AD-AS Model Quiz

What is the wealth effect in relation to changes in the price level at short-run level?

• Consumer spending increases

• Foreign purchases decrease

• Interest rates increase

• Real value of money supply decreases

What is the initial effect of an increase in average prices on the AD-AS model when the economy is at full employment?

• Causes Inflation

• Reduces Unemployment

• Increases Taxes

• Decreases Government Spending

What is the goal of supply-side policies, according to Keynes?

• Decrease Taxes

• Increase Productivity

• Reduce Inflation

• Increase Government Spending

What is the long-run impact of a decrease in the money supply on the AD-AS model?

• Decreases Inflation

• Increases Taxes

• Decreases Government Spending

• Increases Unemployment

What is the primary determinant of AS related to changes in input prices?

• Price of Economic Resources

• Productivity of Resources

• Legal-Institutional Environment

• Business Taxes

The RDO (Real Domestic Output) in the graph explains that occurrence of STAGFLATION. Stagflation means stagnant economy with higher inflation.

How does stagflation influence AD and employment?

• Shift to the right of AD and decrease unemployment

• Shift to the left of AD and increase unemployment

• No movement in AD and decrease unemployment

• No movement in AD and increase unemployment

What does the AS curve graph above shows? (note that RDO mean Real Domestic Output or Y )

• An increase in AS would lower output and lower the price level

• An increase in AS would increase output and stabilize the price level

• An increase in AS would increase output and lower the price level

• An increase in AS would increase output and increase the price level

The classical view suggests that real GDP is determined by supply-side factors – the level of investment, the level of capital and the productivity of labor.

• True

• False

• It depends

• Lack of basis

The above image is the formula of the Quantity Theory of Money.

When the real money supply increase, how does it affect AD and AS in the short run level?

• Movement to the right both AD and AS

• Movement to the right AD but move to the left AS

• Movement to the left both AD and AS

• Movement to the left AD but move to right AS

In 3 minutes, write your comprehended insight in the statement below:

A decrease in AS would decrease output and raise the price level. This would result in more unemployment and more inflation. True or False, why?