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ce Level Long Run Aegregate Supply 110 LRAS 1 105 100 95 13 5 14.5 15.5 165 Real GDP or Output amlbon of 2009 dollars Refer to the economic model pictured above: Decrease in price levels from 105 to 100 will cause Real GDP to O remain constant in the long run increase to 16.5 trillion in the long run O decrease to 13.5 trillion in the long run O increase to 15.5 trillion in the long run

Price Level Ageregate Demand PL4 PL1 AD2 AD1 Y2 13 Y4 Real GDP or Output Which of the following could cause movement from AD2 to AD1? O The Federal Government has increased spending O The Federal Reserve icrease nominal interest rates which decrease purchases of durable goods and investment. O Households are expecting their incomes to rise in the near future O Firms have become increasingly optimistic regarding the future of the economy.

PL4 PL2 PL1 AD2 ADI Y1 12 Y3 Y4. Real GDP or Output Refer to the economic model above: Which of the following best explains why there is movement from Point B to Point C? O as price levels increase, households and firms purchase more domestically produced goods and fewer foreign goods O as price levels decrease, the cost of production falls encouraging more consumption O as price levels decrease, the purchasing power of wealth decreases causing a decrease of investment O as price levels decrease, the purchasing power of wealth increases causing an increase of consumption

Short Run A te 105 100 95 14.5 15.5 165 Real GDP or Output Refer to the graph above: Which of the following could have caused the shift from Point B to Point A? O the price of inputs fall slower than the general rate of inflation O an increase in labor costs O a decrease in the price of a major commodity such as oil O inflationary expectations increase

Short Run Aggregate Supply 110 SRAS 2 105 100 95 13.5 14.5 15.5 16.5 Real GDP or Output Refer to the graph above: an increase in the labor force would be represented by a movement from O point A to point B. O SRAS1 to SRAS2 O SRAS2 to SRAS1 O point B to point A

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1 remains constant at 14.5.LRAS decides gdp in longrun

2 B because it represents decrease in Aggregate demand. All other options lead to increase in AD

3 D. It is cause by fall in prices which increase purchasing power of money

4 A. All other factors will lead to shift

5 B because wages fall and so does cost of production

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