Question

1.  

Which one of the following shifts the aggregate demand curve leftward?

Select one:

a. An increase in the wage rate.

b. An increase in the price level.

c. An increase in expected deflation.

d. A decrease in taxes.

e. A decrease in the interest rate.

2.  

Consider an economy starting from a position of full employment. Which one of the following changes does not occur as a result of an increase in aggregate demand?

Select one:

a. Real GDP increases in the short run.

b. The long-run aggregate supply curve shifts rightward to create the new long-run equilibrium.

c. An inflationary gap arises.

d. The price level rises.

e. Factor prices rise in the long run, shifting the short-run aggregate supply curve to the left.

Answer 1

1.c

Increase in wage rate shifts SRAS leftward (a is wrong).

Increase in price level causes upward movement along AD, not a shift (b is wrong).

Incraese in expected deflation decreases current consumption, decreasing AD and shifting AD leftward.

Decrease in tax increases consumption, increasing AD and shifting AD rightward (d is wrong).

Decrease in interest rate increases investment, increasing AD and shifting AD rightward (d is wrong).

2. b

Higher aggregate demand shifts AD curve rightward, increasing price level and real GDP, causing short run inflationary gap. In long run, SRAS shifts leftward. But LRAS doesn't change from a change in AD.