Question

a. Suppose a revolution in Iran results in a significant reduction in the world’s supply of oil.

Instructions: Drag the appropriate line in the correct direction to show the short-run effect on the AD/AS model.

This will:

reduce output and raise the price level.

increase output and raise the price level.

increase output and lower the price level.

reduce output and lower the price level.

b. Suppose the government takes no action to help the economy.     

    Eventually, the price level  (Click to select)  decreases or increases or returns to its initial value  and output  (Click to select)  increases or decreases or returns to its initial value

    
c. Suppose, instead, the government decides to take action to help the economy because they are worried about a high level of unemployment.

You can recommend:

cutting taxes and/or raising spending.

raising taxes and/or raising spending.

cutting taxes and/or cutting spending.

raising taxes and/or cutting spending.

doing nothing.

d. If the U.S. government makes the appropriate policy response, what happens to the price level and output in the long run.

    In the long run, the price level  (Click to select)  increases or decreases or returns to its initial value  and output  (Click to select)  returns to its initial value  or decreases or increases.

Answer 1