Question

.

Assuming a constant price level, an increase in government expenditure will cause the AE curve to shift

A) downward and the AD curve shifting to the left.

B) upward and the AD curve shifting to the left.

C) downward and the AD curve shifting to the right.

D) upward and the AD curve shifting to the right.

E) downward and a movement to the right along the AD curve

2. If the short run AS is very steep (almost vertical) then AD curve shifting left , will result in

A) almost no change in prices but a large increase in real GDP.

B)a decrease in the price level and a very small decrease in real GDP.

C)an equal increase the price level and in real GDP.

D)an increase in the price level with almost no change in real GDP.

E) a decrease in real GDP and a very small decrease in the price level.

3. A change in the price level causes a

A) movement along both the AE and AD curves.

B) shift in the AE curve and a movement along the AD curve.

C) shift in both the AE and AD curves.

D) movement along the AE curve and a shift in the AD curve.

E) movement along AE but does not affect the AD curve.

4. In using the short run AS curve, an assumption is made that firms will

A) decrease their prices when they expand output.

B)produce as much as possible at the existing price level.

C)decrease their prices without changing output.

D)increase prices without changing their output.

E)produce more only if price rises.

5.A positive aggregate demand shock will cause

A)a shift to the right in the position of the short run AS curve.

B) the unemployment rate to remain constant.

C) a decrease in the price level.

D) the equilibrium point to move rightward along the short run AS curve.

E) a movement along the AD curve to the right

Answer 1

Answer : 1) The answer is option D.

Because when price is constant then if government expenditure increase then it shift the AE curve to upward. As a result of increasing aggregate expenditure the aggregate demand increase. When aggregate demand increase then the AD curve shift to the rightward. Therefore, option D is correct.

2) The answer is option B.

When AD curve shift to the leftward then the price level decrease. As the AS curve is almost vertical hence the real GDP decrease in a very small amount due to leftward shifting of AD curve. Therefore, option B is correct.

3) The answer is option B.

When price level change then aggregate expenditure change which shift the AE curve. As a result of price change the quantity demanded change. Due to changes in quantity demanded a movement occur along the existing AD curve. Therefore, option B is correct.

4) The answer is option E.

In economics we get that there exists a positive relationship between price and quantity supplied. This means that if price then quantity supplied increase and vise versa. So, when price rise then firms produce more. As a result, quantity supplied increase. Therefore, option E is correct.

5) The answer is option D.

In case of positive demand shock the AD curve shift to rightward. As a result, the equilibrium point move to rightward along the existing short run AS curve. Therefore, option D is correct.