BADM 7200 EXAM 2 FAIK KORAY (ONLINE)| V1 AND V2 | QUESTIONS AND ANSWERS |
2026/2027 UPDATED | 100% CORRECT – LOUISIANA STATE UNIVERSITY
CORE DOMAINS
The Short Run, the Long Run, and Price Rigidity
Aggregate Demand and the Quantity Equation
Aggregate Supply: Short Run and Long Run
Shocks to Aggregate Demand and Supply
The IS–LM Model: Goods and Money Market Equilibrium
Fiscal and Monetary Policy in the IS–LM Framework
Okun's Law and the Index of Leading Economic Indicators
The Phillips Curve and the Short-Run Trade-off
Rational Expectations and the Inflation–Unemployment Relationship
Open Economy Macroeconomics: Floating Exchange Rates
INTRODUCTION
This comprehensive examination is designed for BADM 7200 Exam 2 instructed by Dr. Faik Koray at
Louisiana State University. It assesses understanding of core macroeconomic models including the
aggregate demand–aggregate supply framework, the IS–LM model, the quantity equation, Okun's
Law, and the short-run Phillips curve. The examination employs multiple-choice and scenario-
based questions that mirror the actual online exam format. Emphasis is placed on mechanism-
based reasoning, model interpretation, and the application of macroeconomic principles to real-
,world policy scenarios. Two complete versions (V1 and V2) are provided to support rigorous exam
preparation.
VERSION 1: QUESTIONS 1–75
1. What is the key difference between the short run and the long run in macroeconomics?
A. The assumption about price rigidity
B. The level of government spending
C. The size of the labor force
D. The exchange rate regime
🟢 A. The assumption about price rigidity
🔴 RATIONALE: We assume that prices are rigid in the short run and flexible in the long run. This
distinction is fundamental to the AD-AS model and explains why output can deviate from its
natural level in the short run.
2. How do shocks to aggregate demand (AD) affect P and Y in the short run and in the long
run?
A. AD shocks affect Y and P equally in both periods
B. AD shocks affect Y but not P in the short run; affect P but not Y in the long run
C. AD shocks affect P but not Y in the short run; affect Y but not P in the long run
D. AD shocks have no effect in either period
,🟢 B. AD shocks affect Y but not P in the short run; affect P but not Y in the long run
🔴 RATIONALE: Shocks to AD affect Y but have no effect on P in the short run when SRAS is
horizontal due to rigidity in prices. Shocks to AD affect P in the long run, but Y returns to its
natural level.
3. How do shocks to aggregate supply (AS) affect P and Y in the short run and in the long run?
A. AS shocks affect only P in the short run
B. AS shocks affect only Y in the long run
C. AS shocks affect both P and Y in the short and long run
D. AS shocks have no effect on P or Y
🟢 C. AS shocks affect both P and Y in the short and long run
🔴 RATIONALE: Shocks to AS affect P and Y both in the short and long run. The short-run
aggregate supply curve shifts upward. If AD is held constant, the economy moves to a point
where the price level rises and output falls below its natural level.
4. Why does the AD curve slope downward?
A. Because higher prices reduce the money supply
B. Due to the wealth effect, interest rate effect, and exchange rate effect
C. Because government spending decreases as prices rise
D. Because exports increase as domestic prices rise
🟢 B. Due to the wealth effect, interest rate effect, and exchange rate effect
🔴 RATIONALE: At a lower price level, consumers are more likely to have higher disposable
, income and therefore spend more (wealth effect). At a lower price level, interest rates usually fall,
causing higher investment and aggregate demand (interest rate effect). Lower domestic prices
also make exports cheaper, increasing net exports (exchange rate effect).
5. Why is it easier for the Fed to deal with AD shocks than with AS shocks?
A. AD shocks are always smaller in magnitude
B. Demand shocks can be mitigated with monetary policy; there is no way to adjust AD to
maintain both full employment and a stable price level for AS shocks
C. The Fed has no tools to address AS shocks
D. AS shocks are always temporary
🟢 B. Demand shocks can be mitigated with monetary policy; there is no way to adjust AD to
maintain both full employment and a stable price level for AS shocks
🔴 RATIONALE: Demand shocks can be mitigated with monetary policy: decrease M to decrease
AD, maintain full employment and price level. There is no way for the Fed to adjust AD to
maintain both full employment and a stable price level when an AS shock occurs.
