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Chapter 10

Working with Our Basic Aggregate Demand and Aggregate Supply Model

1.Which of the following would be most likely to cause an increase in current aggregate demand in the United States?

a.increased fear that the U.S. economy was going into a recession

b.an increase in the real interest rate

c.sharp increase in the value of stocks owned by Americans

d.a recession in Canada, Mexico, and Western Europe

2.Which of the following will most likely accompany an unanticipated increase in aggregate demand?

a.an increase in real output

b.an increase in unemployment

c.a decrease in real GDP

d.a decrease in the demand for resources

3.In the aggregate demand/aggregate supply model, when the output of an economy is less than its long-run potential, the economy will experience

a.declining real wages and interest rates that will stimulate employment and real output.

b.rising interest rates that will stimulate aggregate demand and restore full employment.

c.a budget surplus that will stimulate demand and, thereby, help restore full employment.

d.rising real wages and real interest rates that will restore equilibrium at a higher price level.

4.Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?

a.a decrease in inflation

b.a decrease in unemployment

c.an increase in the general level of prices

d.an increase in the natural rate of unemployment

5.Which of the following will most likely increase aggregate supply in the long run?

a.unfavorable weather conditions in agricultural areas

b.an increase in the expected inflation rate

c.higher real interest rates

d.an increase in the rate of capital formation

6.Within the AD/AS model, an unanticipated increase in short-run aggregate supply will cause real output to

a.increase and the general level of prices to fall.

b.decrease and the general level of prices to rise.

c.increase and the general level of prices to rise.

d.decrease and the general level of prices to fall.

7.An increase in the long-run aggregate supply curve indicates that

a.the natural rate of unemployment has increased.

b.unemployment has increased.

c.the general level of prices has increased.

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