Question

Question 4

Which of the following will cause the AD to decrease?

1. A rise in consumer confidence
2. A rise in business confidence
3. A decline in government spending
4. An increase in exports

Question 5

If we assume that the supply of oil gets interrupted and as a result the price of oil doubles, what would that do in the short-run?

1. The short-run aggregate supply function will decrease, causing the economy to experience a reduction in the level of output and a rise in the price level.
2. The aggregate demand will decrease, causing the economy to experience a rise in the price level and a decline in the level of output.
3. The long-run aggregate supply will increase, causing the price level to decrease and the output level to increase.
4. The aggregate demand will increase, causing the price level to increase and the output level to decrease.

Question 6

An appreciation of the US dollar would make US exports more expensive overseas and foreign goods cheaper in the US, resulting in a decline in the US aggregate demand.

1. True
2. False

Question 7

Long-run aggregate supply function assumes that all prices are fully flexible.

1. True
2. False

Question 8

Short-run aggregate supply assumes that all prices are fully flexible.

1. True
2. False

Answer 1

4. Option a:- rise in national consumer confidence
Reason :- Consumer's confidence has risen. It means, now they would buy more and more goods. On the other hand, rise in business confidence would give a rise to aggregate supply. Decline in government spending would cause a decline in aggregate demand. Also, increase in exports will hardly cause any change in the aggregate demand.

5. Option d
Reson:- In the short run, as a result of fall in the supply, the aggregate demand would rise, thereby causing a rise in prices and fall in the level of output.

6. True
Reason:- Appreciation of Currency indicates that now the goods can be imported at lower costs. It clearly indicates that the goods imported are cheaper than the domestically produces goods. Hence, the aggregate demand for domestically produces goods will fall.

7. True
Reason :- It is assumed that in long run, the prices are flexible enough that they readjust themselves to restore the equilibrium in the economy.

8. False
Reason:- It is assumed that in short run, the prices are sticky. It means they cannot easily change themselves According to the market conditions. That is why, situations of excess supply rises sometimes.