#1
Which of the following best describes macroeconomic equilibrium?
When aggregate demand equals aggregate supply
ExplanationEquilibrium is reached when total demand matches total supply in the economy.
#2
What is a supply shock in macroeconomics?
An unexpected event that changes the supply of goods and services
ExplanationA supply shock disrupts the normal production of goods and services due to unforeseen events.
#3
What is the impact of a negative supply shock on the economy?
Decrease in output and increase in prices
ExplanationNegative supply shocks reduce output while pushing prices higher.
#4
Which of the following is an example of a negative supply shock?
Increase in oil prices due to political instability
ExplanationPolitical instability causing a surge in oil prices exemplifies a negative supply shock.
#5
In the AS-AD model, what does the Aggregate Supply curve represent?
The relationship between the price level and the quantity of goods and services supplied
ExplanationIt illustrates the amount of goods and services firms are willing to produce at different price levels.
#6
During a positive supply shock, what happens to the equilibrium price level and output in the short run?
Price level decreases, output increases
ExplanationIn the short run, a positive supply shock leads to lower prices and increased output.
#7
What is the primary determinant of long-run economic growth according to classical macroeconomic theory?
Technological progress
ExplanationClassical macroeconomic theory emphasizes technological advancements as the primary driver of long-term economic growth.
#8
How do policymakers typically respond to supply shocks?
By adjusting monetary or fiscal policy to stabilize the economy
ExplanationPolicy adjustments aim to counter the negative effects of supply shocks and stabilize the economy.
#9
Which of the following is an example of a positive supply shock?
A breakthrough in renewable energy technology reducing production costs
ExplanationAdvancements in renewable energy technology lowering production costs signify a positive supply shock.
#10
What is the long-run effect of a supply shock in the economy?
No change in the price level, but permanent changes in output
ExplanationSupply shocks induce permanent shifts in output levels without affecting long-term price levels.
#11
Which of the following is an assumption of the AS-AD model?
Prices and wages are always flexible and adjust quickly
ExplanationThe AS-AD model assumes rapid adjustments in prices and wages to changes in demand and supply.
#12
What effect does a positive demand shock typically have on inflation and output?
Increases inflation, increases output
ExplanationPositive demand shocks usually drive up inflation rates while simultaneously boosting output.