School of Economics and Politics

First Year
Fall 2025
E101: Principles of Macroeconomics
Tutorial
AL. Dina Abdelhafiz

Tutorial 12
Chapter 27: Aggregate Supply and Aggregate Demand

Question 1: Choose the correct answer:

1. The quantity of real GDP supplied depends on the

A) level of aggregate demand.
B) quantity of capital, bonds, and stocks.
C) quantity of labor, the quantity of capital, and the state of technology.
D) price level, the unemployment rate, and the quantity of government expenditures
on goods and services.

2. In the macroeconomic short run,

A) actual real GDP may be less than or more than potential GDP.
B) the unemployment rate is zero.
C) by definition, the economy is always moving away from full employment.
D) actual real GDP always equals potential GDP.

3. In the macroeconomic long run,

A) GDP always is below potential GDP.
B) there is full employment with no unemployment.
C) output always is above potential GDP.
D) there is full employment and real GDP is equal to potential GDP.

4. The long-run aggregate supply curve is

A) horizontal at the full employment price level.
B) vertical at the full employment level of real GDP.
C) upward sloping because of the effects of price level changes on real GDP.
D) the same as the short-run aggregate supply curve.

5. Which of the following is true about the long-run aggregate supply curve?
A) It is vertical at the level of potential GDP.
B) It shows the relationship between the price level and real GDP when the economy
is at full employment.
C) It does not shift in response to temporary changes in aggregate demand.
D) All of the above are true.

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6. Moving upward along the SAS results in a ________ in the price level and ________ in
real GDP.
A) rise; an increase
B) rise; a decrease
C) fall; an increase
D) fall; a decrease

7. The short-run aggregate supply curve is upward sloping because

A) a lower price level creates a wealth effect.
B) lower taxes motivate people to work more.
C) money wage rates do not immediately change when the price level changes.
D) most business firms operate with long-term contracts for output but not labor.

8. In the short run, firms expand their production when the price level rises because
A) the money wage rate remains constant so the higher prices for their product makes
it profitable for firms to expand production.
B) each firm must keep its production up to the level of its rivals, and some firms
will expand production as the price level increases.
C) the higher prices allow the firm to hire more workers by offering higher wages,
thereby increasing productivity and profits.
D) firms can increase their profits by increasing their maintenance.

9. Which of the following does NOT shift the short-run aggregate supply curve?
A) a change in the money wage rate
B) technological progress
C) a reduction in the price of a raw material
D) a change in the price level

10. The SAS curve and the LAS curve

A) intersect at potential GDP.
B) are parallel at potential GDP.
C) are perpendicular to one another at potential GDP.
D) None of the above answers is correct.

11. Which of the following statements regarding aggregate supply are correct?
A) Moving along the long-run aggregate supply curve, both the price level and the
money wage rate change by the same percentage.
B) Moving along the short-run aggregate supply curve, both the price level and the
money wage rate change by the same percentage.
C) Moving along the long-run aggregate supply curve, the money wage rate changes
but the price level is constant.
D) Moving along the short-run aggregate supply curve, the money wage rate changes
but the price level is constant.

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12. Which of the following directly shifts the short-run aggregate supply curve?
A) a change in aggregate demand
B) a change in the price level
C) a change in resource prices
D) all of the above

13. Suppose there is a temporary increase in the price of oil. This is represented by
A) a leftward shift of the SAS and the LAS curve.
B) a leftward shift of the LAS curve.
C) a rightward shift of the SAS curve.
D) a leftward shift of the SAS curve.

14. If the full-employment quantity of labor increases, then the

A) LAS curve shifts rightward, and the SAS curve does not shift.
B) SAS curve shifts rightward, and the LAS curve does not shift.
C) SAS curve shifts rightward, and the LAS curve shifts rightward.
D) SAS curve shifts rightward, and the LAS curve does shifts leftward.

15. An increase in the amount of human capital ________ the short-run aggregate supply
curve and ________ the long-run aggregate supply curve.
A) shifts; shifts
B) shifts; does not shift
C) does not shift; shifts
D) does not shift; does not shift

16. The AD curve shows the sum of

A) the price level, employment, and real GDP.
B) consumption expenditure, investment, and real GDP.
C) consumption expenditure, investment, government expenditures on goods and
services, and net exports.
D) consumption expenditure, investment, the price level, and real GDP.

17. The aggregate demand curve shows that, if other factors are held constant, a
A) higher price level results in a decrease in the quantity of real GDP demanded.
B) higher price level results in an increase in the quantity of real GDP demanded.
C) higher price level results in a lower interest rate.
D) lower price level results in inflationary conditions.

18. A rise in the price level changes aggregate demand because

A) firms increase their investment when prices are higher.
B) the real value of peopleʹs wealth varies directly with the price level and so does
their spending.
C) the real value of peopleʹs wealth decreases and so they decrease their
consumption.
D) the more money people have, the more it is worth and hence the more goods and
services they demand.

