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QUESTION 76 The Stock Market Boom of 2015 Imagine that in 2015 the economy is in...

QUESTION 76

  1. The Stock Market Boom of 2015
    Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.

    Refer to Stock Market Boom 2015. In the long run, the change in price expectations created by the stock market boom shifts

    a.

    short-run aggregate supply left.
    b.

    long-run aggregate supply right.
    c.

    short-run aggregate supply right.
    d.

    long-run aggregate supply left.

1 points   

QUESTION 77

  1. The recessions of the 1970s are often attributed to

    a.

    declines in the price of stock.
    b.

    an increase in oil prices.
    c.

    decreases in the money supply.
    d.

    declining inflation expectations.
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Answer #1

Option A is correct. Because there were changes in the expected price level due to demand pull inflation in the short run, in the long run economic agents will expect a higher future price and this will decrease the short run aggregate supply curve

Option B is correct. There were two major oil price shocks occurring in 1973 and 1979 due to which there was an increase in the the production cost and a decline in the production level. This resulted in stagflation

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