1. Which statement is FALSE with respect to short-run and long-run aggregate supply? Select one:

a.The economy can be on both curves simultaneously.

b.If the economy experiences changes in government regulations, then the short run supply will shift, but not the long run supply

c.If the economy is on the short-run aggregate supply curve, it cannot also be on the long-run aggregate supply curve.

d.If the economy experiences a natural disaster that destroys resources both the short run supply and long run supply will decrease

2. Suppose that your economy is in long run equilibrium. The aggregate demand and aggregate supply in the market is represented by the following functions:

AD: P = 390 - 0.2Y AS: P = 10 + 0.1Y

Something occurs in the economy and the short run aggregate supply changes to:

AS: P = 70 + 0.1Y

Suppose that a 20 unit decrease in output leads to a 1% increase in the unemployment rate.

If the economy is at the natural rate of unemployment in long run equilibrium and the natural rate of unemployment is 3%, what is the current unemployment rate?

Instructions: If your answer is not whole number you should leave two numbers after the decimal. You do not need the percentage sign.

3. The economy started at long-run equilibrium at YP and P1. There was an increase in government purchases at each price level in the short run. Now it is the long run and the economy was allowed to naturally adjust, this is represented by