Question

1.

An increased interest rate will cause residential and business investment spending to______, leading to______in the quantity of output demanded in the economy.

1. decrease; increase

2. decrease; decrease

3. increase; decrease

4. increase; increase

2.

Which of the following statements about aggregate supply is correct?

1. All of the above

2. Shifts in aggregate supply can cause stagflation

3. Shifts in aggregate supply can cause a recession

4. Shifts in aggregate supply can cause a fall in output and a rise in prices

3.

The new classical misperceptions theory states that:

1. changes in the overall price can temporarily mislead consumers, and lead to an upward-sloping aggregate-supply curve

2. changes in the relative price can temporarily mislead suppliers, and lead to an upward-sloping aggregate-supply curve

3. changes in the overall price can temporarily mislead suppliers, and lead to an upward-sloping aggregate-supply curve

4. changes in the relative price can temporarily mislead consumers, and lead to an upward-sloping aggregate-supply curve

4.

Out of the following list, choose the item that would be included in the expenditure approach to calculating GDP

1. the purchase of 30 litres of petrol for your car

2. a $200 cheque from your Uncle Arthur

3. an unemployment cheque from the Government to R. Smith

4. the cost of the second-hand mountain bike you bought from your flatmate

5.

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor and employers increasingly used efficiency wages, it would ___ structural unemployment and ____ the natural rate of unemployment:

1. Increase; not change

2. Do none of the above

3. Increase; increase

4. Not change, increase

6.

Fill up the blanks by typing in your answer. Do not type in the quotation mark "".

Applying the aggregate demand/aggregate supply model, describe the impact of the following event on GDP and prices in the short run:

Suppose firms become very optimistic about future business conditions and invest heavily in new capital equipment, in teh short run,

Blank 1 (type in "AD" or "AS") will shift to the Blank 2 (type in "right" or "left").

Output will Blank 3 (type in "increase" or "decrease") and price will Blank 4 (type in "increase" or "decrease").

Answer 1

1.

Correct Answer:

B

When interest rate increases, then borrowing becomes expensive. It causes, residential and business spending to decrease. It makes AD curve to shift to the left. As a result, real output decrease in the economy.

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2.

Correct Answer:

A

When aggregate supply shifts to the left, then price increases and output decreases. It causes, stagflation in the economy and unemployment increases. It leads to the recession to come in the economy.

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3.

Correct Answer:

C

When there is such a rise in the price, then it misleads suppliers that price of their products is rising and making contribution to the rise in price. It makes them increase quantity supplied in upward sloping aggregate supply curve.

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4.

Correct Answer:

A

Buying petrol for the car will be consumption and it is the part of expenditure approach to calculate GDP.

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5.

Correct Answer:

C

It will cause structural unemployment to increase due to new wage laws. As a result, natural rate of unemployment also increases.

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6.

Correct answers are as follows:

AD

right

increase

increase

Above happens when AD curve shifts to the right in the wake of investment spending.