Supposing the U.S. government approves a budget that cuts taxes for consumers and increases its military spending, how would these changes affect real GDP and price level? Real GDP Price Level Increases Decreases b. Decreases Increases C. Stays the same Increases d. Decreases Decreases Increases Increases 2. Which of the following statements best explains the unemployment rate falling from 6% to 4% with the inflation rate rising from 1% to 2%? a. An increase in aggregate demand b. A decrease in both aggregate demand and aggregate supply C. An increase in both aggregate demand and aggregate supply d. An increase in aggregate supply e. An increase in aggregate demand and a decrease in aggregate supply 3. Which of the following most likely increases aggregate demand in the United States? a. An American entrepreneur founds and locates a software company in London b. The U.S. military relocates a military base from San Diego to Seattle c. The Chinese government makes it increasingly difficult for American firms to export goods to China d. A Mexican entrepreneur founds and locates a software company in St. Louis e. Air France cancels an order for Boeing airliners manufactured in Seattle 4. Favorable supply shocks, such as a decrease in energy prices or unexpectedly high yields for key crops like wheat and corn, are most likely to have which of the following short-run effects on the price level and output? Price Level Output a. Decrease No effect b. Decrease Increase C. Increase Increase d. Increase Decrease e. No effect No effect 5. Which of the following statements best summarizes the result of an increase in government spending when the economy is already in long-run equilibrium at full-employment output? a. An inflationary gap is created because the AD curve shifts to the right b. A recessionary gap is created because the SRAS curve shifts to the left c. An inflationary gap is created because potential GDP shifts to the left d. A recessionary gap is created because the AD curve shifts to the left e. An inflationary gap is created because the SRAS curve shifts to the right