3.6 Demand & Supply Shocks

Multiple Choice

The table shows the level of household savings at various levels of disposable income in a country.

Based on the level of savings and disposable income data in the table, which of the following must be true?

• The marginal propensity to save is 0.2

• The marginal propensity to save is 0.9

• The marginal propensity to consume is 0.9

• The marginal propensity to consume is 0.1

Multiple Choice

Assume the marginal propensity to consume is 0.8. How will a decrease in taxes of $100 billion and a decrease in government spending of $100 billion affect aggregate demand?

• Aggregate demand will decrease by $900 billion.

• Aggregate demand will decrease by $500 billion.

• Aggregate demand will not change.

• Aggregate demand will decrease by $100 billion.

Multiple Choice

When the short-run aggregate equilibrium is to the right of the long-run aggregate supply curve, the economy is experiencing

• an export gap.

• an import gap.

• a recessionary gap.

• an inflationary gap.

• an interest rate gap.

Multiple Choice

Which factor can increase aggregate demand?

• Decrease in income.

• Increase in income.

• Decrease in the availability of substitutes.

• Decrease in consumer preferences.

Multiple Choice

Assume the countries of Ornania and Kumbagi are major trading partners. Ornania is currently in long-run macroeconomic equilibrium. As a result of a recession in its economy, Kumbagi decreases its demand for goods produced in Ornania. Which of the following will occur in Ornania in the short run?

• The aggregate demand curve will shift to the left, resulting in an inflationary gap.

• The aggregate demand curve will shift to the left, resulting in a recessionary gap.

• The short-run aggregate supply curve will shift to the left, resulting in an inflationary gap.

• The short-run aggregate supply curve will shift to the left, resulting in a recessionary gap.

​demand

Open Ended

What do you think a demand or supply shock is?

Open Ended

If the economic is in short-run and long-run equilibrium, what do you think a positive demand shock will do to the economy?