Question

Question 1

An increase in the price level will ________ the real value of wealth and, as a result, there will be ________ the aggregate demand curve.

have no effect on; no change in

increase; a rightward shift of

reduce; an upward movement along

reduce; a leftward shift of

increase; an upward movement along

2.

A severe drought hits a country and reduces farm output by 50 percent. This will impact

aggregate demand.

short-run aggregate supply and aggregate demand.

short-run aggregate supply.

long-run aggregate supply.

short-run and long-run aggregate supply.

3.

If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will ________, output will ________, and employment will ________ in the long run.

decrease; increase; increase

increase; increase; increase

increase; remain unchanged; increase

decrease; decrease; increase

remain unchanged; increase; increase

Answer 1

a) "C"

reduce; an upward movement along, an increase in the price will decrease the real wealth and cause a movement along the demand curve.

b) "C"

this will shift the aggregate supply curve to the left and increase the price and decrease the output in the short run.

c) "A"

In the long run, the price level will fall and that will increase the demand and employment in the long run.