Econ 202 Practice Quiz

Which of the following would cause aggregate demand to shift to the right?

• a decrease in the price level

• an increase in imports

• a decrease in interest rates

• an increase in taxes

The long-run aggregate supply curve represents the level of output possible if the economy:

• has no structural unemployment.

• has a zero inflation rate.

• is operating at potential GDP.

• is operating at an unemployment rate of zero.

The short run aggregate supply curve __________________ because as prices of ________ rise, prices of ________ rise more slowly.

• is vertical ; inputs ; final goods and services

• is vertical ; final goods and services ; inputs

• has a positive slope ; final goods and services ; inputs

• has a positive slope ; inputs ; final goods and services

An economy in which output has increased and prices have increased would suggest that there has been a:

• negative demand side shock.

• positive supply side shock.

• negative supply side shock.

• positive demand side shock.

If the aggregate demand curve shifts in the short run moving the economy out of long-run equilibrium:

• inflation will always occur.

• the short-run aggregate supply curve will shift to bring it back into long-run equilibrium.

• we will move along the short-run aggregate supply curve back to equilibrium.

• the aggregate demand curve will eventually shift back once expectations are taken into account.

Suppose the economy is at a short run equilibrium GDP that lies beyond potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

• Aggregate demand will shift to the left.

• Prices will increase.

• Wages will decrease.

• Unemployment will decline.

The position of the long-run aggregate supply curve

• is at the level of output beyond which the economy cannot currently produce.

• shifts to the right when aggregate demand increases.

• is at the level of output where unemployment is equal to its natural rate.

• is at the level of output where the unemployment rate is zero.

Lower interest rates cause

• increases in only investment spending

• increases in only consumption spending

• increases in both consumption and investment spending

• decreases in both consumption and investment spending

The 'sticky wage theory' helps us understand why

• the natural rate of unemployment is not equal to zero

• the SRAS curve has a positive slope

• the AD curve has a negative slope

• the LRAS curve is vertical

Refer to Figure 12-1. Suppose the economy is at point B. Which of the following statements is FALSE?

• The automatic mechanism will cause the AD curve to shift to the right

• Unemployment is likely above its natural rate

• There is pressure on prices to fall

• There is a recessionary gap

• Actual output is less than potential output