Question

7. In the long run, aggregate supply:

Multiple Choice

• is fixed.

• is dictated by the fixed costs of inputs.

• is determined by the prices of final goods and services.

• steadily increases.

8.When prices rise, the interest rate:

Multiple Choice

• tends to fall.

• is usually not affected.

• also tends to rise.

• will rise if the wealth effect outweighs the price effect.

9. In the macroeconomic model of aggregate supply and aggregate demand:

Multiple Choice

• unemployment is negatively related to the overall price level.

• quantity represents GDP.

• All of these are true.

• price is calculated as a weighted average of services traded in the economy.

10.

The wealth effect partially explains why the aggregate _______ curve is _______.

Multiple Choice

• demand; upward-sloping

• supply; upward-sloping

• supply; downward-sloping

• demand; downward-sloping

Answer 1

7. In the long run, aggregate supply:

is fixed.

Reason: In the long run, AS curve is vertical and fixed at the natural rate of output

8.When prices rise, the interest rate:

tends to fall.

Reason: Bond prices are inversely related to interest rates. As bond prices go up, interest rates fall

9. In the macroeconomic model of aggregate supply and aggregate demand:

All of these are true.

Reason: All the given statements are true

10.

The wealth effect partially explains why the aggregate _______ curve is _______.

demand; downward-sloping

Reason: The weath effect explains the downward sloping demand curve in the economy. It explains how increase in price of a good is same as decrease in wealth of individual, thereby reducing its demand, thereby making AD curve downward sloping