1. According to the wealth effect, when CPI decrease, the purchasing power of assets (such as savings, stocks, bonds):

a.decreases and consumer spending decreases.

b.increases and consumer spending decreases.

c.decreases and consumer spending increases.

d.increases and consumer spending increases.

2.The Aggregate Demand curve (AD)would shift to the left and down for all the following reasons EXCEPT:

a.a fall in consumers' wealth.

b.a decrease in the amount of money in circulation.

c.more pessimistic consumer expectations.

d.lower labor productivity.

3.If the government increases taxes in response to an inflation, the government is engaging in what economists call:

a.monetary policy.

b.investment policy.

c.fiscal policy.

d.consumption policy.

4.A natural disaster that destroys part of a country's infrastructure is a type of _________ and therefore shifts the _________ to the _________.

a.negative demand shock; aggregate demand curve; right

b.negative supply shock; aggregate demand curve; left

c.negative supply shock; short-run aggregate supply curve; left

d.negative demand shock; long-run aggregate supply curve; left

5.An inflationary gap created by a demand shock can be addressed by _________ to _________.

a.raising government spending; lower the unemployment rate

b.raising taxes; lower the unemployment rate

c.lowering government spending; lower the aggregate price level

d.lowering taxes; lower the aggregate price level