Question

1. The aggregate demand would shift to the right if:

a. the money supply increases.

b. the Cambridge “k” increases.

c. an increase in government spending is 100% offset by a decrease in consumer spending.

d. foreign sector spending falls.

e. All of the above.

2. The short run aggregate supply is viewed as upward sloping:

a. showing that higher prices will lead to higher production.

b. because it takes a while for wages to rise when prices rise.

c. because it takes a while for wages to fall when prices fall.

d. in part, because of money illusion.

e. All of the above.

3. When nominal wages adjust more slowly than changes in the price level, then the aggregate supply schedule is:

a. downward sloping.

b. upward sloping.

c. horizontal.

d. vertical.

e. shaped like a parabola.

4. In the short run, an increase in the quantity of money results in:

a. a leftward shift of the aggregate demand schedule, a lower price level, and a higher real GDP.

b. a rightward shift of the aggregate demand schedule, a higher price level, and a higher real GDP.

c. a rightward shift of the aggregate supply schedule, a lower price level, and a higher real GDP.

d. a leftward shift of the aggregate demand schedule, a higher price level, and a lower real GDP.

e. shifts in both the curves leaving prices at a lower level.

5. Monetary policy can affect the price level:

a. in both the short run and the long run.

b. neither in the short run nor the long run.

c. only in the short run.

d. only in the long run.

6. Money illusion arises when:

a. workers work harder when they know that layoffs are increasing.

b. workers work harder when inflation has raised their nominal wage, even though their real wage is lower.

c. workers work harder when they think their wages have fallen.

d. workers are paid in a unit of account that is different from the medium of exchange.

e. All of the above.

Answer 1

1. The aggregate demand would shift to the right if:

a. the money supply increases.

The interest rate would fall and investment would rise.

2. The short run aggregate supply is viewed as upward sloping:

e. All of the above.

Prices are sticky in the short run, so AS is upward sloping in the short run.

3. When nominal wages adjust more slowly than changes in the price level, then the aggregate supply schedule is:

b. upward sloping.

Prices are sticky in the short run, so AS is upward sloping in the short run.

4. In the short run, an increase in the quantity of money results in:

b. a rightward shift of the aggregate demand schedule, a higher price level, and a higher real GDP.

The AD curve will shift out.

Please post other questions separately.