Question

45. If the economy is operating well below potential GDP, what will be the effect of an increase in aggregate demand?   
     
          Real GDP will fall, and the price level will fall
          Real GDP will rise, and the price level will change very little
          Real GDP will rise, and the price level will rise significantly
          It is impossible to predict what will happen to real GDP, but the price level will fall
          It is impossible to predict what will happen to the price level, but real GDP will fall



46. Which expenditure component of GDP is most affected by the real-balances effect?   
     
          Consumption
          Investment
          Government expenditures
          Net exports



47. During the period from 1950 to 2010, how did recessions in the United States compare to those in earlier years?   
     
          They were longer but milder than earlier recessions
          They were longer and more severe
          They were shorter and milder
          They were shorter but more severe
          They were about the same



48. Why is the aggregate supply curve flat when well to the left of potential GDP?   
     
          Many resources are lying idle
          Producers are unwilling to manufacture more unless the price level rises
          The government has established a price level floor
          The real balances effect is stronger than the foreign trade effect
          Trick question: the aggregate supply curve is not flat to the left of potential GDP



49. What effect will an outward shift in aggregate supply have on the price level in the short-run?   
     
          Price level will fall
          Price level will rise
          Price level will not change

                                                                                                                                                       

50. Which of the following events would cause aggregate supply to increase? (check all that apply)
                                                                                                                                                           
          A new invention that reduces the cost of making computer chips
          Improvement in fracking techniques allow new pumping of oil from previously played out oil fields
          A war in the Middle East that shuts down the Saudi Arabian oil fields
          A rise in marginal tax rates on labor income
          A fall in the international value of the dollar

Answer 1

45.Whenever the economy is operating under the potential GDP it shows that the economy is in recession .Thus during recession the economy will also see a fall in the real GDP.The recession is also associated with the decline in prices.The other options are not correct when the economy is operating below potential and when there is recession there will be no increase in the real GDP and the prices.

46.Among the above 4 expenditure components of GDP the consumption is the most affected by the real balance effect.According to real balance effect whenever there is deflation in the economy due to increase in the real balances the consumption increases due to increase in output and employment.Considering the other options consumption is most affected by real balance effect.

47.Comparing the recession of Unites States in 1950 to 2010 to other recessions the recessions were shorter and milder.Takin the early years of recession there was recession in US economy during the period 1833-1834 .

48.The aggregate supply curve is not flat to the left of the potential GDP.Thus the last option is correct .The other options are incorrect because when to the left of potential GDP the economy is not producing at its potential and the aggregate supply curve shifts leftward.

49.when there us an outward shift in the aggregate supply curve the price level will rise.The other options are incorrect because whenever there is an outward shift in the aggregate supply curve the output,real GDP and the price will also increase