Question

1. Factors that could cause the SRAS curve to shift are

	a.	Fiscal policy
	b.	Productivity increase
	c.	Consumer confidence
	d.	Oil price increase

QUESTION 2

1. Which of the following would shift the AS curve?

	a.	The level of government spending
	b.	Incentives to install a new technology
	c.	An increase in labor productivity
	d.	The costs of the factors of production

QUESTION 3

1. Households decide to save a larger portion of their income. According to the AD/AS model this change in the long run will cause

	the GDP
	the price level

A.	to stay the same
B.	to decrease
C.	to increase

1 points   

1. Suppose Mexico, one of US’s largest trading partners and purchaser of a large quantity of US exports, goes into a recession. According to the AD/AS model, in the Short-Run, US’s

	GDP
	Price level
.	Net export

A.	will go up
B.	will stay the same
C.	will go down

1 points   

QUESTION 5

1. Households decide to save a larger portion of their income. According to the AD/AS model this change in the short run will cause

	the GDP
	the price level

A.	to increase
B.	to stay the same
C.	to decrease

Answer 1

1.

(b) Productivity increase

Reason: A higher level of productivity shifts the SRAS curve to the right because with improved productivity, firms can produce a greater quantity of output at every price level.

2.

(c) An increase in labour productivity

Reason: A higher level of productivity shifts the AS curve to right, because with improved productivity, firms can produce a greater quantity of output at every price level.

3.

(B) To decrease

Reason: AD will be less; so GDP will decrease and price level also decrease.

4.

(C) will go down

Reason: If Mexico goes into recession, its GDP declines. With less income, it will import less. A fall in Mexican imports means a fall in U.S. exports. The decline in our exports will lead to leftward shift in AD, leading to a decrease in our GDP and price level and net exports.