Review

Part of the reason that aggregate demand is downward sloping is because

• there is a direct relationship between price level and the real GDP demanded

• higher price levels decrease the purchasing power of money which decreases the quantity of consumption

• lower price levels cause real interest rates to increase and increase investment

An increase in which of the following will decrease the aggregate demand in a given economy?

• consumer wealth

• government spending

• real interest rates

• net exports

Which of the following would most likely shift the short run aggregate supply curve to the right?

• decrease in consumer spending

• increase in capital stock

• increase in price of resources

• increase in government military spending

Assume that Canada imports products from the US. A large decrease in the Canadian incomes will cause which of the following in the short run?

• Price level in Canada and the US will increase

• US net exports and the price level will increase

• US price level will decrease and the real GDP will increase

• US net exports and real GDP will decrease

An increase in investment will likely cause which of the following int he short run?

• An increase in price level and increase in unemployment

• An increase in price level and decrease in unemployment

• A decrease in price level and decrease in unemployment

An increase in the price level in the price of inputs will result in which of the following in the short run?

• An increase in AS and increase in LRAS

• A decrease in AS and decrease in output

• A decrease in AS and decrease in unemployment

All of the following are true except

• If an economy is at long run equilibrium it cannot produce more out put in the short run

• An economy at long run equilibrium has full employment

• In the long run, wages and resource prices increase as price level increases

An increase in investment will most likely cause which of the following in the long run?

• A leftward shift in the aggregate demand

• A left ward shift of the AS

• A rightward shift in the LRAS

• A leftward shift in the LRAS

Assume this economy is currently producing at Y1 with a price level of PL1. Which of the following will most likely occur as the economy adjusts to long run equilibrium?

• Aggregate supply will shift left as government spending decreases

• LRAS will shift right resulting in economic growth

• Aggregate supply will shift left as wages increase

• Aggregate demand will shift left as consumer spending falls

Assume an economy is at full employment when negative supply shock occurs. All of the following will occur in the short run except

• stagflation

• decrease in real output

• increase in price level

• decrease in aggregate demand