Question

1a.

A change in aggregate supply would be caused by a change in:

Multiple Choice

• the quantity output supplied.

• input prices.

• aggregate demand.

• the price level.

1b.

Which would most likely shift the aggregate supply curve? A change in:

Multiple Choice

• consumer expectations.

• excess capacity of capital.

• government spending.

• prices of imported resources.

1c.

During a period of demand pull inflation Congress passes legislation to raise taxes, this would be an example of a(n):

• political business cycle.

• contractionary fiscal policy.

• expansionary fiscal policy.

• nondiscretionary fiscal policy.

Answer 1

A. The correct answer is 'Option B'.

An increase in the price of inputs will reduce the aggregate supply in the economy as the cost of production will increase. A decrease in the price of inputs will increase the aggregate supply because the cost of production will decrease. Therefore, the correct answer is 'Option B'.

B. The correct answer is 'Option B'.

If there is excess capacity of capital then the firms would be able to produce more as a result of which the aggregate supply curve will shift rightwards. Therefore, the correct answer is 'Option B'.

C. Fiscal policy is an economic policy which aims to influence the economy of a nation by changing the taxes and government expenditure. If there is an increase in taxes then the disposable income of consumers will fall as a result of which they will demand less as a result of which the aggregate demand will fall. So, this is an example of contractionary fiscal policy. Therefore, the correct answer is 'Option B'.