Which of the following is an example of a negative supply shock?

Unexpected increase in price of key resource e.g. oil

Where the LRAS, SRAS and Ad curves intersect at a single point is where...

real GDP is equal to its potential level

Which of the following alternatives does NOT explain why the AD curve is downward sloping?

Falling price levels increase real interest rates

A supply shock moves SRAS left to new equil. position, how do we get back to long run equil.?

Workers accept lower wages and SRAS shifts back to the right

Which of the following would NOT cause an increase in SRAS curve?

Increase in the expected inflation rate

If the economy is operating at its potential long term GDP, an increase in AD

Increases the average level of prices

An increase in the value of the US dollar relative to the Japanese Yen will...

Increase aggregate demand in Japan

A recession in the EU would...

Reduce US net exports and reduce AD

An increase in AD is likely to result in...

Higher inflation and job creation

The long run aggregate supply curve (LRAS) curve shows...

real GDP levels in long run are not related to the prices

If economy experiences rise in oil prices, what happens in short run?

Prices increase, output decreases

If short run equilibrium is right of LRAS how will the economy return to long run equilibrium?

wages will rise and SRAS will shift left

if over time AD grows more rapidly than AS, which will occur?

Both price level and natural level of output increase

If technology improves,AD remains constant, what happens to long-run equilibrium,price & output

Price levels fall and output rise

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AD and AS

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Aggregate demand and aggregate supply model

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Questions 20

Answers

1
Which of the following is an example of a negative supply shock?
Unexpected fall in oil prices
Unexpected improvement in business expectations
Fall in interest rates during economic slowdown
Unexpected increase in price of key resource e.g. oil
2
Where the LRAS, SRAS and Ad curves intersect at a single point is where...
economic growth is at the long run average level
real GDP is equal to its potential level
the conditions of long-run equilibrium are fulfilled
the conditions of short-run equilibrium are fulfilled
3
Which of the following alternatives does NOT explain why the AD curve is downward sloping?
Falling prices increase purchasing power
Falling price levels increase real interest rates
Rising price levels increase real interest rates
Lower US prices increase foreign purchasing of US goods
4
A supply shock moves SRAS left to new equil. position, how do we get back to long run equil.?
Employers layoff workers and SRAS shifts right
Workers accept lower wages and SRAS shifts back to the right
Workers demand higher wages and SRAS shifts back to right
5
Which of the following would NOT cause an increase in SRAS curve?
Increase in the expected inflation rate
Good weather conditions
A reduction in the expected inflation rate
Fall in the price of resources e.g. wages
6
In the AD/AS model what two things always adjust to move the economy to long run equilibrium?
The stock market and the bond market
Prices and wages
Politicians and their lackeys
Interest rates and exchange rates
7
If the economy is operating at its potential long term GDP, an increase in AD
Reduces the cyclical unemployment rate
Increase the level of investment spending by firms
Increases the average level of prices
Increase potential GDP
8
An increase in the value of the US dollar relative to the Japanese Yen will...
Increase aggregate demand in the US
Increase aggregate supply in Japan
Decrease aggregate supply in the US
Increase aggregate demand in Japan
9
Which one of the following could explain an increase in the AD curve
A fall in interest rates
An appreciation of the AUS dollar
A reduction in wage levels
A rise in interest rates
10
A recession in the EU would...
Reduce US net exports and increase AD
Increase US net exports and increase AS
Reduce US net exports and reduce AD
Increase US net exports and increase AD
11
An increase in AD is likely to result in...
Higher inflation and job creation
Higher real GDP and higher interest rates
Higher prices and slower growth in real GDP
Lower interest rates and higher inflation
12
The long run aggregate supply curve (LRAS) curve shows...
real GDP levels in long run are not related to the prices
changes in the price level affect no. of workers employed
a positive relationship between output and prices
inflation reduces purchasing power of consumers funds
13
If economy experiences rise in oil prices, what happens in short run?
Prices decrease, output increases
Prices increase, output increases
Prices increase, output decreases
Prices decrease, output decreases
14
A rise in exports shifts...
The AD curve to the right
The LRAS curve to the left
The SRAS curve to the right
The AD curve to the left
15
If short run equilibrium is right of LRAS how will the economy return to long run equilibrium?
wages will rise and SRAS will shift left
prices will rise and SRAS will shift right
wages will fall and AD will shift to the left
16
The election this year made many consumers pessimistic, how might this affect aggregate demand?
Shift the AD curve to the right
Move the economy down along a stationary AD curve?
Shift the AD curve to the left
Move the economy up along a stationary AD curve?
17
if over time AD grows more rapidly than AS, which will occur?
Neither price level nor out put level will change
Both price level and natural level of output increase
Both price level and natural level of output will decrease
Natural output will increase, but price levels remain same
18
Which of the following would NOT cause the AD curve to shift?
A change in price level
A change in investment spending
A change in tax rates
A change in government spending
19
If technology improves,AD remains constant, what happens to long-run equilibrium,price & output
Price level will rise and output will rise
Price level will rise and output will fall
Price level will fall and output will fall
Price levels fall and output rise
20
At lower than potential output an increase in a component of AD will increase...
the exchange rate
the unemployment rate
level of employment
natural level of real GDP

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