Answer these Multiple Choice Questions.

Which one of the following is most likely to result in a rightward shift of the short-run aggregate supply curve? A A decrease in wage rates A decrease in government spending 3 C An increase in taxation D An increase in investment expenditure The four diag'ams below show aggregate demand (AD) and long-run and short-run aggregate supply (LRASISRAS) curves for an economy where OF'1 is the inilial equilibrium price and 0'1"1 the initial equilibrium level of real national output. Which diagram, A, B, C or D, shows the change reculling from an increase in innovation and productivity improvements? A Prim LRAS LRA level 1 52 0 Y1 '1'; Real national Y1 Y2 output output 0 Y1 Real national Real national output output 3 A rise in the level of domestic investment will most likely result from a rise in A the current account deficit. B interest rates. C company profits. D the exchange rate. 4- The diagram below shows an aggregate demand (AD) curve for an economy. Price level X AD Real national output The movement down the aggregate demand curve from X to Y shows that A as real national output rises, firms can lower their costs due to mass production. B as real national output falls, the price of imported goods rises. C as the price level rises, the nominal value of consumption and investment falls. D as the price level falls, consumers and firms purchase more goods. 5 An economy is currently operating with a negative output gap. In the short run, if the rate of growth of aggregate demand is positive but less than the rate of growth of productive capacity, then the economy is most likely to experience A a decrease in output. B an increase in unemployment. C a decrease in its trend rate of growth. D a decrease in exports.6 An increase in interest rates when the exchange rate is rising is most likely to lead to an increase in A economic growth. B aggregate supply. C the current account surplus. D unemployment levels. 7 The diagram below shows the aggregate demand (AD) curve and two long-run aggregate supply (LRAS) curves for an economy. Price LRAS2 LRAS1 level P2 AD Y2 Y1 Real national output The decline in equilibrium real national output from Y, to Y2 implies that the economy A is operating within its production possibility frontier. has a falling level of unemployment. C has a negative rate of economic growth. D is experiencing a low rate of productivity growth. 8 Which one of the following is most likely to lead to a fall in aggregate investment? A A reduction in the level of unemployment B An increase in spare capacity in the economy C A reduction in the average level of interest rates D An increase in aggregate demandq The diagram below shows the aggregate demand (AD). the short-run aggregate supply (ERAS) and the long-run aggregate supply (LRAS) curves for an economy. Price . LRAS level 0 Real national output The economy is currently operating at point X. At this point. the economy must be experiencing ' A ination caused by excess demand. B ination caused by increasing costs. c ' unemployment of labour. D a low rate of economic growth. [0 'Economists predict that the negative output gap in the economy is likely to grow over the next couple of years.\" In the short run. which one of the following policies is most likely to help to prevent this negative output gap increasing? A The Central Bank raising interest rates B The government taking action to increase the exchange rate of the currency C An increase in government expenditure accompanied by a growing budget decit D The implementation of supply-side policies that are designed to raise labour productivity ! i All other things being equal. a large increase in an economy's rate of interest will cause A both its aggregate demand curve and its short-nut aggregate supply curve to shill to the right. B its aggregate demand curve to shift to the right and its short-hm aggregate supply curve to shill to the left. C both its aggregate demand curve and its short-run aggregate supply curve to shill to the tall. D its aggregate demand curve to shift to the left and its short-run aggregate supply curve to shill to the right. i Z The diagram below shows a shift in the long-run aggregate supply curve for an economy from LRAS1 to LRAS2. Price LRASZ LRAS, level 0 Real National Output The shift is most likely to have been caused by a fall in A the capital stock. B income tax rates. C the growth of labour productivity. D interest rates. ! 3 Which one of the following scal policy measures would be most likely to reduce aggregate demand? A Reducing state retirement pensions and leaving taxation unchanged 3 Reducing indirect taxes and increasing direct taxes on higher income levels to maintain the same revenue c Increasing welfare payments and leaving taxation unchanged D Increasing government spending and reducing taxation by equal amounts The diagram below represents an economy that has experienced ination. with the price level I (I, rising from P1 to P2. Price level 0 Real national output The most likely cause of the inationary pressures shown in the diagram is A a sustained increase in bank lending. B a growing budget decit. C money wages increasing faster than productivity. D a period of time when interest rates are too low. I 5 The diagram below shows two aggregate demand (AD) curves and the short-run aggregate supply (SRAS) curve for an economy. Price level 0 Y1 Y2 Real National Output The shift in aggregate demand from N31 to A02 could have been causad by an increase in A the price of raw materials. B the exchange rate. C labour productivity. D the budget decit. l 6 The diagram below shows aggregate demand (AD). short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves for an economy. Price level O YE Real National Output The economy is operating with A inationary pressures. B cyclical unemployment. c under-used capacity. D a negative output gap. '7 All other things being equal, in the short run a decrease in aggregate demand in an economy is most likely to result in a reduction in A government spending on welfare benets. the unemployment rate. 3 C the budget decit. D the balance of payments decit on current account. IS The diagram below shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves for a country. with the initial equilibrium at the intersection of AD1 and SRAS1 at point E. Price level 0 Real National Output The country experiences a signicant increase in both world commodity prices and exports. As a result of these two events. the equilibrium will A remain at point E. B move to point F. C move to point G. D move to point H. The government reduces its spending. At the same time. the Bank of England increases interest rates. All other things being equal. the most likely outcome is that A aggregate demand will fail but ination will rise. B aggregate supply will fall but economic growth will rise. C unemployment will fall but the current account on the balance of payments will improve. D ination will fall but unemployment will rise. 20 The diagram below shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves for the UK economy. Price LRAS level F E AD2 AD1 O Y2 Real national output The government predicts that aggregate demand will increase in the long run from AD, to AD,. All other things being equal, which one of the following policies is most likely to move the economy to a new long-run equilibrium at point E rather than point F? A Pursuing an expansionary monetary policy B Allowing the exchange rate to rise C Increasing taxation D Improving the flexibility of the labour market