Here are 30 Multiple Choice Questions (MCQs) and 20 True/False questions based on the
⭐
uploaded presentation: “Aggregate Demand & Aggregate Supply” (Chapter 27). I've marked
the important ones with a .
✅ 30 Multiple Choice Questions (MCQs)
1. ⭐ What does the long-run aggregate supply (LAS) curve look like?
A. Downward sloping
B. Upward sloping
C. Vertical at potential GDP
D. Horizontal
Answer: C
2. What does the short-run aggregate supply (SAS) curve look like?
A. Downward sloping
B. Vertical
C. Flat
D. Upward sloping
Answer: D
3. ⭐ Which of the following shifts both the LAS and SAS curves to the right?
A. Decrease in money wage
B. Increase in capital and technology
C. Increase in oil prices
D. Decrease in exports
Answer: B
4. What causes a leftward shift in the SAS curve but not in the LAS curve?
A. Increase in labor force
B. Technological improvement
C. Increase in money wage rate
D. Tax cut
Answer: C
5. ⭐ What is the formula for real GDP demanded (Y)?
A. Y = G + T
B. Y = C + I + G + X – M
C. Y = I – T + G
D. Y = P × Q
Answer: B
6. ⭐ What is the wealth effect in aggregate demand?
A. Higher prices increase wealth
B. Higher prices reduce real wealth, reducing consumption
C. Lower prices increase interest rates
D. None of the above
Answer: B
7. Which of the following is not a determinant of aggregate demand?
A. Expectations
B. Fiscal policy
C. Interest rates
D. Quantity of labor
Answer: D
8. ⭐ What does an increase in expected future income do to aggregate demand?
A. Shifts AD left
B. Shifts AD right
C. No effect
D. Reduces GDP
Answer: B
9. What does expansionary fiscal policy involve?
A. Raising taxes
B. Cutting government spending
C. Increasing government purchases or transfer payments
D. None of the above
Answer: C
10. ⭐ What is short-run macroeconomic equilibrium?
A. Real GDP = potential GDP
B. AD = SAS
C. AD = LAS
D. Inflation = 0
Answer: B
11.Which curve is vertical at potential GDP?
A. AD
B. SAS
C. LAS
D. None
Answer: C
12. ⭐ What happens when the price level rises and wages stay constant?
A. Firms decrease production
B. Quantity of real GDP supplied increases
C. AD shifts right
D. LAS shifts left
Answer: B
13.What is the impact of a rise in oil prices?
A. AD shifts right
B. SAS shifts right
C. SAS shifts left
D. LAS shifts right
Answer: C
⭐ What is stagflation?
14.
A. Inflation with economic growth
B. Inflation with decreasing real GDP
C. Deflation with GDP growth
D. Full employment
Answer: B
15.What causes an inflationary gap?
A. GDP < potential GDP
B. GDP > potential GDP
C. Price level falls
D. Decrease in labor
Answer: B
⭐ What is the substitution effect in aggregate demand?
16.
A. Consumers switch to cheaper goods when prices fall
B. Lower interest rates increase borrowing
C. Imports fall as prices rise
D. Real GDP stays constant
Answer: A
17.The aggregate demand curve slopes downward due to:
A. Law of supply
B. Real wage effect
C. Wealth and substitution effects
D. None of the above
Answer: C
18.What causes movement along the SAS curve?
A. Money wage changes
B. Price level changes
C. Tax increase
D. Technology advance
Answer: B
⭐ A fall in the foreign exchange rate affects AD by:
19.
A. Decreasing exports
B. Increasing imports
C. Increasing exports and AD
D. Decreasing demand for domestic goods
Answer: C
20.If potential GDP increases, what happens to LAS?
A. Shifts left
B. Stays constant
C. Shifts right
D. No impact
Answer: C
21.What is long-run macroeconomic equilibrium?
A. Real GDP > potential GDP
B. AD = SAS
C. AD = LAS and real GDP = potential GDP
D. None
Answer: C
⭐ What is a recessionary gap?
22.
A. Real GDP exceeds potential GDP
B. Real GDP is less than potential GDP
C. Real GDP equals potential GDP
D. Unemployment = 0
Answer: B
23.Which policy increases AD directly?
A. Interest rate hike
B. Reduced money supply
C. Increase in government spending
D. Raising taxes
Answer: C
24.What happens when SAS shifts left and AD remains constant?
A. GDP increases
B. Inflation
C. Deflation
D. No change
Answer: B
⭐ What causes economic growth in the AS-AD model?
25.
A. Lower prices
B. Increase in labor, capital, technology
C. Lower taxes
D. Higher interest rates
Answer: B
26.What is the relationship between interest rates and investment?
A. Direct
B. Inverse
C. Neutral
D. Constant
Answer: B
⭐ When real GDP equals potential GDP, the economy is in:
27.
A. Recession
B. Inflation
C. Full-employment equilibrium
D. Hyperinflation
Answer: C
28.An increase in aggregate demand in the short run leads to:
A. Lower output
B. Higher prices and output
C. Unchanged GDP
D. Deflation
Answer: B
29.What shifts AD to the left?
A. Higher foreign income
B. Lower interest rate
C. Decrease in government spending
D. Technology advance
Answer: C
⭐ Which curve shifts if the quantity of money increases?
30.
A. SAS
B. LAS
C. AD
D. None
Answer: C
✅ 20 True/False Questions
1. ⭐ The LAS curve is vertical.
True
2. The SAS curve is downward sloping.
False
3. A rise in the money wage rate shifts the LAS curve.
False
4. ⭐ Consumption, investment, government expenditure, and net exports form aggregate
demand.
True
5. A tax increase raises aggregate demand.
False
6. ⭐ Real GDP equals potential GDP in long-run equilibrium.
True
7. Aggregate demand decreases with higher interest rates.
True
8. ⭐ In the short run, a rise in the price level increases output.
True
9. A rise in oil prices shifts the AD curve.
False
10. ⭐ Stagflation means high inflation with falling output.
True
11.Expectations of higher future income reduce current aggregate demand.
False
12.A fall in exchange rate boosts exports.
True
13. ⭐ The AD curve slopes upward due to substitution effects.
False
14.An inflationary gap means real GDP < potential GDP.
False
15.⭐ A recessionary gap reflects underutilized resources.
True
16.The LAS curve shifts left if potential GDP increases.
False
17.An increase in foreign income increases demand for exports.
True
18.AD = LAS always indicates a recession.
False
19.In short-run equilibrium, real GDP may differ from potential GDP.
True
20.A leftward shift in the SAS curve lowers the price level.
False
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