Economics 101 Practice Test: Aggregate Demand and Aggregate Supply | Practice Test / Quiz / MCQs

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Economics 101 Practice Test: Aggregate Demand and Aggregate Supply

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Aggregate demand is the total amount of money spent on goods and services in an economy. Aggregate supply is the total number of goods and services that producers are willing to sell at a given price. Here are some details about aggregate demand and aggregate supply: Aggregate demand: The formula for aggregate demand is AD = C + I + G + (X - M). In this equation, AD is aggregate demand, C is consumption, I is investment, G is government spending, X is total exports, and M is total imports. Aggregate supply: The formula for aggregate supply is AS = C + S. In this equation, AS is aggregate... Show more

Aggregate demand is the total amount of money spent on goods and services in an economy. Aggregate supply is the total number of goods and services that producers are willing to sell at a given price.

Here are some details about aggregate demand and aggregate supply:
Aggregate demand: The formula for aggregate demand is AD = C + I + G + (X - M). In this equation, AD is aggregate demand, C is consumption, I is investment, G is government spending, X is total exports, and M is total imports.
Aggregate supply: The formula for aggregate supply is AS = C + S. In this equation, AS is aggregate supply, C is the value of consumption expenditure, and S is savings.
Aggregate demand curve; The aggregate demand curve shows the relationship between the price level and the quantity of total spending in an economy.
Aggregate supply changes: Changes in supply can affect demand and how the economy functions.

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Economics 101 Practice Test: Aggregate Demand and Aggregate Supply

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1. Most economists believe that classical economic theory is a good description of the world in

the long run, but not in the short run.neither the short nor long run.the short run, but not in the long run.the short run and in the long run.

2. Suppose there is a broad increase in the price of stocks which causes an increase in the real wealth of individuals. Consumption spending rises in response to the increase in wealth. This will cause the

aggregate supply curve to shift to the right.general price level to fall.aggregate demand curve to shift to the left.rate of unemployment to decrease.

3. Suppose that there has been bad weather, a decrease in the availability of oil or some other temporary increase in firms’ costs. In the short run prices

rise and output falls.and output rise.and output fall.fall and output rises.

4. The long-run aggregate supply curve shifts right if

Congress raises the minimum wage substantially.unemployment insurance benefits are made more generous.All of these are correct.immigration from abroad increases.

5. The effect of an increase in the price level is represented by a

shift to the left of the aggregate demand curve.movement to the right along a given aggregate demand curve.movement to the left along a given aggregate demand curve.shift to the right of the aggregate demand curve.

6. A fall in prices makes consumers feel more wealthy. As a result

aggregate demand shifts to the left.there is a movement up a given aggregate demand curve.aggregate demand shifts to the right.there is a movement down a given aggregate demand curve.

7. Which of the following do we expect in the short run if the money supply increases?

The interest rate rises. The price level rises. All of these are correct.Investment falls.

8. By itself technological progress tends to

raise real GDP and lower the price level. decrease real GDP and raise the price level. decrease both real GDP and the price level. raise both real GDP and the price level.

9. Keynes believed that economies experiencing high unemployment should adopt policies to

reduce the money supply.reduce government expenditures.increase aggregate supply.increase aggregate demand.

10. If wages do not adjust immediately to the price level, a higher price level

increases real wages and reduces employment. reduces real wages and increases employment. increases real wages and employment. reduces real wages and employment.

11. During World War II

the economy’s production increased almost fivefold.government purchases of goods and services roughly doubled.prices rose about 20 percent.None of the above is correct.

12. Which of the following tends to increase the quantity of output demanded when the price level decreases?

the interest rate effect All of these are correct.the exchange rate effectthe wealth effect

13. An increase in the expected price level shifts aggregate

supply to the right.supply to the left.demand to the right.demand to the left.

14. According to the crowding-out effect, an increase in government purchases causes interest rates to

fall, which decreases investment.fall, which increases saving.rise, which decreases investment.rise, which increases saving.

15. Other things the same, which of the following happens when the price level falls?

The real exchange rate appreciates. Households try to increase money holdings.U.S. net exports increase. All of these are correct.

16. If people decide to save more for retirement

aggregate demand will shift left. If the government raises taxes, aggregate demand will shift right. aggregate demand will shift right. If the government raises taxes, aggregate demand will shift left. or the government raises taxes, aggregate demand will shift right. or the government raises taxes, aggregate demand will shift left.

17. In the long run, technological progress

makes the price level fall, while increases in the money supply make prices rise.and increases in the money supply both make the price level rise.makes the price level rise, while increases in the money supply make prices fall.and increases in the money supply both make the price level fall.

18. Aggregate demand shifts right when the government

raises personal income taxes.institutes an investment tax credit.decreases the money supply.All of these are correct.

19. The sticky wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, the real wage

rises, so employment rises.falls, so employment falls.falls, so employment rises.rises, so employment falls.

20. People will spend less if the price level

rises, making the dollars they hold worth less.falls, making the dollars they hold worth more.rises, making the dollars they hold worth more.falls, making the dollars they hold worth less.

21. Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting aggregate

supply right.demand left.demand right.supply left.

22. Which of the following is associated primarily with aggregate supply shifting far to the left?

the Great Depressionthe economic boom of the 1940sstagflation of the 1970sNone of the above is correct.

23. Which of the following shifts the long-run aggregate supply curve to the left?

an increase in the economy’s capital stockan increase in the availability of natural resources from abroad stricter environmental regulations None of the above is correct.

24. Suppose a stock market crash makes people feel poorer. This decrease in wealth would cause people to

decrease consumption, which shifts aggregate demand left.increase consumption, which shifts aggregate demand right.increase consumption, which shifts aggregate supply right.decrease consumption, which shifts aggregate supply left.

25. Assuming that a is positive, theories of short-run aggregate supply are expressed mathematically as quantity of output supplied =

a(expected price level – actual price level) – natural rate of output.a(actual price level – expected price level) – natural rate of output.natural rate of output + a(expected price level – actual price level).natural rate of output + a(actual price level – expected price level).

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