5. If the economy starts at potential GDP and there is an exogenous increase in investment spending, the effects will be what?

a. In the short run output will rise while prices fall and in the long run prices will return to the original position and GDP will be higher.

b. In the short run there will be some fall in GDP and prices, but both will return to their starting point in the long run.

c. In the short run prices will rise while GDP falls, and both will return to their initial position in the long run.

d. In the short run GDP will fall while the price level rises but in the long run GDP will rise by the change in I times the multiplier.

e.In the short run there will be some increase in GDP and some in prices, and in the long run there will be higher prices but no increase in GDP

How will it lead to higher prices??

Also can someone explain why is the LRAS vertical?

2. An___________ in the aggregate supply __________ both the equilibrium real domestic output and the full-employment output of the economy. a. Increase, increases b. Increase, decreases c. decrease, increases d. decrease, decreases

shouldnt the ans be D?

31. The aggregate demand curve generally slopes downward and to the right because, for any given money supply M a higher price level P causes a ______ real money supply M/P, which ______ the interest rate and ______ spending: a. lower; raises; reduces b. higher; lowers; increases c. lower; lowers; increases d. higher; raises; reduces

and for this shouldnt the answer be B?

20. In the short run, a reduction in aggregate demand is: a. likely to cause a reduction in the price level b. unlikely to cause a reduction in the price level because of the interest rate effect c. unlikely to cause a reduction in the price level because of menu costs and efficiency wages d. likely to cause a reduction in aggregate supply

for this why cant it be B