6. What does the IS curve show?
A. Combinations of r and Y consistent with equilibrium in the money market
B. Combinations of r and Y consistent with equilibrium in the market for goods and services
C. The relationship between inflation and unemployment
D. The relationship between money supply and interest rates
2026/2027 UPDATED | 100% CORRECT – LOUISIANA STATE UNIVERSITY
CORE DOMAINS
The Short Run, the Long Run, and Price Rigidity
Aggregate Demand and the Quantity Equation
Aggregate Supply: Short Run and Long Run
Shocks to Aggregate Demand and Supply
The IS–LM Model: Goods and Money Market Equilibrium
Fiscal and Monetary Policy in the IS–LM Framework
Okun's Law and the Index of Leading Economic Indicators
The Phillips Curve and the Short-Run Trade-off
Rational Expectations and the Inflation–Unemployment Relationship
Open Economy Macroeconomics: Floating Exchange Rates
INTRODUCTION
This comprehensive examination is designed for BADM 7200 Exam 2 instructed by Dr. Faik Koray at
Louisiana State University. It assesses understanding of core macroeconomic models including the
aggregate demand–aggregate supply framework, the IS–LM model, the quantity equation, Okun's
Law, and the short-run Phillips curve. The examination employs multiple-choice and scenario-
based questions that mirror the actual online exam format. Emphasis is placed on mechanism-
based reasoning, model interpretation, and the application of macroeconomic principles to real-
,world policy scenarios. Two complete versions (V1 and V2) are provided to support rigorous exam
preparation.
VERSION 1: QUESTIONS 1–75
1. What is the key difference between the short run and the long run in macroeconomics?
A. The assumption about price rigidity
B. The level of government spending
C. The size of the labor force
D. The exchange rate regime
🟢 A. The assumption about price rigidity
🔴 RATIONALE: We assume that prices are rigid in the short run and flexible in the long run. This
distinction is fundamental to the AD-AS model and explains why output can deviate from its
natural level in the short run.
2. How do shocks to aggregate demand (AD) affect P and Y in the short run and in the long
run?
A. AD shocks affect Y and P equally in both periods
B. AD shocks affect Y but not P in the short run; affect P but not Y in the long run
C. AD shocks affect P but not Y in the short run; affect Y but not P in the long run
D. AD shocks have no effect in either period
,🟢 B. AD shocks affect Y but not P in the short run; affect P but not Y in the long run
🔴 RATIONALE: Shocks to AD affect Y but have no effect on P in the short run when SRAS is
horizontal due to rigidity in prices. Shocks to AD affect P in the long run, but Y returns to its
natural level.
3. How do shocks to aggregate supply (AS) affect P and Y in the short run and in the long run?
A. AS shocks affect only P in the short run
B. AS shocks affect only Y in the long run
C. AS shocks affect both P and Y in the short and long run
D. AS shocks have no effect on P or Y
🟢 C. AS shocks affect both P and Y in the short and long run
🔴 RATIONALE: Shocks to AS affect P and Y both in the short and long run. The short-run
aggregate supply curve shifts upward. If AD is held constant, the economy moves to a point
where the price level rises and output falls below its natural level.
4. Why does the AD curve slope downward?
A. Because higher prices reduce the money supply
B. Due to the wealth effect, interest rate effect, and exchange rate effect
C. Because government spending decreases as prices rise
D. Because exports increase as domestic prices rise
🟢 B. Due to the wealth effect, interest rate effect, and exchange rate effect
🔴 RATIONALE: At a lower price level, consumers are more likely to have higher disposable
, income and therefore spend more (wealth effect). At a lower price level, interest rates usually fall,
causing higher investment and aggregate demand (interest rate effect). Lower domestic prices
also make exports cheaper, increasing net exports (exchange rate effect).
5. Why is it easier for the Fed to deal with AD shocks than with AS shocks?
A. AD shocks are always smaller in magnitude
B. Demand shocks can be mitigated with monetary policy; there is no way to adjust AD to
maintain both full employment and a stable price level for AS shocks
C. The Fed has no tools to address AS shocks
D. AS shocks are always temporary
🟢 B. Demand shocks can be mitigated with monetary policy; there is no way to adjust AD to
maintain both full employment and a stable price level for AS shocks
🔴 RATIONALE: Demand shocks can be mitigated with monetary policy: decrease M to decrease
AD, maintain full employment and price level. There is no way for the Fed to adjust AD to
maintain both full employment and a stable price level when an AS shock occurs.
6. What does the IS curve show?
A. Combinations of r and Y consistent with equilibrium in the money market
B. Combinations of r and Y consistent with equilibrium in the market for goods and services
C. The relationship between inflation and unemployment
D. The relationship between money supply and interest rates
