SECTION I SHORT-ANSWER QUESTIONS

Question 1
In 2024, a geopolitical conflict in a major oil-producing region causes a sudden and substantial
increase in global oil prices. The price of a barrel of oil jumps from an average of $84 per barrel
in 2024, slightly up from $83/bbl in 2023. (World Bank, 2024)
Draw the AD–AS diagram for the U.S. economy and use four steps for analyzing short-term
economic fluctuations.
Question 2
a. The Covid-19 pandemic has created significant impacts on economies around the globe,
mainly due to the reduction in spending. Classify whether this is supply or demand
shock, explain and illustrate the changes in the given diagram.

b. Vietnam's GDP dropped significantly in Q2/2021 due to the labor shortage (short term)
and decrease in goods export. Analyze the changes in Aggregate Demand and Aggregate
Supply by using the given diagram. Specifically, indicate how it influences the price
level, the quantity of outputs, and unemployment rate.

Question 3
Due to the Covid-19 pandemic, oil prices increased. Draw a diagram to show the short-run
fluctuation of this effect and use 4 steps for analyzing short-term economic fluctuations. Suppose
after that, the government applies expansionary monetary policy to stimulate the economy, how
does it affect your current fluctuation?
Question 4
Suppose that a decrease in the demand for goods and services pushes the economy into
recession.
a. Draw a diagram to show the short-run fluctuation of this effect and use four steps for
analyzing short-term economic fluctuations.
b. If the government does nothing, what ensures the economy eventually returns to the
natural output rate?
Question 5
Suppose that consumers become pessimistic about the future health of the economy. What will
happen to aggregate demand and to output?
Question 6
Assume a boom occurs in Canada. The boom in Canada increased Canadian consumers'
incomes. In turn, their spending rises. Some of their spending is on products from the U.S., so
their spending increase causes U.S. exports to rise.
Draw the AD–AS diagram for the U.S. economy and use four steps for analyzing short-term
economic fluctuations.
Question 7
Explain how an increase in the price level changes interest rates. How does this change in
interest rates lead to changes in investment and net exports?
Question 8

a. What are the reasons that cause AD to shift to the right?

