Question

According to the wealth effect and the exchange-rate effect, a decrease in the price level causes the value of money holdings to decrease and net exports to decrease, respectively.

Select one:

True

False

The short-run aggregate supply curve (SRAS) is upward sloping due to the stickiness of wages and other input prices because contracts fix some input prices and firms are unable to change the input prices they face as output prices are changing.

Select one:

True

False

Suppose the economy is in long-run equilibrium. If there is a reduction of government spending at the same time that a civil war reduces the availability of resources, then, in the short-run we would expect real GDP will fall.

Select one:

True

False

An increase in the price of a major input would cause production costs to rise and the short-run aggregate supply curve would shift to the right.

Select one:

True

False

If state governments decide to build more education facilities and highways, then the AD curve will shift to the right but an increase in Social Security payments by the federal government will cause the AD curve to shift to the left.

Select one:

True

False

Answer 1

1. False. According to the wealth effect, one of the reasons for the slope of the aggregate demand curve is that falling prices increase the value of money holdings so consumer spending increases. Due to decrease in the value of an exchange rate, US exports become more competitive, increasing demand for exports
Imports become more expensive, leading to lower demand for imports.

2.True.The SRAS curve slopes up for two reasons: sticky input prices (like wages) and sticky output prices (also called “menu costs”).The SRAS curve shows the positive relationship between the price level and output.In the market model, supply slopes up because of the profit motive of individual firms. If a firm gets a higher price, they will make a higher profit by selling more, so quantity supplied increases when price increases.

3.True If government spending decreases then "G" portion decreased means GDP decreases. Civil war can have a devastating impact on the economic development of countries. Countries experiencing civil war will see a collapse in tourism, foreign investment and domestic investment. It can lead to shorter life-expectancy and lost GDP.

4. False.Prices of relevant inputs, if the cost of resources used to produce a good increases, sellers will be less inclined to supply the same quantity at a given price, and the supply curve will shift to the left.