Question

When the economy is producing at an output level below the potential output,

		the unemployment rate is above the natural rate of unemployment.
		the short-run aggregate supply curve will slowly shift to the left when wages start to adjust.
		the intersection of the short-run aggregate supply curve and the aggregate demand curve is to the right of the long-run aggregate supply curve.
		the economy might be at the long-run equilibrium.

Which of the following is not a determinant of the short-run aggregate supply curve?

		Inflation shock.
		Output gap.
		The natural rate of unemployment.
		Expected inflation.

If the economy currently producing at an output level above the potential output, which of the following will happen in the long run?

		Unemployment rate will fall.
		The aggregate demand curve will shift to the left.
		Short-run aggregate supply curve will shift to the right.
		Wages will rise.

The economy is initially in long-run equilibrium. A burst in the asset bubble causes consumers to reduce consumption. What will happen to the economy? Check all that applies. There might be more than one correct answers.

		Output falls in the short run.
		Inflation decreases in the short run.
		Wages will rise in the long run.
		Inflation returns to the original level in the long run.
		Short-run aggregate supply curve shifts to the left in the long run.
		The economy returns to producing at the potential output in the long run.

Which of the following is not one of the causes of the negative demand shock in the period of 2001-2004?

		Accounting scandals.
		The burst of the tech bubble.
		Crops failure.
		9-11 terrorist attack.

Which of the following is true about stagflation?

		It can be solved by an increase in money supply.
		It can be solved by a decrease in money supply.
		It involves a decrease in unemployment rate.
		It is caused by a temporary negative supply shock.

When an economy is facing a permanent positive supply shock,

		there is a movement down and along the short-run aggregate supply curve.
		output rises temporarily.
		there is a movement up and along the aggregate demand curve.
		inflation rate falls.

Answer 1

1. A. When an economy is producing under potential output then there would be recessionary gap and unemployment is higher than natural rate of unemployment and short run supply or demand curve shifts to the right

2. B. Output gap is not the determinant of supply. It is the gap between actual output and the natural rate of unemployment

3.B. When actual output is greater than potential output then aggregate demand curve will shift to the left.

4. A, B and E are correct. When there is decrease in consumption it will shift the demand curve to the left leading to a decrease in prices but later on in longer run, full employment output is again achieved.