The Aggregate Demand Aggregate Supply Model MCQs

Option A: Prices to rise and output to rise

Option B: Price to fall and output to remain unchanged

Option C: Prices to fall and output to fall

Option D: prices to rise and output to remain unchanged

Correct Answer: prices to rise and output to remain unchanged ✔

Option A: Shift aggregate demand to the left

Option B: Shift short run aggregate supply to the left

Option C: shift aggregate demand to the right

Option D: shift short-run aggregate supply to the right

Correct Answer: shift aggregate demand to the right ✔

Option A: rising prices and rising output

Option B: rising prices and falling output

Option C: falling prices and falling output

Option D: falling prices and rising output

Correct Answer: rising prices and falling output ✔

Option A: Price rise; output falls

Option B: Price fall; output rises

Option C: Price rise; output rises

Option D: Price fall; output falls

Correct Answer: Price rise; output falls ✔

Option A: Price fall; output rises

Option B: Price fall; output falls

Option C: Price rise; output fall

Option D: Price rise; output rise

Correct Answer: Price rise; output rise ✔

Option A: sticky-wage theory of the short-run aggregate supply curve

Option B: classical dichotomy theory of the short-run aggregate supply curve

Option C: misperceptions theory of the short-run aggregate supply curve

Option D: sticky-price theory of the short run aggregate supply curve

Correct Answer: sticky-wage theory of the short-run aggregate supply curve ✔

Option A: lower prices increase the value of money holding and consumers spending increase

Option B: lower prices decrease the value of money holding and consumers spending decrease

Option C: lower prices reduce money holding increase lending, interest rates fall and investment spending increase

Option D: lower prices increase money holding decrease lending, interest rates rise and investment spending falls

Correct Answer: lower prices increase the value of money holding and consumers spending increase ✔

Option A: The exchange-rate effect

Option B: The wealth effect

Option C: The classical dichotomy/monetary neutrality effect

Option D: The interest-rate effect

Correct Answer: The classical dichotomy/monetary neutrality effect ✔

Option A: lower prices increase money holdings decrease lending interest rates rise, and investment spending falls

Option B: lower prices increase the value of money holding and consumer spending increases

Option C: lower prices decrease the value of money holdings and consumers spending decreases

Option D: lower prices reduce money holdings increase lending interest rates fall, and investment spending increase

Correct Answer: lower prices reduce money holdings increase lending interest rates fall, and investment spending increase ✔

Option A: fail to respond to the adverse supply shock and allow the economy to adjust on its own.

Option B: respond to the adverse supply shock by decreasing aggregate demand which lower prices

Option C: respond to the adverse supply shock by decreasing short run aggregate supply

Option D: respond to the adverse supply shock by increasing aggregate demand, which further raises prices

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

Option A: People will reduce their price expectations and the short run aggregate supply will shift right

Option B: People will raise their price expectations and aggregate demand will shift left

Option C: People will raise their price expectations and the short run aggregate supply will shift left

Option D: People will reduce their price expectations and aggregate demand will shift right

Correct Answer: People will reduce their price expectations and the short run aggregate supply will shift right ✔

Option A: a decrease in the money supply

Option B: a drop-in oil prices

Option C: an increase in government spending on military equipment

Option D: None of these answers

Correct Answer: a drop-in oil prices ✔

Option A: Output rises; prices are unchanged from the initial value

Option B: Output and the price level are unchanged from their initial values

Option C: Output falls; prices are unchanged from the initial value

Option D: Prices fall; output is unchanged from its initial value

Correct Answer: Output and the price level are unchanged from their initial values ✔

Option A: Output falls; prices are unchanged from the initial value

Option B: Price fall; output is unchanged from its initial value

Option C: Output and the price level are unchanged from their initial values

Option D: Prices rise; output is unchanged from its initial value

Correct Answer: Prices rise; output is unchanged from its initial value ✔

Option A: misperceptions theory of the short run aggregate supply curve

Option B: classical dichotomy theory of the short run aggregate supply curve

Option C: sticky price theory of the short run aggregate supply curve

Option D: sticky wage theory of the short run aggregate supply curve

Correct Answer: misperceptions theory of the short run aggregate supply curve ✔

Option A: When the economy is at the natural rate of unemployment

Option B: When the economy is at the natural rate of investment

Option C: When the economy is at the natural rate of aggregate demand

Option D: When there is no no unemployment

Correct Answer: When the economy is at the natural rate of unemployment ✔

Option A: Is vertical because an equal change in all prices and wages leaves output unaffected

Option B: is positively sloped because price expectations and wages tend to be fixed is the long run

Option C: shifts right when the government raises the minimum wage

Option D: shifts left when the natural rate of unemployment falls

Correct Answer: Is vertical because an equal change in all prices and wages leaves output unaffected ✔

Option A: shift the short-run aggregate supply curve to the left

Option B: shift the aggregate demand curve to the right

Option C: shift the short-run aggregate supply curve to the right

Option D: shift the aggregate demand curve to the left

Correct Answer: shift the aggregate demand curve to the right ✔

Option A: All of these answers shift the long-run aggregate supply curve

Option B: An increase in the available capital

Option C: An increase in the available labour

Option D: An increase in price expectations

Correct Answer: An increase in price expectations ✔

Option A: None of these answers

Option B: A depression is a mild recession

Option C: A variety of spending income, and output measures can be used to measure economic fluctuation because most macroeconomic quantitties tend to fluctuate together

Option D: A recession is when output rises above the natural rate of output

Correct Answer: A variety of spending income, and output measures can be used to measure economic fluctuation because most macroeconomic quantitties tend to fluctuate together ✔