Question

1) The (real) wealth effect is reflected in:

a) the downward slope in aggregate demand

b) increases in interest rates to savers.

c) the upward slope in aggregate demand.

d) the upward slope in aggregate supply

Suppose that the economy is in long-run macroeconomic equilibrium and aggregate demand increases. As the economy moves to short-run macroeconomic equilibrium, there is a(n) _____ gap with _____.
	inflationary; high unemployment inflationary; low unemployment recessionary; low inflation recessionary; high inflation

The short-run aggregate supply curve is positively sloped because:
	business people are subject to money illusion. workers care about nominal wages, not real wages. wages are sticky. of diminishing returns to labor

According to the short-run aggregate supply curve, when the _____ rises, the quantity of aggregate output _____ rises.
	profit per unit; demanded aggregate price level; supplied aggregate price level; demanded interest rate; supplied

Answer 1

1 - Option A

Downward slope in aggregate demand

Real wealth effect is depicted in the aggregate demand which is a downward sloping curve . It is not depicted in any other curve given .

2 - Option B

Inflationary gap , low unemployment

Inflation and unemployment are inversely related. When AD rises , it causes inflation and not recession

3 - Option A

Business people are subject to money illusion

Hence with the rise in price , quantity supplied also rises giving the curve a positive slope

4 - Option B

Aggregate price level , supplied

Price and quantity supplied are positively related.