Question

1) The pattern of stagflation consists of a __________ shift in the _________ SRAS curve.

Select the correct answer below:

a) leftward; LRAS

b) leftward; SRAS

c) rightward; LRAS

c) rightward; SRAS

2) If aggregate demand (AD) shifted to the right or left in the Keynesian zone, it will determine the resulting level of ___________.

Select the correct answer below:

a) real GDP

b) potential GDP

c) output and unemployment

d) inflationary price pressure

3) Long-run changes in aggregate supply, or the long-run aggregate supply curve, is defined by the vertical line at ____________.

Select the two correct answers below.

Select all that apply:

a) full-employment GDP

b) real GDP

c) potential GDP

d) none of the above

4) The interest rate measures the opportunity cost of purchasing business capital. Which of the following is true about the relationship between investment (the purchase or business capital) and the interest rate?

Select the correct answer below:

a) lower interest rates discourage investment spending

b) lower interest rates stimulate investment spending

c) interest rates have nothing to do with investment spending

d) higher interest rates reduce the opportunity cost of investment so they increase investment spending

5) Liquidity is a quality of financial assets indicating...

Select the correct answer below:

a) how quickly short-term financial assets can be converted to long-term financial assets

b) how quickly assets can be used to buys goods and services

c) how quickly assets can be used for monetary policy

d) none of the above

Answer 1

1. b) leftward; SRAS
(Leftward shift of the SRAS shows stagflation with increased inflation and unemployment.)

2. c) output and unemployment
(Output and unemployment will be determined by the shift of AD in the Keynesian zone.)

3. a) full-employment GDP, and c) potential GDP
(LRAS is defined at these values.)

4. b) lower interest rates stimulate investment spending
(Investment and interest rates are inversely related to each other.)

5. b) how quickly assets can be used to buys goods and services
(Liquidity means how quickly the asset can be used to buy goods and services.)