Aggregate Demand:

Helpful hints: GDP and output mean the same thing. Output = GDP. Also remember that the natural rate of unemployment is the same as full employment. Hope that helps. Take your time and good luck! FYI: the skill measured here is CAUSATION - your ability to identify the causes and effects of changes in AD/GDP...

1. An increase in aggregate demand when the economy is operating at long-run equilibrium is likely to result in:

A. an increase in output but no increase in the overall price level

B. an increase in both output and the overall price level

C. no increase in either output or the overall price level

D. an increase in the overall price level but no increase in output

2. Potential output is the level of aggregate output:

A. that can be produced at a zero unemployment rate.

B. that can be sustained during recession.

C. that can be produced if structural unemployment is zero.

D. that can be sustained when cyclical unemployment is zero.

3. During a recession caused by a decrease in aggregate demand, which of the following will be true?

A. The actual rate of unemployment will be lower than the natural rate.

B. Actual GDP will be lower than the potential output level of GDP.

C. Actual employment will be higher than full employment.

D. Actual inflation will be higher than anticipated.

4. Which of the following will most likely occur during the expansionary phase of a business cycle?

A. Real GDP rises, and unemployment falls.

B. Real GDP declines, and inflation rises.

C. Interest rates rise, and the number of business failures rise.

D. Inflation rises, and employment falls.

5. Within the AD-AS model, a decrease in consumer confidence as it relates to the direction of the economy (less 'C') will lead to a(n)

A. increase in aggregate demand (AD shifts to the right).

B. decrease in aggregate demand (AD shifts to the left).

C. increase in long-run aggregate supply (LRAS shifts to the right).

D. a decrease in the natural rate of unemployment.