1. If the economy is producing at long-run equilibrium, a decrease in aggregate demand will:*

a. permanently increase unemployment

b. temporarily increase unemployment

c. permanently increase inflation

d. temporarily increase inflation

2. Inflation and recession occurring together are caused from:*

a. a decrease in aggregate demand

b. an increase in aggregate demand

c. a decrease in aggregate supply

d. an increase in aggregate supply

3. An increase in aggregate demand will cause which of the following?*

a. A movement along the short-run Phillips curve.

b. The long-run Phillips curve to become horizontal.

c. A shift of the short-run Phillips curve.

d. The long-run Phillips curve to shift to the right.

4. A positive supply shock (an increase in AS) will cause which of the following?*

a. A movement along the short-run Phillips curve.

b. The long-run Phillips curve to become horizontal.

c. A shift of the short-run Phillips curve.

d. The long-run Phillips curve to shift to the right.

5. An increase in aggregate demand will result in ______ in real GDP and ______ in the price level IN THE LONG-RUN (ahem, think Econrobics!).*

a. a decrease; an increase

b. an increase; a decrease

c. no change; an increase

d. no change; a decrease

6. Suppose the economy is producing below potential output. An open-market purchase of bonds by the Fed will cause ___________ in AD and __________ in GDP--- IN THE SHORT-RUN.*

a. a decrease; a decrease

b. an increase; an increase

c. no change; an increase

d. no change; a decrease

7. Which of the following would cause the Fed to pursue expansionary policy?*

a. A decrease in the unemployment rate.

b. GDP growth for 3 consecutive quarters.

c. An increase in aggregate supply.

d. A decrease in aggregate demand.

8. A decrease in the money supply through an open-market sale of bonds will temporarily*

a. increase aggregate demand.

b. decrease aggregate demand.

c. shift the LRAS rightward.

d. shift SRAS leftward.

9. Which of the following would cause a temporary increase in the nominal interest rate determined in the money market?*

a. decrease in the reserve ratio.

b. a decrease in the discount rate.

c. a decrease in money demand.

d. a decrease in the money supply.

10. An open-market bond purchase will decrease ___________ in the short-run.*

a. unemployment

b. GDP

c. aggregate demand

d. aggregate supply