Question

11. Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. As a result,
(x) aggregate demand shifts to the right
(y) the price level falls and real GDP rises
(z) the expected price level falls and bargains are struck for lower wages.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only
12. Suppose the economy is in long-run equilibrium. If there is an increase in consumer spending due to a tax rebate 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
A. the price level will rise, and real GDP might rise, fall, or stay the same.
B. the price level will fall, and real GDP might rise, fall, or stay the same.
C. real GDP will fall and the price level might rise, fall, or stay the same.
D. real GDP will rise and the price level might rise, fall, or stay the same.
E. the price level might rise, fall or stay the same and real GDP might rise, fall, or stay the same.
13. Suppose the economy is in long-run equilibrium. If there is a significant consumption (sales) tax increase at the same time that major new sources of oil are discovered in the country, then in the short-run we would expect
A. real GDP will fall and the price level might rise, fall, or stay the same.
B. real GDP will rise and the price level might rise, fall, or stay the same.
C. the price level might rise, fall or stay the same and real GDP might rise, fall, or stay the same.
D. the price level will rise, and real GDP might rise, fall, or stay the same.
E. the price level will fall, and real GDP might rise, fall, or stay the same.

Answer 1

Ques Option E is correct. Pessism leads to decline in consumption expenditure and investment as a result AD curbe shifts to the left which decreases the price level which also decrease the nominal wages as there bargaining power is low

Ques: Option A is correct. Decrease in aggregate supply curve and increase in Aggregate Demand curve leads to increase in price level and GDP level will rise, fall or it may stay same. It depends on the magnitude of change. If change in AD is greater than AS then price will rise and GDP will also rise. If AS is greater than AD then price will rise and GDP will fall and if both are change by same amount then GDP will remain unchnaged.

Ques: Option E is correct. This is just the opposite of the above ques in this AD curve will shift to the left because of higher tax and AS curve to the right because of new oil discovery so price level will fall but GDP may fall, may rise or stays same. It depends on the magnitude of AD and AS curve.