Equilibrium in the AD–AS Model

What causes demand-pull inflation?

• A decrease in the price level

• A leftward shift of aggregate demand

• A decrease in aggregate supply

• An increase in aggregate demand

What is a consequence of a recession resulting from a leftward shift of aggregate demand?

• Downwardly inflexible price level

• Increase in aggregate supply

• Decrease in price level

• Increase in real GDP

Which of the following is NOT a reason for prices being downwardly inflexible?

• Minimum wage law

• High elasticity of demand

• Menu costs

• Fear of price wars

What causes cost-push inflation?

• An increase in aggregate demand

• A decrease in aggregate demand

• A decrease in aggregate supply

• An increase in aggregate supply

What is the effect of growth, full-employment, and relative price stability on the AD-AS model?

• Shift of AD to the left

• Decrease in the equilibrium price level

• Both AD and AS shift to the right

• Shift of AS to the right

What triggered the Great Recession according to the text?

• A rise in short-term interest rates

• A decrease in federal spending

• A housing collapse

• An increase in aggregate supply

What was the Federal Reserve's response to the recession?

• Lowering short-term interest rates

• Increasing federal spending

• Raising short-term interest rates

• Decreasing aggregate demand

What was a consequence of the Federal government's response to the recession?

• Equal impact on all sectors

• Decrease in savings rate

• High debt load due to low interest rates

• Decrease in GDP growth

What was NOT a result of the stimulus during the Great Recession?

• Decrease in public debt

• Price increases rather than output gains

• High rate of savings

• Disappointing GDP growth