Question

1) Aggregate Demand (AD) is defined as C + I + G + (X-M). C refers to ________.

a) cost

b) customers

c) consumption spending

2) If the aggregate demand (AD)-aggregate supply (AS) model are equal

a) the real GDP is above potential GDP.

b) the real GDP is below potential GDP.

c) equilibrium occurs.

3) What might shift aggregate demand?

a) Production inputs.

b) Technological innovation.

c) Loss of business confidence.

4) Which types of unemployment exist at all times and determine the natural rate of unemployment?

a) structural unemployment and cyclical unemployment

b) cyclical and frictional unemployment

c) frictional unemployment and structural unemployment

5) All else equal, how would decreasing unemployment insurance affect the natural rate of unemployment?

a) The natural rate of unemployment is likely to increase.

b) The natural rate of unemployment will remain unaffected.

c) The natural rate of unemployment is likely to decrease.

Answer 1

(1) (c)

C refers to personal consumption expenditure.

(2) (c)

In the AD-AS model, equilibrium occurs when AD intersects AS. Real GDP equals potential GDP when AD = AS = Long-run aggregate supply (LRAS).

(3) (c)

Loss of consumer confidence decreases consumption, shifting AD curve leftward.

(4) (c)

Natural unemployment rate = Frictional unemployment rate + Structural unemployment rate

(5) (c)

Decrease in unemployment benefit will reduce frictional unemployment, lowering natural unemployment rate.