Question

When interest rates rise firms want to borrow less for new plants and equipment and households want to borrow more for home-building.

Select one:

True

False

The sticky wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, real wages fall because nominal wages are increasing at a slower rate than the price level.

Select one:

True

False

Suppose the economy is in long-run equilibrium. If there is an increase in consumer spending at the same time that a natural disaster adversely affects the availability of production inputs within the country, then in the short-run we would expect real GDP will fall and the price level might rise, fall, or stay the same.

Select one:

True

False

According to the AD/AS model, the elimination of a government mandated minimum wage that leads to a decrease in structural unemployment will cause the long-run aggregate supply curve to shift to the left.

Select one:

True

False

According to the AD/AS model, stocks and bonds are not included in aggregate demand but the purchase of new capital equipment by business is included.

Select one:

True

False

Answer 1

Ans 1.False

Households won’t borrow more for their household buildings rather they’ll save money that is with them as now they’ll get a higer interest on their savings than before, so, opportunity cost of consumption wil rise.

Ans 2. True

This is because wage contracts are fixed and do not change very often. The wage contracts are made in the consideration of an expected inflation, so, when actual inflation is more than expected inflation then the real wages of the employees fall as the inflation allowances they’ll get will be on the basis of expected inflation but actual inflation is more than that.

Ans 3. False

This is because increase in consumer spending shifts the AD curve to the right increasing the price level and the output and because of the natural disaster, short run aggregate supply will decrease shifting SRAS to the left which will increase the price further but whether the output would be more than, less than or equal to the long run level will depend upon how big the supply shock was reltive to the increase in consumer spending. A bigger shock will decrease the level of output, a smaller shock will increase the level of output and an equal sized shock will bring the output to the long run level.

Ans 4. False

Elimination of the minimum wage law would shift the short run aggregate supply to the right because now, the cost of production will be less. It won’t affect the long run supply curve.

Ans 5. True

This is because sale of stocks and bonds do not include exchange of goods while capital equipment by a business is seen as private investment.

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