Question

1. During a recession, as output decreases unemployment rises.

True

False

2. During this recession, some firms are cutting jobs, others are cutting salaries, others are cutting hours. The common result of each of these types of cuts is that consumers have less income to spend and aggregate demand shifts to the left.

True

False

3. The goal of President Obama's stimulus package was to shift aggregate supply to the right.

True

False

4. When the housing market collapsed, a series of events took place. Which of the following statements correctly describes the order of these events?

AS shifted left, price level and output decreased, unemployment decreased.

AD shifted left, price level and output decreased, unemployment increased.

AS shifted right, price level and output increased, unemployment increased.

AD shifted right, price level and output increased, unemployment increased.

Answer 1

1.

Answer: true

Decrease in output decreases job opportunity, which increases unemployment.

2.

Answer: true

These cuts actually decrease consumer income (like income of workers). AD shifts to the left, because the overall demand decreases.

3.

Answer: false

The goal is to shift the demand curve to the right but not the supply curve. Two policies were taken – expansionary fiscal policy (tax cut) and expansionary monetary policy increasing government spending). Both are in favor of AD.

4.

Answer: 2^nd option

This is the left-shift of AD curve, which brings down the price level and increases unemployment. This thing happens because of decreasing the housing prices – once it decreases, it decreases income of all the related people and the overall AD.