AD-AS Practice Questions

AP EconName:______

AD-AS Practice Questions

_____1) As the U.S. price level rises relative to price levels in other countries, what would happen in the U.S.?

a.consumption and net exports would decline

b.consumption and net exports would increase

c.consumption would increase and net exports would decrease

d.consumption would decrease and net exports would increase

e.consumption and net exports would remain constant

_____2) Which of the following is not included in aggregate demand?

a.purchases of stock and bonds

b.purchases of services such as visits to the doctor

c.purchases of capital goods such as equipment in a factory

d.purchases by foreigners of consumer goods produced in the United States

_____3) Within the aggregate demand/aggregate supply framework, the quantity produced and purchased in the goods and services market represents

a.nominal output or nominal GDP.

b.the interest rate.

c.real output or real GDP.

d.the consumer price index.

_____4) In the AD/AS model, the aggregate demand for goods and services is composed of the purchases made by

a.households and foreigners (net exports).

b.businesses, bondholders, and foreigners (net exports).

c.businesses and governments.

d.consumers, investors, governments, and foreigners (net exports).

_____5) The short-run aggregate supply curve (SRAS) slopes upward to the right because unexpected increases in prices will

a.increase aggregate demand as consumers buy more.

b.decrease aggregate demand as consumers buy less.

c.cause firms to expand output since the higher product prices will improve profitability.

d.cause firms to reduce output since the higher product prices will decrease profit margins.

_____6) Because many resource prices are set by long-term contracts, in the short run

a.costs will increase by more than product prices when demand increases.

b.costs will decrease when the demand for products increases.

c.costs will increase by less than product prices when demand increases.

d.costs will decrease by more than product prices when demand decreases.

_____7) The supply of resources, level of technology, and the quality of an economy’s institutional arrangements provide the constraint that determines the shape of the

a.short-run aggregate supply curve.

b.long-run aggregate supply curve.

c.supply of loanable funds.

d.aggregate demand curve.

_____8) The vertical long-run aggregate supply curve reflects the fact that in the long run, an increase in the price level

a.will not alter the economy’s maximum sustainable rate of output.

b.will increase the economy’s maximum sustainable rate of output.

c.will reduce the quantity of goods and services purchasers will demand.

d.will improve the overall efficiency of resource use.

_____9) In the short run, if prices were below equilibrium,

a.excess aggregate demand for goods and services would place downward pressure on prices.

b.excess aggregate supply of goods and services would place downward pressure on prices.

c.excess aggregate demand for goods and services would place upward pressure on prices.

d.excess aggregate supply of goods and services would place upward pressure on prices.

_____10) Long-run equilibrium in the goods and services market requires that decision makers who agreed to long-term contracts must have

a.incorrectly anticipated the level of prices when they made the agreements.

b.correctly anticipated the level of prices when they made the agreements.

c.correctly anticipated the natural rate of unemployment when they made the agreements.

d.correctly anticipated actual GDP when they made the agreements.

_____11) When the actual GDP equals the full-employment level of GDP, the

a.economy is in long-run equilibrium.

b.price level must be rising.

c.expected inflation must be zero.

d.aggregate supply curve is not constrained by the scarcity of resources.

_____12) If Asian economies suffer a serious economic slump, U.S. net exports will

a.increase and AD will shift rightward.

b.increase and AD will shift leftward.

c.decrease and AD will shift leftward.

d.decrease and AD will shift rightward.

_____13) Which of the following factors would increase aggregate demand in the goods and services market?

a.an decrease in stock prices

b.an increase in the real interest rate

c.a decrease in real incomes abroad

d.increased optimism on the part of consumers and businesses

_____14) If a reduction in stock prices reduces the real wealth of Americans, the

a.aggregate demand curve will shift to the left.

b.long-run aggregate supply will shift to the left.

c.general price level will increase.

d.aggregate demand curve will shift to the right.

_____15) Which of the following shifts short-run, but not long-run aggregate supply to the right?

a.a decrease in the actual rate of inflation

b.a decrease in the expected rate of inflation

c.a decrease in the capital stock

d.a drought in the Midwest agricultural areas.

_____16) If an improvement in the quality of education in the United States increases the productivity of labor, this will

a.increase aggregate demand and decrease aggregate supply.

b.increase short-run aggregate supply and reduce aggregate demand.

c.decrease aggregate demand and increase short-run aggregate supply.

d.increase both long-run and short-run aggregate supply.

_____17) Which of the following is the best example of a supply shock?

a.an increase in the availability of capital and machinery due to normal changes in business investment

b.a decrease in the productivity of the labor force due to a decline in the average educational level of workers

c.a decline in agricultural output due to a summer drought

d.an increase in output as a result of an expansion in employment