Question

1. Suppose that we are at a long-run equilibrium and suddenly aggregate demand rises. In the short run this will:

a. increase prices.

b. increase output.

c. increase real wages.

d. All of the above.

e. Both A and B are correct.

2. The AS/AD model is unable to show a situation in which we have _____ and _____ at the same time.

a. inflation;   growth

b. deflation;   growth

c. inflation;   depression

d. deflation;   depression

e. inflation; deflation.

3. A central bank can prevent deflation by conducting monetary policy that:

a. shifts the aggregate supply schedule rightward.

b. shifts the aggregate supply schedule leftward.

c. shifts the aggregate demand schedule rightward.

d. shifts the aggregate demand schedule leftward.

e. Both B and C are true.

4. If the Fed sells bonds, then which of the following will occur?

a. Bank reserves will rise.

b. Interest rates will rise.

c. Investment will rise.

d. Income will rise.

e. All of the above.

5. During the 1970s, the velocity of money, as measured by M1, was:

a. relatively constant.

b. grew at a relatively constant rate.

c. fell at a relatively constant rate.

d. was very erratic, rising and falling but higher at the end of the 1970s.

e. was very erratic, rising and falling but lower at the end of the 1970s.

Answer 1

1. Suppose that we are at a long-run equilibrium and suddenly aggregate demand rises. In the short run this will:

a. increase prices.
AD will shift out. Wages will be fixed in short run.

3. A central bank can prevent deflation by conducting monetary policy that:

c. shifts the aggregate demand schedule rightward.
An expansionary monetary policy would be required.

4. If the Fed sells bonds, then which of the following will occur?

b. Interest rates will rise.

Money supply will fall so interest rate will rise.

Please post other questions separately.