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19. According to the intertemporal substitution effect, a fall in the price level will
A) decrease the real value of wealth, which increases the quantity of real GDP
demanded.
B) cause the interest rate to fall so that investment increases and the quantity of real
GDP demanded increases.
C) increase net exports, which causes the quantity of real GDP demanded to increase.
D) increase the real value of wealth, which raises the interest rate so that the quantity
of real GDP demanded decreases.

20. One reason that the aggregate demand curve has a negative slope is that when the
domestic price level rises,
A) firms produce more goods and services.
B) firms produce fewer goods and services.
C) people substitute toward more imported goods and services.
D) peoplesʹ wealth increases.

21. When the price level in France increases while the exchange rate and the price level in
the United States remain the same, the result is
A) U.S.-made goods become relatively cheaper compared to French-made goods.
B) French citizens are more likely to buy U.S.-made goods.
C) U.S. citizens are less likely to buy French-made goods.
D) All of the above answers are correct.

22. Which of the following would NOT shift the U.S. aggregate demand curve?
A) a change in income in Canada
B) a change in the quantity of capital in the United States
C) an expectation that inflation will be lower in the future
D) U.S. monetary and fiscal policy

23. If higher inflation is expected in the future, then the

A) SAS curve shifts rightward.
B) AD curve shifts rightward.
C) LAS curve shifts rightward.
D) None of the above answers is correct.

24. A decrease in government expenditure shifts the AD curve ________ and a decrease in
taxes shifts the AD curve ________.
A) rightward; rightward
B) rightward; leftward
C) leftward; rightward
D) leftward; leftward

25. If the quantity of money increases, the

A) price level rises and the AD curve does not shift.
B) AD curve shifts leftward and aggregate demand decreases.
C) AD curve does not shift and there is a movement upward along the curve.

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 D) AD curve shifts rightward and aggregate demand increases.

26. Suppose the exchange rate falls from $1.20 Canadian per U.S. dollar to $1.10 Canadian
per U.S. dollar. U.S. exports will ________, U.S. imports will ________, and U.S.
aggregate demand will ________.
A) decrease; increase; decrease
B) decrease; increase; increase
C) increase; decrease; increase
D) increase; increase; increase

27. In the above figure, the economy is initially at point B. If the government decreases
transfer payments, there is
A) a movement to point C.
B) a movement to point A.
C) a shift to AD2.
D) a shift to AD1.

28. In the above figure, the economy is initially at point B. If taxes increase, there is
A) a movement to point C.
B) a movement to point A.
C) a shift to AD2.
D) a shift to AD1.

29. In the above figure, the economy is initially at point B. If the Central Bank increases the
quantity of money, there is
A) a movement to point C.
B) a movement to point A.
C) a shift to AD2.
D) a shift to AD1.

30. In short-run macroeconomic equilibrium

A) real GDP equals potential GDP and aggregate demand determines the price level.
B) the price level is fixed, and short-run aggregate supply determines real GDP.

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 C) real GDP and the price level are determined by short-run aggregate supply and
aggregate demand.
D) real GDP is less than potential GDP.

31. If the economy is in short run equilibrium, then

A) real GDP equals potential GDP.
B) nominal GDP equals potential GDP.
C) real GDP cannot be equal to potential GDP.
D) real GDP can be greater than, less than, or equal to potential GDP.

32. A short-run macroeconomic equilibrium occurs

A) at the intersection of the short-run aggregate supply curve and the long-run
aggregate supply curve.
B) at the intersection of the short-run aggregate supply curve and the aggregate
demand curve.
C) at the intersection of the short-run aggregate supply curve, the long-run aggregate
supply curve, and the aggregate demand curve.
D) when the rate at which prices of goods and services increase equals the rate at
which money wage rates increase.

33. Full-employment equilibrium occurs when

A) real GDP exceeds potential GDP.
B) real GDP equals potential GDP.
C) potential GDP exceeds real GDP.
D) a result of an increase in long-run aggregate supply.

34. In the above figure, at the price level of 140 and real GDP of
A) $12 trillion, firms will not be able to sell all their output.
B) $4 trillion, firms will not be able to sell all their output.
C) $4 trillion, consumers will not be able to buy all the goods and services they
demand.

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 D) $12 trillion, consumers will not be able to buy all the goods and services they
demand.

35. Based on the figure above, short-run equilibrium occurs at the price level of
A) 120 and real GDP of $4 trillion.
B) 130 and real GDP of $8 trillion.
C) 140 and real GDP of $12 trillion.
D) 130 and real GDP of $12 trillion.

36. The data in the above figure indicate that the economy will be in a long-run
macroeconomic equilibrium at a price level of
A) 140.
B) 130.
C) 100.
D) 120.

