ECON 2120 (CHAPTER 13) EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
Aggregate Demand Curve - Answers A curve showing the relationship between the price level and the
quantity of real GDP demanded by households, firms, and the government.
Aggregate Demand - Answers the amount of goods and services in the economy that will be
purchased at all possible price levels
The AD curve is downward sloping due to... - Answers - The wealth effect;
- The interest rate effect; and
- The international-trade effect.
Factors Shifting Aggregate Demand - Answers - Changes in policies (interest rates, government
purchases, personal income taxes or business taxes)
- Changes in the expectations of households and firms
- Changes in foreign variables (income abroad, exchange rates)
Aggregate Supply - Answers the total amount of goods and services in the economy available at all
possible price levels
Long-Run Aggregate Supply Curve (LRAS): - Answers A curve that shows the relationship in the long
run between the price level and the quantity of real GDP supplied.
Short-Run Aggregate Supply Curve (SRAS): - Answers A curve that shows the relationship in the short
run between the price level and the quantity of real GDP
supplied.
The SRAS curve is upward sloping because... - Answers - Contracts make some wages and prices
"sticky";
- Firms are often slow to adjust wages; and
- Menu costs make some prices sticky.
Factors shifting SRAS - Answers - Changes in the labor force and in the capital stock
- Technological change
- Expected changes in the future price level
- Adjustments of workers and firms to errors in past expectations about the price level
- Unexpected changes in the price of an important natural resource or the occurrence of a natural
disaster or pandemic (supply shock)
What is the usual cause of inflation? - Answers The usual cause of inflation is total spending
increasing faster than production.
- AD moves further
right than does LRAS.
- SRAS moves to the
right; but the
anticipated rise in the
price level causes it
to move less far than
LRAS.
- Long run equilibrium
is restored, but with a
higher price level
determinants of aggregate demand - Answers Factors such as consumption spending, investment,
government spending, and net exports that, if they change, shift the aggregate demand curve.
Movement along the curve - Answers Change in quantity demanded due to price change.
An increase in the price level - Answers causes a movement along the aggregate demand curve (a
change in the quantity demanded of real GDP). This movement occurs because of the wealth effect,
the interest-rate
effect, and the international trade effect (understand how these effects work).
An increase in government purchases - Answers causes the aggregate demand curve to shift to the
right (an increase in aggregate demand).
Higher state income taxes - Answers decrease disposable income, decreasing consumption spending,
which shifts the aggregate demand curve to the left (a decrease in aggregate demand).
Higher interest rates - Answers decrease consumption and investment spending, shifting aggregate
demand to the left (a decrease in aggregate demand).
Aggregate Demand Curve - Answers A curve showing the relationship between the price level and the
quantity of real GDP demanded by households, firms, and the government.
Aggregate Demand - Answers the amount of goods and services in the economy that will be
purchased at all possible price levels
The AD curve is downward sloping due to... - Answers - The wealth effect;
- The interest rate effect; and
- The international-trade effect.
Factors Shifting Aggregate Demand - Answers - Changes in policies (interest rates, government
purchases, personal income taxes or business taxes)
- Changes in the expectations of households and firms
- Changes in foreign variables (income abroad, exchange rates)
Aggregate Supply - Answers the total amount of goods and services in the economy available at all
possible price levels
Long-Run Aggregate Supply Curve (LRAS): - Answers A curve that shows the relationship in the long
run between the price level and the quantity of real GDP supplied.
Short-Run Aggregate Supply Curve (SRAS): - Answers A curve that shows the relationship in the short
run between the price level and the quantity of real GDP
supplied.
The SRAS curve is upward sloping because... - Answers - Contracts make some wages and prices
"sticky";
- Firms are often slow to adjust wages; and
- Menu costs make some prices sticky.
Factors shifting SRAS - Answers - Changes in the labor force and in the capital stock
- Technological change
- Expected changes in the future price level
- Adjustments of workers and firms to errors in past expectations about the price level
- Unexpected changes in the price of an important natural resource or the occurrence of a natural
disaster or pandemic (supply shock)
What is the usual cause of inflation? - Answers The usual cause of inflation is total spending
increasing faster than production.
- AD moves further
right than does LRAS.
- SRAS moves to the
right; but the
anticipated rise in the
price level causes it
to move less far than
LRAS.
- Long run equilibrium
is restored, but with a
higher price level
determinants of aggregate demand - Answers Factors such as consumption spending, investment,
government spending, and net exports that, if they change, shift the aggregate demand curve.
Movement along the curve - Answers Change in quantity demanded due to price change.
An increase in the price level - Answers causes a movement along the aggregate demand curve (a
change in the quantity demanded of real GDP). This movement occurs because of the wealth effect,
the interest-rate
effect, and the international trade effect (understand how these effects work).
An increase in government purchases - Answers causes the aggregate demand curve to shift to the
right (an increase in aggregate demand).
Higher state income taxes - Answers decrease disposable income, decreasing consumption spending,
which shifts the aggregate demand curve to the left (a decrease in aggregate demand).
Higher interest rates - Answers decrease consumption and investment spending, shifting aggregate
demand to the left (a decrease in aggregate demand).
