Question

QUESTION 46

1. The Stock Market Boom of 2015
   Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.
   
   Refer to Stock Market Boom 2015. Which curve shifts and in which direction?

   	a.	aggregate demand shifts right
   	b.	aggregate demand shifts left
   	c.	aggregate supply shifts right
   	d.	aggregate supply shifts left.

QUESTION 47

1. The Stock Market Boom of 2015
   Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.
   
   Refer to Stock Market Boom 2015. In the short run what happens to the price level and real GDP?

   	a.	both the price level and real GDP rise.
   	b.	both the price level and real GDP fall.
   	c.	the price level falls and real GDP rises.
   	d.	the price level rises and real GDP falls.

QUESTION 48

The Stock Market Boom of 2015
Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.

Refer to Stock Market Boom 2015. What happens to the expected price level and what impact does this have on wage bargaining?

	a.	The expected price level rises. Bargains are struck for higher wages.
	b.	The expected price level falls. Bargains are struck for lower wages.
	c.	The expected price level rises. Bargains are struck for lower wages.
	d.	The expected price level falls. Bargains are struck for higher wages.

QUESTION 35

1. Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

   	a.	employment and production rise.
   	b.	employment and production fall.
   	c.	employment falls and production rises.
   	d.	employment rises and production falls.

QUESTION 41

1. If the government provides an investment tax credit and increases income taxes,

   	a.	real GDP rises, and the price level could rise, fall, or stay the same.
   	b.	real GDP falls, and the price level could rise, fall, or stay the same.
   	c.	the price level rises and real GDP could rise, fall or stay the same
   	d.	None of the above are necessarily correct.

Answer 1

46. The increase in the value of stock increases the consumer confidence. The consumers feel that their wealth has increased. This confidence stimulates consumption expenditure. The increase in consumption demand shifts the aggregate demand curve to the right.

Answer: a. Aggregate demand shifts right.

47. When the economy is in longrun equilibrium an increase in aggregate demand due to stock market boom shifts the aggregate demand to the right. The increased demand increases the price level. The firms expand the output by using their capacity intensively. Thus both the price level and real GDP increase.

Answer: a. both the price level and real GDP rise.

48. The expected price level increase. Workers will negotiate their contracts for a higher wage.

Answer: a. The expected price level rises, Bargains are struck for higher wages.

35. When the actual price is lower than expected, the workers and resource suppliers will negotiate their contracts for a lower wage. The fall in input price shift the aggregate supply to right. Output and employment increase and price level falls.

Answer: a. employment and production rise.

41. The investment tax credit increases the investment spending. The aggregate demand increase. The increase in income tax reduces the consumption expenditure. This will reduce aggregate demand. If the increase in investment is greater than the fall in consumption spending. The real GDP and price level increase. If the decrease in consumption spending is greater than the increase in investment, the real GDP and price level falls.

Answer: d. none of the above are necessarily correct.