Question

Inflationary pressure in the AS-AD model can be shown as a

leftward shift of the AD curve when the economy is already producing at its potential GDP.

supply shock that shifts the AS to the right.

rightward shift of the AD curve when the economy is already producing at its potential GDP.

Typically, if consumer and business confidence is high then ________ and if consumer and business confidence is low then ________.

AD shifts to the left; AD shifts to the right

AD does not shift; AD shifts to the right

AD shifts to the right; AD shifts to the left

If the government saw that consumer confidence was low, what step can it take to shift the AD to the right?

The Federal Reserve can increase interest rates.

Government can decrease its spending.

Congress can pass tax cuts.

If the aggregate supply increases, the ________.

real GDP decreases

price level in an economy falls

If real GDP is greater than potential GDP then

the unemployment rate is high and price levels are stable.

the unemployment rate is at the natural rate and price levels are lowering.

the unemployment rate is low and prices levels are rising.

price level in an economy rises

Answer 1

Hello,

Please find the answers below:

Answer1: Rightward shift of the AD curve when the economy is already producing at its potential GDP.

Reason: When a demand continues to rise when the economy is already at its max GDP , there is a shift in the demand curve to the right and a new equilibrium price is established at a level which is higher than the existing equilibrium price

Answer2: AD shifts to the right; AD shifts to the left

Reason: When the confidence is high, then there is an increase in demand which pushes the AD to the right and vice versa.

Answer3: Congress can pass tax cuts.

Reason: This will infuse liquidity which will increase the spending power and this increase the demand

Answer4:  price level in an economy falls

Reason: Usually when the aggregate supply increases , its because the wages have become cheaper or so on. Due to increase in supply, the prices fall and GDP rate increases.

Answer5 price level in an economy rises

Reason: When the real GDP is higher than potential GDP, it means that the economy is functioning at full potential with employment rate at its maximum , increase in government expenditure and so on. This leads to inflationary gap

Hope this helps. Thank you!!