8

A positive demand shock will most likely result in which of the following?

Accepted Answer

An inflationary gap with rising prices and falling unemployment.

Question 9

Which of the following best explains why the law of aggregate demand differs from the law of microeconomic demand?

Accepted Answer

The fallacy of composition: when prices rise for all products, only imports are substitutes.

Question 10

If business investment increases the quantity and quality of inputs, what happens to the LAS and SAS curves?

Accepted Answer

Both LAS and SAS shift rightward.

Question 11

Which of the following is true about the short-run aggregate supply curve (SAS)?

Accepted Answer

It is upward sloping because as price level rises, aggregate quantity supplied increases.

Question 12

What is the effect of a negative demand shock on the economy according to the AS/AD model?

Accepted Answer

It causes a recessionary gap.

Question 13

Which formula represents net exports in the aggregate demand equation?

Accepted Answer

$$	ext{Net Exports} = X - IM$$

Question 14

In the AS/AD model, what is the result of a positive supply shock?

Accepted Answer

Falling average prices, increased GDP, continued full employment.

Question 15

Which of the following is a correct statement about the macroeconomic long run?

Accepted Answer

All prices and wages have adjusted to equilibrium.

Question 16

If the Canadian dollar appreciates, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand decreases due to lower exports and higher imports.

Question 17

Which of the following best describes the process of comparative statics in macroeconomics?

Accepted Answer

Comparing equilibrium situations before and after a change in one variable.

Question 18

What is the main difference between the short-run and long-run in macroeconomic analysis?

Accepted Answer

In the short-run, some input prices are fixed; in the long-run, all prices are flexible.

Question 19

Which of the following is a plausible result of a negative demand shock in the AS/AD model?

Accepted Answer

Decrease in real GDP and increase in unemployment.

Question 20

If the economy is inside the production possibilities frontier (PPF), what does this indicate?

Accepted Answer

Some inputs are unused or unemployed.

Aggregate Supply and Aggregate Demand: Macroeconomic Models and Shocks

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