Question

In the AD-SRAS-LRAS model, what happens to the price level and the unemployment level in the short-run when there is an increase in consumption spending (C)?

Group of answer choices

a.Price level increases and unemployment level increases.

b.Price level decreases and unemployment level falls.

c.Price level increases and unemployment level falls.

d.Price level decreases and unemployment level increases.

Output gap is the difference between:

Group of answer choices

a.Nominal Output and Short-Run Output

b.Real GDP and Nominal GDP

c.Actual output and Potential Output

d.Final output and intermediate output

The unemployment level associated with the potential level of output is called the:

Group of answer choices

a.Seasonal Unemployment.

b.Structural Unemployment

c.Cyclical Unemployment

d.The Natural Level of Unemployment

The Sticky Price Theory states that:

Group of answer choices

a.SRAS is upward sloping because some firms are slow to respond to overall price level changes in the economy.

b.SRAS is downward sloping because some firms are slow to respond to overall price level changes in the economy.

c.LRAS is vertical because some firms are slow to respond to overall price level changes in the economy.

d.LRAS is downward sloping because some firms are slow to respond to overall price level changes in the economy.

The primary difference between Real and Nominal Wage is that:

Group of answer choices

a.Real Wage does not account for inflation, whereas Nominal Wage does.

b.Real Wage does not reflect the purchasing power, but Nominal wage does.

c.Real Wage is reported, while Nominal Wage is not.

d.Real wage accounts for inflation, whereas Nominal Wage does not.

Answer 1

1. Answer. Option c. Price level increases and the unemployment level decreases.

Reason:- It is main cause of adjusted AD-SRAS-LRAS model, the output level increases as consumption spending increases gradually as aggregate demand increase with the aggregate supply and also price level increases as level of supply level increases with the same magnitude gradually until the economic condition reaches the full employment equilibrium level.

2. Answer. Option c. Actual output and potential output.

Reason:- Though the higher demand for the goods and services is essential for the growth of the economic development, the excessive demand beyond the capacity of the actual real output efficiency will leads to inflationary pressure. So output gap refers to the difference between the actual output need to achieve with normal rate of economic efficiency and the abnormal rate of the potential output.

3. Answer. Option d:- The nature level of unemployment.

Reason:- This employment is the effect of when there is any shortage of labor efficiency witnessed to meet the requirement of actual potential output in both short run as well as in the long run along with the supply and the demand rate of the laborers.

4. Answer. Option a:- SRAS is upward sloping because some firms are slow to respond to overall price level changes in the economy.

Reason:- Due to forced action of demand and supply in the cluster form of consumer spending towards actual increase in the total goods and services, SRAS curve has upward slopping with the increase in the price level with effect of increase in aggregate demand and supply in the short run

5. Answer. Option d.Real wage accounts for inflation, whereas Nominal Wage does not.

Reason:- Nominal wages only include the services for the labor charged but the real wages accounts also for inflation prevailing in the economy towards the purchasing power of the laborers to buy the goods.