Question

Question 31 1 pts

The Pigou-Wealth effect indicates that

Group of answer choices

a lower price level will increase the real value of financial assets and therefore increase spending.

a decrease in the overall price level would shift the AD curve leftward

a higher price level will increase the real value of financial assets and therefore increase spending

an increase in the overall price level would shift the AD curve leftward

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Question 32 1 pts

The Keynes-Interest Rate effect suggests that

Group of answer choices

a lower price level might lead to a reduction in the demand for money resulting in a fall in the rate of interest, the result will be a movement down the AD curve.

lower prices and, therefore lower interest rates would cause the AD curve to shift left.

higher prices and, therefore higher interest rates would cause the AD curve to shift.

the above scenario- lower prices, lower interest rates- would result in a movement up the AD curve.

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Question 33 1 pts

Which one of the following would not shift the AD curve?

Group of answer choices

a change in government expenditures (G).

a change in household expectations about employment/income

a decline in the price level.

a change in interest rates

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Question 34 1 pts

The (short-run) aggregate supply (AS) curve:

Group of answer choices

is down sloping because real purchasing power increases as the price level falls.

shows the various amounts of output which firms wish to supply at each price level.

contains a vertical range where output is variable and prices are constant.

Is explained by the Keynes, Pigou and Foreign Purchases effects.

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Question 35 1 pts

The equilibrium price level and level of real output (GDP) occur where:

Group of answer choices

the AD and AS curves intersect.

real output is as high as possible.

the price level is at its lowest level possible.

exports equal imports.

Answer 1

QUESTION 31

PIGOU WEALTH EFFECT DEFINES THAT WHILE THERE IS DEFLATION EMPLOYMENT WILL INCREASE DUE TO INCREASE IN WEALTH AND THUS CONSUMPTION WILL INCREASE AND IT WILL INCREASE THE AGGREGATE DEMAND.

THUS THE CORRECT ALTERNATIVE IS " an increase in overall price would shift the AD curve to the left"

Since DEFLATION INCREASES AGGREGATE DEMNAD SO THE DEMAND CURVE SHOULD MOVE TO THE RIGHT THUS TO MAKE A LEFTWARD SHIFT OF AD CURVE INFLATION SHOULD OCCURE. THUS AN INCREASE IN PRICE WILL DECREASE THE EMPLOYMENT THUS THE CONSUMPTION AND THUS DEMAND WILL FALL AND AD CURVE WILL SHIFT TO LEFT.

MOREOVER PIGOU EFFECT HAS NO OPINION REGARDING FINANCIAL ASSET THUS THE FIRST AND THIRD OPTIONS ARE INVALID.

QUESTION 32

ACCORDING TO THE SUUGESTION OF KEYNESIAN THEORY OF INTEREST THE CORRET OPTION IS

"LOWER PRICE LOWER INTEREST WILL SHIFT AD CURVE UP"

ACCORDING TO THE THEORY ANY SITUATION OF INFLATION WILL CAUSE A DECREASE IN INTEREST RATE AND THUS AGGREGATE DEMAND WILL DECREASE. BUT KEYNES ALSO SAID THAT SUCH A SITUATION CAN NOT PREVAIL IN AN ECONOMY FOR LONG. THUS HE POINTED OUT THAT A LOWER DEMAND WILL LOWER THE PRICE FURTHER AND THUS INTEREST RATE INCREASES AND AGGREGATE DEMAND WILL INCREASE CAUSING AN UPWARD SHIFT TO THE AD CURVE.

QUESTION 33

AGGREGATE DEMAND IS AFFECTED BY PRICE LEVEL, INTEREST RATE , EMPLOYMENT AND CONSUMPTION LEVEL. GOVERNMENT SPENDING DOESN'T AFFECT IT.

THUS CORRECT ALTERNATIVE IS " CHANGE IN GOVERNMENT EXPENDITURE"

QUESTION 34

SHORT RUN AGGREGATE SUPPLY CURVE SHOWS THE OUTPUT OR GDP FOR EACH CORRESPONDING PRICE LEVEL. IN SHORT RUN IT VARIES BUT IN LONG RUN IT S FIXED AND SHOWN BY A VERTICAL LINE.

THUS THE CORRECT ALTERNATIVE IS "SHOWS VARIOUS AMOUNT OF OUTPUT FOR EACH PRICE LEVEL"

QUESTION 35

AN ECONOMIC EQUILIBRIUM OCCURES WHEN DEMAND IS EQUAL TO SUPPLY. HERE ALSO THE POINT WHERE AGGREGATE DEMAND IS EQUAL TO AGGREGATE SUPPLY AT THAT POINT EQUILIBRIUM PRICE AND GDP ARE DETERMINED. AT THAT POINT THE ECONOMY IS OPTIMUM.

THUS THE CORRECT ALTERNATIVE IS "AD AND AS CURVE INTERSECT"