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Eco 4223 Exam 4 Exam latest update Practice Questions (Original) EXAM | 2026–2027
Latest Update | Original Questions & Answers with Detailed Rationales | Graded A+
Section 1: Aggregate Demand and Aggregate Supply
Q1. The aggregate demand (AD) curve shows the relationship
between:
A. The price level and the quantity of real GDP demanded.
B. Inflation and unemployment.
C. The interest rate and investment.
D. Money supply and velocity.
Correct Answer: A
Rationale: AD traces the quantity of domestic goods and
services demanded at each price level, holding other factors
constant.
Q2. The AD curve slopes downward primarily because:
A. A lower price level increases real money balances, lowering
the interest rate and stimulating investment.
B. A lower price level reduces consumption.
C. Higher prices increase net exports.
D. The LM curve is vertical.
Correct Answer: A
Rationale: The real balance (wealth) effect and the interest-rate
effect generate the inverse relationship between PP and YdYd.
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Q3. Which of the following shifts the AD curve to the right?
A. A decrease in government spending.
B. An increase in the money supply.
C. An increase in taxes.
D. A decrease in consumer confidence.
Correct Answer: B
Rationale: Expansionary monetary policy lowers interest rates
and stimulates interest-sensitive spending, shifting AD right.
Q4. A decrease in autonomous consumption will:
A. Shift AD right.
B. Shift AD left.
C. Cause a movement along AD.
D. Shift short-run aggregate supply (SRAS) right.
Correct Answer: B
Rationale: Lower autonomous consumption reduces planned
expenditure at every price level.
Q5. The long-run aggregate supply (LRAS) curve is:
A. Upward sloping.
B. Vertical at potential output.
C. Horizontal.
D. Downward sloping.
Correct Answer: B
Rationale: In the long run, output is determined by factor
supplies and technology, not by the price level.
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Q6. The short-run aggregate supply (SRAS) curve is upward
sloping because:
A. Wages and prices are sticky in the short run.
B. Technology improves with higher prices.
C. Potential output rises with the price level.
D. Money is neutral in the short run.
Correct Answer: A
Rationale: Sticky wages and prices allow firms to increase
output when prices rise.
Q7. An increase in the expected price level will:
A. Shift SRAS left.
B. Shift SRAS right.
C. Shift AD right.
D. Shift LRAS right.
Correct Answer: A
Rationale: Higher expected prices raise wage demands,
increasing production costs and shifting SRAS left.
Q8. A negative supply shock (e.g., an oil price spike) will:
A. Shift SRAS left, raising the price level and lowering output.
B. Shift SRAS right, lowering prices and raising output.
C. Shift AD left.
D. Shift LRAS right.
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Correct Answer: A
Rationale: Higher input costs reduce short-run aggregate
supply, causing stagflation.
Q9. In long-run equilibrium, output equals:
A. Potential output.
B. Actual output minus the output gap.
C. The natural rate of unemployment.
D. Both A and C are equivalent descriptions of long-run
equilibrium.
Correct Answer: D
Rationale: Long-run equilibrium occurs at potential GDP, which
corresponds to the natural rate of unemployment.
Q10. If actual output exceeds potential output, the economy
has:
A. A recessionary gap.
B. An inflationary gap.
C. Full employment.
D. Deflation.
Correct Answer: B
Rationale: A positive output gap is an inflationary gap.
Q11. If actual output is below potential, the economy has:
A. An inflationary gap.
B. A recessionary gap.
Eco 4223 Exam 4 Exam latest update Practice Questions (Original) EXAM | 2026–2027
Latest Update | Original Questions & Answers with Detailed Rationales | Graded A+
Section 1: Aggregate Demand and Aggregate Supply
Q1. The aggregate demand (AD) curve shows the relationship
between:
A. The price level and the quantity of real GDP demanded.
B. Inflation and unemployment.
C. The interest rate and investment.
D. Money supply and velocity.
Correct Answer: A
Rationale: AD traces the quantity of domestic goods and
services demanded at each price level, holding other factors
constant.
Q2. The AD curve slopes downward primarily because:
A. A lower price level increases real money balances, lowering
the interest rate and stimulating investment.
B. A lower price level reduces consumption.
C. Higher prices increase net exports.
D. The LM curve is vertical.
Correct Answer: A
Rationale: The real balance (wealth) effect and the interest-rate
effect generate the inverse relationship between PP and YdYd.
, Page |2
Q3. Which of the following shifts the AD curve to the right?
A. A decrease in government spending.
B. An increase in the money supply.
C. An increase in taxes.
D. A decrease in consumer confidence.
Correct Answer: B
Rationale: Expansionary monetary policy lowers interest rates
and stimulates interest-sensitive spending, shifting AD right.
Q4. A decrease in autonomous consumption will:
A. Shift AD right.
B. Shift AD left.
C. Cause a movement along AD.
D. Shift short-run aggregate supply (SRAS) right.
Correct Answer: B
Rationale: Lower autonomous consumption reduces planned
expenditure at every price level.
Q5. The long-run aggregate supply (LRAS) curve is:
A. Upward sloping.
B. Vertical at potential output.
C. Horizontal.
D. Downward sloping.
Correct Answer: B
Rationale: In the long run, output is determined by factor
supplies and technology, not by the price level.
, Page |3
Q6. The short-run aggregate supply (SRAS) curve is upward
sloping because:
A. Wages and prices are sticky in the short run.
B. Technology improves with higher prices.
C. Potential output rises with the price level.
D. Money is neutral in the short run.
Correct Answer: A
Rationale: Sticky wages and prices allow firms to increase
output when prices rise.
Q7. An increase in the expected price level will:
A. Shift SRAS left.
B. Shift SRAS right.
C. Shift AD right.
D. Shift LRAS right.
Correct Answer: A
Rationale: Higher expected prices raise wage demands,
increasing production costs and shifting SRAS left.
Q8. A negative supply shock (e.g., an oil price spike) will:
A. Shift SRAS left, raising the price level and lowering output.
B. Shift SRAS right, lowering prices and raising output.
C. Shift AD left.
D. Shift LRAS right.
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Correct Answer: A
Rationale: Higher input costs reduce short-run aggregate
supply, causing stagflation.
Q9. In long-run equilibrium, output equals:
A. Potential output.
B. Actual output minus the output gap.
C. The natural rate of unemployment.
D. Both A and C are equivalent descriptions of long-run
equilibrium.
Correct Answer: D
Rationale: Long-run equilibrium occurs at potential GDP, which
corresponds to the natural rate of unemployment.
Q10. If actual output exceeds potential output, the economy
has:
A. A recessionary gap.
B. An inflationary gap.
C. Full employment.
D. Deflation.
Correct Answer: B
Rationale: A positive output gap is an inflationary gap.
Q11. If actual output is below potential, the economy has:
A. An inflationary gap.
B. A recessionary gap.
