Question

4. The economy's short-run equilibrium price level and aggregate output (income) are found at the intersection of the
aggregate demand (AD) and aggregate supply (AS) curves.
Recall that the price level is located on the y-axis and output (income) on the x-axis.
Which of the following would cause a new equilibrium with a lower price level and a higher output (income)?
O A. A rightward shift in AD.
O B. A rightward shift in AS.
O C. A leftward shift in AS.
O D. A leftward shift in AD.

Which of the following events could have caused this particular change?
A. An increase in bad weather and natural disasters.
B. A sharp increase in immigration.
C. A reduction in the country's labor force participation rate.
D. An increase in entrepreneurial taxes and regulations.

6. Suppose the economy is initially in short-run equilibrium at a given price level and equilibrium aggregate output
(income). What would be the impact of the following event?
Event: Consumer and business optimism sharply increases.
A. The aggregate supply curve shifts to the right.
B. The aggregate supply curve shifts to the left.
C. The aggregate demand curve shifts to the right.
D. The aggregate demand curve shifts to the left.

The short-run result of this event is that
A. the price level falls and aggregate output (income) rises
B. the price level rises and aggregate output (income) falls
C. both the price level and aggregate output (income) decrease
D. both the price level and aggregate output (income) increase

8. How would the following event impact the economy's short-run aggregate supply (AS) curve?
Event: High taxes and excessive regulation cause firms to reduce the quantity of their physical capital.
A. The AS curve shifts rightward.
B. The AS curve remains unchanged.
C. The AS curve becomes horizontal.
D. The AS curve shifts leftward.

9. A negative supply shock, such as an increase in oil prices, causes the short-run aggregate supply curve to
A. increase and therefore shift to the left
B. increase and therefore shift to the right
C. decrease and therefore shift to the right
D. decrease and therefore shift to the left

Answer 1

4) B. can be clearly seen if we draw an AD-AS plane.

5) A. only this option seems to be leading to a price fall and increase in output. In natural calamities we definitely have to increase the supply and the price falls because people wont be able to pay upthat high.
immigration wont lead to increase in supply as it is going to change the demand side.
If labour force is reduced production will only go down. And in cases of increased taxes n regulaations, price will never fall.

6) C. Ad will shift to right as with consumer n business optimism, both price and output will increase.

7) D. Both the quantities will increase.

8) D

9) D. it will lead to a fall in output and at the same time increase in prices