QUESTION 1 At a party, after nding out that you are taking a macroeconomics course, a friend of yours argues that due to the high ination in the US, firms will supply fewer goods to the market. What should your answer be? 0 "Yes, I agree. There is a negative relationship between aggregate price level and aggregate output supplied. \" 0 "Yes, I agree. Sticky wages create a disincentive for rms to supply more output when ination is high.\" 0 \"While high prices deter quantity supplied, this reduction in aggregate output supplied will be compensated by an increase in quantity demanded." O \"I don't fully agree with the statement. While there could have been a reduction in the aggregate output supplied, this must be caused by a change in another variable instead of a change in prices. In the new equilibrium, prices have gone up as a result of a reduction in quantity supplied. In fact, in the short-run, there is a positive relationship between ination and quantity supplied." QUESTION 2 Oil prices decreased on Wednesday March 17 as traders reacted to a surprising increase in U.S. oil inventories. Based on the income-expenditure model, Q If inventories go up, the level of output produced is higher than the planned aggregate spending. In the long run, output will need to be reduced to equilibrate total production and planned spending. Traders anticipate this move in production leading to lower oil prices since oil quantity supplied does need to decrease rather than increase. 0 If inventories go up the level of output produced is lower than the planned aggregate spending. In the long run, output will need to be increased to equilibrate total production and planned spending. Traders anticipate this move in production leading to a lower oil price since oil quantity supplied does need to increase rather than decrease. 0 Oil prices are going down due to a production shortage. Production is falling behind the level of oil consumption, the latter being the planned spending. 0 If oil inventories go up, unplanned investment spending is decreasing leading to the lower oil prices. QUESTION 3 When wealth goes up Q If it's a change in price level that affects our wealth, there will be a movement along the AD. 0 If it's a change in something else that affects our wealth, there will be a shift to the right in the AD. 0 Neither 3, nor b 0 Both: a and b