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Money, Banking, and Financial Markets Practice Test: Aggregate Demand and Supply Analysis
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Aggregate demand and aggregate supply are macroeconomic concepts that describe the relationship between the total demand and supply of goods and services in an economy. The aggregate demand-aggregate supply (AD-AS) model shows how these two concepts interact and how they change during an economic boom or recession. The model is represented graphically, with price level on the Y-axis and real GDP on the X-axis.  Aggregate demand: The total amount of spending people are willing to make on domestic goods and services at a given price level. This includes consumer spending, business spending,... Show more
Money, Banking, and Financial Markets Practice Test: Aggregate Demand and Supply Analysis
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25 Questions

1. Which of the following increases aggregate supply in the short-run, everything else held constant?
2. According to the quantity theory of money, an increase in the money supply ________ aggregate________, everything else held constant.
3. According to aggregate demand and supply analysis, the rising oil prices coupled with the subprime financial crisis in 2007-2008 caused the unemployment rate to ________ and the level of real aggregate output to ________.
4. Everything else held constant, a decrease in net taxes ________ aggregate ________.
5. The long-run aggregate supply curve is a vertical line passing through
6. The Lucas supply function indicates that deviations of unemployment from the natural rate level respond to
7. According to aggregate demand and supply analysis, the negative supply shocks of 1973 -1975 and 1978-1980 had the effect of
8. Everything else held constant, an increase in government spending ________ aggregate________.
9. Everything else held constant, a decrease in government spending ________ aggregate________.
10. By analyzing aggregate demand via its component parts, we can conclude that changes in the money supply
11. Everything else held constant, when output is ________ the natural rate level, wages will begin to ________, increasing short-run aggregate supply.
12. Everything else held constant, aggregate demand increases when
13. A negative supply shock causes ________ to ________.
14. Everything else held constant, an increase in planned investment expenditure ________ aggregate ________.
15. By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the price level causes
16. According to the quantity theory of money, a decrease in the money supply, ________ aggregate________, everything else held constant.
17. Suppose the U.S. economy is operating at potential output. A negative supply shock that is accommodated by an open market purchase by the Federal Reserve will cause ________ in realGDP in the long run and ________ in the aggregate price level in the long run, everything else held constant.
18. Everything else held constant, a change in workersʹ expectations about the aggregate price level will cause ________ to change.
19. A reduction of aggregate demand may raise the natural rate of unemployment above the full employment level, meaning that the self-correcting mechanism will only be able to return the economy to the natural rate level of output and unemploymentnot to the full employment levels. Such a view is consistent with
20. Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in the aggregate price level in the short run, everything else held constant.
21. Everything else held constant, a decrease in planned investment expenditure ________ aggregate ________.
22. The long-run rate of unemployment to which an economy always gravitates is the
23. The short-run aggregate supply curve is upward sloping because in the short run, costs of many factors that go into producing goods and services are ________, meaning that the price for a unit of output will ________ relative to input prices and the profit per unit will rise.
24. One way to derive aggregate demand is by looking at its four component parts, which are:
25. Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Fed will cause ________ in real GDP in the long run and ________ in the aggregate price level in the long run, everything else held constant.

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