2. Which of the following events will lead to a decrease in full-employment output, i.e. a permanent decrease in production capacity?

A. Decrease in the amount of production resources

B. Households expect price level to rise

C. Oil price decreases

D. Production technology improves

E. Consumer confidence decreases

3. Due to a substantial decrease in consumer confidence, the economy is currently in a recession, which means that the unemployment rate is ____________ the natural rate of unemployment. The government should ____________ spending, which can ________________.

A. above; increase; shift AD to the left

B. above; decrease; shift AD to the right.

C. above; increase; shift AD to the right.

D. below; increase; shift AD to the right.

E. below; decrease; shift AD to the left.

6. MPC = 0.75 Calculate the spending multiplier.

7. MPC = 0.8 The government increases spending by $50 million. Calculate the increase in AD.

8. Consider the economy of country C. A severe drought has occurred, which reduces the agricultural production.

A. In short run after the drought, is the real GDP above, below, or equal to full-employment output?

B. In long run after the drought, which curve shifts in which direction? (AD shifts to the left, AD shifts to the right, SRAS shifts to the left SRAS shifts the right

C. In long run after the drought, is the unemployment rate above, below, or equal to natural rate of unemployment?

1.