37. If aggregate demand grows only slightly faster than potential GDP, then the economy
will ________.
A) experience economic growth with high inflation
B) experience recession
C) experience economic growth with low inflation
D) be at a business-cycle peak

38. Inflation occurs over time as a result of

A) long-run aggregate supply increasing faster than aggregate demand.
B) long-run aggregate supply increasing faster than short-run aggregate supply.
C) decreases in aggregate demand.
D) aggregate demand increasing faster than long-run aggregate supply.

39. One result of a decrease in aggregate demand and no change in aggregate supply is
A) a recession.
B) an increase in employment levels.
C) an economic expansion.
D) a rise in the price level.

40. An inflationary gap occurs when

A) real GDP is less than potential GDP.
B) real GDP exceeds potential GDP.
C) real GDP equals potential GDP.
D) the economy is at full employment.

41. A recessionary gap means that short-run macroeconomic equilibrium GDP

A) is less than full-employment GDP.
B) equals full-employment GDP.
C) is more than full-employment GDP.

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 D) may be less than, more than, or the same as full-employment GDP depending on
the level of potential GDP.

42. In the above figure, if the economy is at point A, which of the following is true?
A) Point A is the long-run equilibrium point.
B) The economy is in a recession.
C) Money wages can be expected to fall.
D) The economy might be at point A as a result of a recent cut in the tax rate.

43. In the above figure, if the economy is at point A, which of the following is true?
A) There is a recessionary gap.
B) There is an inflationary gap.
C) Point A is the long-run equilibrium point.
D) None of the above answers are correct.

44. In a short-run macroeconomic equilibrium, potential GDP exceeds real GDP. If aggregate
demand does not change, then the
A) short-run aggregate supply curve will shift rightward as the money wage rate
falls.
B) short-run aggregate supply curve will shift leftward as the money wage rate rises.
C) long-run aggregate supply curve will shift leftward as the money wage rate rises.
D) long-run aggregate supply curve will shift leftward as the money wage rate falls.

45. In a short-run macroeconomic equilibrium, real GDP exceeds potential GDP. If aggregate
demand does not change, then the
A) short-run aggregate supply curve will shift rightward as the money wage rate
falls.
B) short-run aggregate supply curve will shift leftward as the money wage rate rises.
C) long-run aggregate supply curve will shift leftward as the money wage rate rises.
D) long-run aggregate supply curve will shift leftward as the money wage rate falls.

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46. If the economy is in long run equilibrium and then aggregate demand increases, in the
long run the increase in aggregate demand means that the
A) price level will be higher but real GDP will be unaffected.
B) real GDP will be larger but the price level will be unaffected.
C) the price level will be higher and real GDP will be larger.
D) neither the price level nor real GDP will be unaffected.

47. In the long-run equilibrium, an increase in the quantity of capital leads to

A) an increase in the equilibrium price level and an increase in equilibrium real GDP.
B) a decrease in the equilibrium price level and an increase in equilibrium real GDP.
C) a decrease in the equilibrium price level, but no change in equilibrium real GDP.
D) no change in the equilibrium price level, but an increase in equilibrium real GDP.

48. In the above figure, at the point where AD equals SAS,

A) real GDP exceeds potential GDP.
B) potential GDP exceeds real GDP.
C) the economy is in a recession.
D) the unemployment rate is zero.

49. In the above figure, as the economy adjusts toward equilibrium, the
A) AD curve will shift rightward.
B) SAS curve will shift rightward.
C) AD curve will shift leftward.
D) SAS curve will shift leftward.

50. In the above figure, when the economy is in a long-run equilibrium, the price level will
be
A) 90.
B) 100.
C) 110.
D) 120.

51. In the above figure, when the economy is in a long-run equilibrium, real GDP will be
A) $12.5 trillion.

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 B) $13.0 trillion.
C) $13.5 trillion.
D) $14.0 trillion.

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Question 2:

The table below shows an economy’s aggregate demand and supply schedules. The economy’s
potential GDP is $675 billion.

a) Plot the aggregate demand curve, the short-run aggregate supply curve, and the long-run
aggregate supply curve.
b) What are the short-run equilibrium real GDP and price level in this economy?
c) What is the long-run equilibrium real GDP?
d) Is the economy’s short-run macroeconomic equilibrium a full-employment equilibrium,
below full-employment equilibrium, or above full-employment equilibrium? What is the
recessionary gap (if any)? What is the inflationary gap (if any)?
e) Suppose aggregate demand increases by $150 billion. Plot the new aggregate demand
curve. How do real GDP and the price level change in the short run?
f) Is the economy’s new short-run macroeconomic equilibrium a full-employment
equilibrium, below full-employment equilibrium, or above full-employment equilibrium?
What is the recessionary gap (if any)? What is the inflationary gap (if any)?

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Question 3: Short Answer Questions:

1. What is the difference between the long-run aggregate supply and the short-run aggregate
supply curves?

2. Explain the reasons why the AD curve slopes downward.

3. What happens if the economy is at its long-run equilibrium and aggregate demand
increases?

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