Question

1.

Cost-push inflation is a situation in which the:

 

  short-run aggregate supply curve shifts rightward.

  short-run aggregate supply curve shifts leftward.

  aggregate demand curve shifts leftward.

  aggregate demand curve shifts rightward

 

2. Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?

 

  the interest rate effect

  the crowding-out effect

  the wealth effect

  the multiplier effect

3.

(Figure: Aggregate Demand Shift) Which of the following may be an explanation for the shift in aggregate demand from line A to line B?

Prices fall and increase real wealth.

  Consumer confidence declines and consumption spending falls.

  Interest rates fall and boost investments.

  Goods and services become less competitive and exports fall.

Answer 1

1) ans is B. Cost push inflation is a situation where supply curve shifts leftward. Cost of production increases which will shift the aggregate supply curve to the left.

2)ans is D Multiplier is the change in income due to change in consumer spending

3)ans is C. When interest rate falls it will increase the investment rate and increase the aggregate demand and demand curve shifts to the right from line A to B.