Copital Capta oods Consumption goods Consumpléion goods Panel A Panel Prce LRAS

Question

Copital Capta oods Consumption goods Consumpléion goods Panel A Panel Prce LRAS LRAS LRAS RAS GoP par year Real GDP per year Panel D Panel C 17) Refer to the above figures. Which panel(s) represent economic growth? 17) A) Panel D only C) Panels A and C only B) Panel A only D) Panels B and D only 18) The sum of all planned expenditures for the entire economy at each possible price level is 18) A) aggregate demand. C) effective demand. B) aggregate supply D) actual expenditures by consumers. 19) One reason that the aggregate demand curve slopes downward is because 19) A) higher price levels increase real wealth and consumption. B) higher price levels reduce net exports C) higher price levels increase investment. D) higher price levels reduce interest rates. 20) Supply-side inflation is caused by 20) A) a decrease in aggregate demand and no change in aggregate supply. B) a decrease in aggregate supply and no change in aggregate demand. C) an increase in aggregate supply and no change in aggregate demand. D) an increase in aggregate demand and no change in aggregate supply 21) Over the last twenty years, real GDP in the U.S. economy has increased and there has beern 21) inflation. This indicates that A) aggregate demand has been constant while aggregate supply has increased B) aggregate demand has increased less than aggregate supply C) aggregate demand has increased while aggregate supply has been constant. D) aggregate demand has increased more than aggregate supply

Explanation / Answer

17) Option C

Note that LRAS and PPF both show an outward shift which is an indicator of increased resources or productivity. This is a signal of higher income and output growth

18) Option A

This is usually done for the entire economy in the form of C + I + G + NX = AD

19) Option B

Usually, when price rises, real wealth of consumers falls, interest rate rises and exports fall while import rises.

20) Option B

Supply-side changes can influence the level of unemployment, output and income. This may cause cost push inflation which shifts the AS to the left and brings inflation and unemployment

21) Option D

This could be the only reason because AS has also shifted due to higher productivity but certainly not greater than AD. This would have raised both inflation and employment

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