Question

1. A series of natural disasters like fires, floods and earthquakes in the short run could cause
   1. Demand shocks and inflation
   2. Supply shocks and inflation
   3. Demand shocks and deflation
   4. Supply shocks and deflation
   5. Non of the above to happen

1. 2) In the country of Laurenstan, an island nation previously closed to contact with the rest of the world, the citizens tend to spend 90% of any increase in income. Based on this, if a traveler from the outside were to visit and spend $5,000 on a newly produced product, the GDP of Laurenstan could increase by a maximum of
   1. $5,000
   2. $9,000
   3. $10,000
   4. $45,000
   5. $50,000

1. 3) An inward shift (to the left) in a production possibility curve would be most closely synonymous with a(n)

1. 1. Increase in long-run aggregate supply
   2. Decrease in long-run aggregate supply
   3. Increase in aggregate demand
   4. Decrease in aggregate demand
   5. Decrease in capacity utilization rate

1. 4) A simultaneous and equally sized tax increase and spending increase by the federal government would have which of the following effects?
   1. Increase the price level and increase real output
   2. Increase the price level and decrease the real output
   3. Decrease the price level decrease the real output
   4. Decrease the price level and increase the real output
   5. No effect on price level or real output

Answer 1

a) "A"

They can cause a demand shock and inflation in the market. As after a disaster the demand for the basic goods increase.

b) "D"

It will increase by 50,000 because the multiplier in the nation is 10. and any increase in the expenditure will increase the total output by 10 times.

c) "B"

Inward shift means a decrease in the capacity of the nation.

d) "A"

Increase in the government expenditure will have a greater effect than an increase in the taxes. it will increase the output and increase the price.