Question

28. As prices rise, a fixed money supply will be able to buy fewer goods and services. This real balance effect is due to a(n)
    1. reduction in the interest rate.
    2. Increase in aggregate demand
    3. Decline in the purchasing power of the fixed quantity of money.
    4. Increase in income.
29. The international substitution effect exists because a
    1. Higher price level will reduce interest rates and stimulate foreign investment.
    2. Lower price level will make domestically produced goods less expensive relative to foreign goods.
    3. Higher price level will reduce the purchasing power of money.
    4. Lower price level will encourage Americans to import more foreign goods.
30. If decrease in the stock market causes a decrease in the real wealth of individuals, the
    1. Aggregate demand curve will shift to the left.
    2. Long-run aggregate supply will shift to the left.
    3. General price level will increase.
    4. Aggregate demand curve will shift to the right.
31. The short-run aggregate supply curve (SRAS) shows the relationship between
    1. The general level of prices and the quantity of goods and services purchased by all consumer sin the economy.
    2. The general level of prices and the quantity of goods and services that domestic firms will supply.
    3. Prices and the profits of domestic firms.
    4. Profit of domestic firms and the quantity of goods and services that domestic firms will supply.
32. Which of the following will most likely cause a decrease in short-run aggregate supply (leftward shift) in the goods and services market?
    1. An increase in the productivity of labor
    2. A reduction in the price of crude oil, a major imported commodity
    3. An increase in resource prices
    4. Favorable weather conditions in agricultural areas.
33. Within the AD/AS model, decreased consumer and investor optimism concerning the future direction of the economy will lead to a(n)
    1. Increase in aggregate demand (AD shifts to the right)
    2. Decrease in aggregate demand (AD shifts to the left)
    3. Increase in long-run aggregate supply (LRAS shifts to the right).
    4. Reduction in the natural rate of unemployment.

Answer 1

1. Ans -c)

Reason- with forced money supply and increase in price , purchasing power reduces .

2 Ans -d)

Reason - international substitution rises when international goods are imported due to cheap prices internationally

3 Ans -a)

aggregate demand is effected by income or wealth of individual , decrease in wealth causes decrease in aggregate demand causes left shift in it

4.ans -b)

aggregate supply curve shows relationship between prices and units supplied by suppliers .

5. Ans -c)

Reason - with increase in resource prices , cost of goods will increase , at existing price supplier would like to supply less of goods , hence leftward shift in supply curve .

6 Ans b)

decrease in consumer confidence will decrease demand of good , hence aggregate demand decreases and results in leftward shift in AD curve