Question 1 . The short-run aggregate supply curve shows how ________ cause outpu

Question

Question 1

. The short-run aggregate supply curve shows how ________ cause output to rise.

Answer

A. increases in inflation

B. decreases in unemployment

C. decreases in nominal interest rates

D. All of these

E. None of these

Question 2

If the adoption of a new technology led to gains in productivity ________.

Answer

A. the ensuing positive supply shock would lead to an immediate increase in output

B. in the short-run, the ensuing increase in supply would lower inflation

C. and if this new technology permanently altered the productive capacity of the economy then the increase in output and decrease in inflation would be permanent as well

D. All of these

E. None of these

Question 3

An autonomous increase in net exports for any given inflation rate ________.

Answer

A. would add directly to planned expenditures

B. would raise the equilibrium level of output

C. the aggregate demand curve would shift to the right

D. All of these

E. None of these

Question 4

In the 1960s and 1970s, research funding by the U.S. government and some universities led to revolutionary advances in network computing. These advances in communication and network technology remained largely isolated to governmental and academic use. By the mid-to-late 1990s, the Internet began to be widely adopted with massive increases in productivity (which journalists dubbed the "new economy"). Which of the following is an appropriate description of the mechanism behind this supply shock?

Answer

A. Since this "new economy" was a new paradigm, the transition from a pre-internet to an internet economy was initially costly. Thus, the AS curve likely shifted to the left and unemployment likely increased in the short-run

B. The ensuing increase in productive capacity led to the rightward shift of the LRAS which is a likely explanation for the protracted decline in the unemployment rate of the 1990s

C. A negative output gap would have resulted in the short-run, but it was eventually closed by a rightward shift of the LRAS which is a likely explanation for the protracted decline in the inflation rate of the 1990s

D. All of these

E. None of these

Question 5

The March 2000 "tech bubble" burst caused the aggregate demand curve to shift to the left by ________.

Answer

A. causing an upward spike in the real interest rate

B. reducing autonomous spending by households and businesses

C. reducing government spending on high-tech equipment

D. All of these

E. None of these

Question 6

On the graph above, consider a point A on the aggregate supply curve and above the aggregate demand curve. At this point, ________.

Answer

A. quantity demanded equals output, but the inflation rate will fall, so output will rise

B. quantity demanded is greater than quantity supplied, so the inflation rate will rise

C. output is greater than the quantity demanded, so output will fall

D. the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied

E. None of these

Question 7

The aggregate demand curve shifts to the right when there is ________.

Answer

A. a negative price shock

B. a decrease in the nominal interest rate

C. a decrease in inflation

D. All of these

E. None of these

10 points   

Question 8

In the AD-AS framework, long-run equilibrium implies that ________.

Answer

A. quantity demanded equals quantity supplied at a moderate level of equilibrium inflation

B. quantity demanded equals quantity supplied at a point consistent with the short-run equilibrium level of inflation

C. quantity demanded equals quantity supplied at a point consistent with the natural rate of unemployment

D. All of these

E. None of these

Question 9

The "tech bubble" burst of 2000, the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy. Which of the following is an appropriate description of the mechanism that would have ensued?

Answer

A. Household and business spending would have been eroded shifting the AD curve to the left

B. Unemployment would have risen and inflation would have fallen

C. Output would have declined below potential but through shifts in the AS curve, the self-correcting mechanism of the AD-AS framework would have brought the unemployment rate down to the lower levels we saw by 2004

D. All of these

E. None of these

Question 10

Suppose there is a temporary supply shock because of a war in the Middle East, then, ceteris paribus, the ensuing cost push shock ________.

Answer

A. would lead to a temporary increase in prices but a permanent reduction in output

B. would lead to a temporary increase in output but a permanent increase in inflation

C. would lead to a temporary decrease in output but a permanent increase in inflation

D. All of these

E. None of these

Explanation / Answer

Question 1

A. increases in inflation

Question 2

A. the ensuing positive supply shock would lead to an immediate increase in output

Question 3

C. the aggregate demand curve would shift to the right

Question 4

B. The ensuing increase in productive capacity led to the rightward shift of the LRAS which is a likely explanation for the protracted decline in the unemployment rate of the 1990s

Question 5

D. All of these

Question 6

A. quantity demanded equals output, but the inflation rate will fall, so output will rise

Question 7

B. a decrease in the nominal interest rate

Question 8

C. quantity demanded equals quantity supplied at a point consistent with the natural rate of unemployment

Question 9

B. Unemployment would have risen and inflation would have fallen

question 10

C. would lead to a temporary decrease in output but a permanent increase in inflation

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