3.7 Self-Adjustment in AD-AS Model

Open Ended

After a demand shock occurs, how will the economy return to long-run equilibrium?

Multiple Choice

Which of the following will cause a negative supply shock?

• A technological advance

• An increase in productivity

• An increase in oil prices

• A decrease in nominal wages

• Government regulations are removed

Multiple Choice

During stagflation, the price level will ____ and real GDP will ___.

• decrease; increase

• decrease; decrease

• increase; increase

• increase; decrease

• stay the same; decrease

Multiple Choice

An economy at long-run AS is operating at:

• full employment

• less than full employment

• greater than full employment

• high cyclical unemployment

• greater than the natural rate of unemployment

Multiple Choice

Assume that Canada imports products from the United States. A large decrease in the Canadian incomes will cause the United States price level and real GDP to change in which of the following ways?

FIRST PART IS PRICE LEVEL AND SECOND PART IS REAL GDP

• INCREASE INCREASE

• INCREASE DECREASE

• DECREASE INCREASE

• DECREASE DECREASE

Multiple Choice

According to classical economists, which of the following will occur to move this economy to long-run equilibrium

• Autonomous consumption will cause aggregate demand to increase

• Consumer spending will increase shifting aggregate demand to the right

• Deficit government spending should be used to shift aggregate demand to the right

• Wages will decrease causing aggregate supply to increase

Multiple Choice

An increase in the marginal propensity to save clearly causes a decrease in which of the following?

• Aggregate supply

• Marginal propensity to consume

• Simple spending multiplier

• Exports