b. Explain three effects that cause the aggregate demand (AD) curve to slope downward?
 SECTION II MULTIPLE CHOICE QUESTIONS
Question 1 The misperceptions theory of the short-run aggregate supply curve says that
if the price level is higher than people expected, then some firms believe that the
relative price of what they produce has
a decreased, so they increase production.
.
b decreased, so they decrease production.
.
c increased, so they increase production.
.
d increased, so they decrease production.
.
Question 2 Which part of real GDP fluctuates most over the course of the business
cycle?
a. consumption expenditures
b. government expenditures
c. investment expenditures
d. net exports
Question 3 In the context of aggregate demand and aggregate supply, the wealth effect
refers to the idea that, when the price level decreases, the real wealth of households
a. increases and as a result consumption spending increases. This effect contributes to the
downward slope of the aggregate-demand curve.
b. decreases and as a result consumption spending increases. This effect contributes to the
upward slope of the aggregate-supply curve.
c. increases and as a result households increase their money holdings; in turn, interest rates
increase and investment spending decreases. This effect contributes to the downward
slope of the aggregate-demand curve.
d. decreases and as a result households increase their money holdings; in turn, interest rates
increase and investment spending decreases. This effect contributes to the upward slope
of the aggregate-supply curve.
Question 4 Suppose the economy is in long-run equilibrium. Then because of corporate
scandal, international tensions, and loss of confidence in policymakers, people become
pessimistic regarding the future and retain that level of pessimism for some time.
Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right.
d. aggregate supply shifts left.
Question 5 If there are sticky wages, and the price level is greater than what was
expected, then
a. the quantity of aggregate goods and services supplied falls, which is shown by a shift of
the short-run aggregate supply curve to the left.
b. the quantity of aggregate goods and services supplied falls, as shown by a movement to
the left along the short-run aggregate supply curve.
c. the quantity of aggregate goods and services supplied rises, as shown by a shift of the
short-run aggregate supply curve to the right.
d. the quantity of aggregate goods and services supplied rises, as shown by a movement to
the right along the short-run aggregate supply curve.
Question 6 Which of the following is correct?
a. Short run fluctuations in economic activity happen only in developing countries.
b. During economic contractions most firms experience rising sales.
c. Recessions come at regular intervals and are easy to predict.
d. When real GDP falls, the rate of unemployment rises.
Question 7 When the money supply decreases
a. interest rates fall and so aggregate demand shifts right.
b. interest rates fall and so aggregate demand shifts left.
c. interest rates rise and so aggregate demand shifts right.
d. interest rates rise and so aggregate demand shifts left.
Question 8 A candidate for political office announces the following policies which, he
says, economics clearly demonstrates will lead to higher output in the long run. 1.
reduce immigration from abroad 2. make trade more open between the US and other
countries:
a 1 and 2 both shift long-run aggregate supply right.
.
b 1 and 2 both shift long-run aggregate supply left.
.
c 1 shifts long-run aggregate supply right, 2 shifts long-run aggregate supply left.
.
d 1 shifts long-run aggregate supply left, 2 shifts long-run aggregate supply right.
.
Question 9 Aggregate demand includes
a the quantity of goods and services both the government and customers abroad
. want to buy.
b the quantity of goods and services neither the government nor customers abroad
. want to buy.
c the quantity of goods and service the government wants to buy, but not the
. quantity of goods and services customers abroad want to buy.
d the quantity of goods and services customers abroad want to buy, but not the
. quantity of goods and services the government wants to buy.
Question 10 The effect of an increase in the price level on the aggregate-demand curve is
represented by a
a shift to the right of the aggregate-demand curve.
.
b shift to the left of the aggregate-demand curve.
.
c movement to the left along a given aggregate-demand curve.
.
d movement to the right along a given aggregate-demand curve.
.
Question 11 The aggregate quantity of goods and service demanded changes as the price
level falls because
a real wealth rises, interest rates rise, and the dollar appreciates.
.
b real wealth rises, interest rates fall, and the dollar depreciates.
.
c real wealth falls, interest rates rise, and the dollar appreciates.
.
d real wealth falls, interest rates fall, and the dollar depreciates.
.
Question 12 In the context of aggregate demand and aggregate supply, the wealth effect
refers to the idea that, when the price level decreases, the real wealth of households
a increases and as a result consumption spending increases. This effect contributes
. to the downward slope of the aggregate-demand curve.
b decreases and as a result consumption spending increases. This effect contributes
. to the upward slope of the aggregate-supply curve.
c increases and as a result households increase their money holdings; in turn,
. interest rates increase and investment spending decreases. This effect contributes
to the downward slope of the aggregate-demand curve.
d decreases and as a result households increase their money holdings; in turn,
. interest rates increase and investment spending decreases. This effect contributes
to the upward slope of the aggregate-supply curve.
Question 13 Suppose a stock market boom makes people feel wealthier. The increase in
wealth would cause people to desire
a increased consumption, which shifts the aggregate-demand curve right.
.
b increased consumption, which shifts the aggregate-demand curve left.
.
c decreased consumption, which shifts the aggregate-demand curve right.
.
d decreased consumption, which shifts the aggregate-demand curve left.
.
Question 14 When taxes increase, consumption
a decreases as shown by a movement to the left along a given aggregate-demand
. curve.
b decreases as shown by a shift of the aggregate demand curve to the left.
.
c increases as shown by a movement to the right along a given aggregate-demand
. curve.
d increases as shown by a shift of the aggregate demand curve to the right.
.
Question 15 The sticky-wage theory of the short-run aggregate supply curve says that
when the price level rises more than expected,
a production is more profitable and employment rises.
.
b production is more profitable and employment falls.
.
c production is less profitable and employment rises.
.
d production is less profitable and employment falls.
.
Question 16 According to the sticky-wage theory of the short-run aggregate supply curve,
if workers and firms expected prices to rise by 4 percent, but instead they rise by 2
percent, then
a employment and production rise.
.
b employment rises and production falls.
.
c employment falls and production rises.
.
d employment and production fall.
.
Question 17 An increase in the expected price level shifts the
a short-run and long-run aggregate supply curves left.
 .
b the short-run but not the long-run aggregate supply curve left.
.
c the long-run but not the short-run aggregate supply curve left.
.
d neither the long-run nor the short-run aggregate supply curve left.
.
Question 18 An increase in the expected price level shifts short-run aggregate supply to
the
a right, and an increase in the actual price level shifts short-run aggregate supply to
. the right.
b right, and an increase in the actual price level does not shift short-run aggregate
. supply.
c left, and an increase in the actual price level shifts short-run aggregate supply to
. the left.
d left, and an increase in the actual price level does not shift short-run aggregate
. supply.
The Stock Market Boom of 2014
Imagine that in 2014 the economy is in long-run equilibrium. Then stock prices rise more than
expected and stay high for some time.
Question 19 Which curve shifts and in which direction?
a aggregate demand shifts right
.
b aggregate demand shifts left
.
c aggregate supply shifts right
.
d aggregate supply shifts left.
.
Question 20 In the long run, the change in price expectations created by the stock market
boom shifts
a long-run aggregate supply right.
 .
b long-run aggregate supply left.
.
c short-run aggregate supply right.
.
d short-run aggregate supply left.
.
Question 21 The aggregate supply curve is upward sloping in
a. the short and long run.
b. neither the short nor long run.
c. the short run.
d. the long run.

Question 22 An increase in household saving causes consumption to

Question 23 Refer to figure below. The shift of the short-run aggregate-supply curve from
SRAS1 to SRAS2

a. could be caused by a decrease in the expected price level.

Question 24 Imagine that in 2014 the economy is in long-run equilibrium. Then stock
prices rise more than expected and stay high for some time. In the short run what
happens to the price level and real GDP?
a. Both the price level and real GDP rise.
b. Both the price level and real GDP fall.
c. The price level rises and real GDP falls.
d. The price level falls and real GDP rises.

Question 25 As recessions begin, production