Question

Aggregate supply in the immiate short run (Range 1 of AS)

Scenario: There is an increse in U.S government spending

Question 1) a. AD increases b. AD decreases c. AS increases d. AS decreases

Question 2) a. GDP growth rises b. GDP growth decrease c. GDP growth remains unchanged

Question 3) a. unemployment rises b. unemployment falls c. unemployment remains unchanged

Question 4) a. inflation increases b. inflation decreases c. inflation remains unchanged

Answer 1

1) If there is an increase in the US government spending the AD will increase because government spending is the part of aggregate demand. The answer is "A" AD Increases.

2) Witha an increase in the demand, the GDP will be rising. The answer is "A" GDP growth rises.

3) With increased aggregate demand the firm will be hiring more to meet the increased demand of the people. This will reduce the unemployment in the economy. The answer is "B".

4) As the firms cannot change much in the short run they will increase the price of the goods and the inflation will rise. The answer is "A".