Question

QUESTION 1

1. Event: High Expectations about future income increase consumer spending (short run).

   Question: What is the change in aggregate demand?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

QUESTION 2

1. Event: High expectations about future income increase consumer spending (Short run)

   Question: What is the change in short run aggregate supply (SRAS)?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

QUESTION 3

1. Event: High expectations about future income increase consumer spending (Short run)

   Question: What is the change in long run aggregate supply (LRAS)?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

  

QUESTION 4

1. Event: High expectations about future income increase consumer spending (Short run)

   Question: What is the change in equilibrium price level?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

QUESTION 5

1. Event: High expectations about future income increase consumer spending (Short run)

   Question: What is the change in equilibrium real gross domestice product (RGDP)?

   	a.	Increase
   	b.	Decrease
   	c.	No change
   	d.	Indeterminate

Answer 1

1. A. Increase

2. C. No change

3. C. No change

4. A. Increase

5. C. No change

Explanation: When consumption increases in the short-run, there is a rightward shift in the aggregate demand. However, supply cannot change immediately to meet the increased demand. In the long-run, supply can change only when there is an increase in production capacity. An increase in demand and a constant supply puts upward pressure on price; however, real GDP remains the same as output does not increase.