MULTIPLE CHOICES

1.The basic lesson of the AS/AD model is that

supply-side policies cannot be used to increase output.

government intervention in stabilizing the economy is effective in the short run.

the cost of doing business has no effect on a firm's decisions about how much to produce.

high inflation and high unemployment cannot happen at the same time.

2.Which economic theory provided a solution to the stagflation of the 1970s?

Keynesian theory

Supply-side theory

Balanced-budget theory

3. In the AS/AD model, the economy

reaches equilibrium through changes in prices.

reaches equilibrium through changes in inventories.

does not reach equilibrium.

isNOT affected in the short run by government intervention.

4. Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ real GDP.

left; increase

left; decrease

right; increase

right; decrease

5. Which of the following would shift aggregate demand to the left?

An increase in stock prices, causing stock market investors to feel wealthier

A decrease in government spending

An increase in government spending

An increase in consumer confidence

6. The aggregate demand curve

is downward sloping because production costs decline as real GDP increases.

shows the amount of real GDP that will be demanded at each possible price level.

shows how much firms are willing to produce at different price levels.

shows the relationship between interest rates and the unemployment rate.

7 What is the consequence of aggregate demand shifting to the right?

The price level decreases and real GDP increases.

Both the price level and real GDP increase.

The price level increases and real GDP decreases.

Both the price level and real GDP decrease.

8. If the amount of business regulation in an economy increases, the short-run aggregate supply curve shifts _____ and output supplied will _____.

right; decrease

right; increase

left; decrease

left; increase

9. The long-run aggregate supply curve is vertical because

the only thing that can increase real GDP in the long run is an increase in government spending.

changing the price level is not a source of economic growth.

the level of real GDP never changes.

it incorporates the assumptions of Keynesian theory.

10 High taxes and/or heavy regulation

raise costs of production so that the aggregate supply curve shifts to the left.

are not likely to affect firms' behavior since they are more concerned about profits than taxes or regulation.

are likely to shift aggregate supply to the right.

11. The _____ curve is vertical at full employment.

short-run aggregate supply

long-run aggregate supply

long-run aggregate demand

short-run aggregate demand

12. Which of these will shift the short-run aggregate supply curve to the right?

An increase in energy prices

Added safety regulations for business

An increase in the minimum wage

An improvement in worker productivity

13. _____ inflation occurs when a supply shock reduces aggregate supply.

Demand-pull

Cost-push

Demand-push

14 When there is a widespread improvement in technology that lowers the cost of doing business

AD shifts to the right, causing inflation.

AD shifts to the left, causing unemployment.

SRAS shifts to the right, puttig downward pressure on prices as output expands.

SRAS shifts to the left, causing inflation and unemployment.

15What would cause the price level to decrease and output to increase?

a rightward shift of the aggregate demand curve

a leftward shift of the aggregate demand curve

a leftward shift of the short-run aggregate supply curve

a rightward shift of the short-run aggregate supply curve