Economics MCQs

Page No. 362

According to the interest rate effect aggregate demand slopes downward (negatively) because ?


alower prices increase money holdings decrease lending interest rates rise, and investment spending falls

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b lower prices increase the value of money holding and consumer spending increases

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clower prices decrease the value of money holdings and consumers spending decreases

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dlower prices reduce money holdings increase lending interest rates fall, and investment spending increase

✓


View Answer lower prices reduce money holdings increase lending interest rates fall, and investment spending increase

Policy makers are said to “accommodate” an adverse supply shock if they ?


afail to respond to the adverse supply shock and allow the economy to adjust on its own.

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b respond to the adverse supply shock by decreasing aggregate demand which lower prices

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crespond to the adverse supply shock by decreasing short run aggregate supply

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d respond to the adverse supply shock by increasing aggregate demand, which further raises prices

✓


View Answer respond to the adverse supply shock by increasing aggregate demand, which further raises prices

Refers to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policy makers allow the economy to adjust to the long run natural rate on its own, ?


aPeople will reduce their price expectations and the short run aggregate supply will shift right

✓


b People will raise their price expectations and aggregate demand will shift left

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cPeople will raise their price expectations and the short run aggregate supply will shift left

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d People will reduce their price expectations and aggregate demand will shift right

✖


View Answer People will reduce their price expectations and the short run aggregate supply will shift right

Which of the following events shifts the short run aggregate supply curve to the right ?


aa decrease in the money supply

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ba drop-in oil prices

✓


can increase in government spending on military equipment

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d None of these answers

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View Answer a drop-in oil prices

Suppose the economy is initially in long run equilibrium Then suppose there is a drought that destroys much of the wheat crop if policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model to aggregate demand and aggregate supply what happens to prices and output in the long run ?


aOutput rises; prices are unchanged from the initial value

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bOutput and the price level are unchanged from their initial values

✓


cOutput falls; prices are unchanged from the initial value

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d Prices fall; output is unchanged from its initial value

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View Answer Output and the price level are unchanged from their initial values

Suppose the economy is initially in long-run equilibrium Then suppose there is an increase in military spending due to rising international tensions According to the model of aggregate demand and aggregate supply what happens to prices and output in the long run ?


aOutput falls; prices are unchanged from the initial value

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b Price fall; output is unchanged from its initial value

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c Output and the price level are unchanged from their initial values

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d Prices rise; output is unchanged from its initial value

✓


View Answer Prices rise; output is unchanged from its initial value

Suppose the price level falls but suppliers only notice that the price of their particular product has fallen Thinking there has been a fall in the relative price of their product they cut back on production, This is a demonstration of the ?


a misperceptions theory of the short run aggregate supply curve

✓


b classical dichotomy theory of the short run aggregate supply curve

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csticky price theory of the short run aggregate supply curve

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dsticky wage theory of the short run aggregate supply curve

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View Answer misperceptions theory of the short run aggregate supply curve

The natural rate of output is the amount of real GDP produced ?


a When the economy is at the natural rate of unemployment

✓


bWhen the economy is at the natural rate of investment

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cWhen the economy is at the natural rate of aggregate demand

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dWhen there is no no unemployment

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View Answer When the economy is at the natural rate of unemployment

Which of the following statements is true regarding the long-run aggregate supply curve? The long-run aggregate supply cruve ?


a Is vertical because an equal change in all prices and wages leaves output unaffected

✓


b is positively sloped because price expectations and wages tend to be fixed is the long run

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c shifts right when the government raises the minimum wage

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d shifts left when the natural rate of unemployment falls

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View Answer Is vertical because an equal change in all prices and wages leaves output unaffected

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to ?


ashift the short-run aggregate supply curve to the left

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b shift the aggregate demand curve to the right

✓


c shift the short-run aggregate supply curve to the right

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dshift the aggregate demand curve to the left

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View Answer shift the aggregate demand curve to the right

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