Unit 3.2/2

Which of the following is not true about short run aggregate supply?

• SRAS is positively related to the average price level

• SRAS will decrease and shift to the left if the rate of VAT is reduced

• SRAS will increase and shift to the right if business costs fall

• SRAS is made up the output of all producers in the economy

Which of the following is the best explanation of the increase in equilibrium national income from Y to Y1 in the diagram?

• Fall in business costs

• Increase in interest rates

• Increase in interest rates

• Rise in consumer confidence

Which of the following is least likely to cause SRAS to shift to SRAS1?

• Rise in business efficiency

• Rise in the cost of raw materials

• Rise in indirect taxes

• Rise in the minimum wage

Which of the following is true about the long run aggregate supply curve (LRAS)?

• When the economy is in short run equilibrium on the LRAS curve unemployment is zero

• An improvement in technology will cause the LRAS to increase and shift to the right

• There is a positive relationship between the LRAS curve and the average price level

• The LRAS will decrease and shift to the left if business costs fall

Which of the following is not true about the diagram that shows the LRAS of country A?

• The distance YFE to Y1 is a deflationary gap

• Total expenditure in the economy has fallen

• The economy will be operating on the production possibility curve at output Y1

• The economy is in short run equilibrium output Y1

Why does aggregate supply on the Keynesian aggregate supply curve become perfectly elastic when the economy is operating significantly below full employment?

• Firms would rather reduce wages and not make workers redundant when aggregate demand falls

• Firms accept lower profits below full employment

• Wages are sticky downwards and do not fall when the economy is below full employment

• Raw material costs rise when the economy is below full employment

Which of the following is least likely to be true when aggregate demand increases when the Keynesian aggregate supply curve is used?

• The average price level will always increase

• If output is below full employment the average price level may stay the same

• At full employment the real output will not change

• When output is near full employment the average price level and real GDP will increase

The position of the long run aggregate supply curve for Country X depends upon:  

• The position of Country X in the business cycle

• The amount and quality of the labour and the capital in Country X

• The level of unemployment in Country X

• The equilibrium level of national income in Country X

Which of the following is least likely to be true on this Monetarist LRAS diagram?

• The distance Y1 to YFE is a deflationary gap

• SRAS has shifted to SRAS1 because of a fall of wages and prices

• The economy is in the recession phase of the business cycle at Y1

• Increased government spending is always needed to increase output from Y1 to YFE

Which of the following is most likely to be true if there is a increase in the potential output of an economy?

• Rate of inflation will increase

• Rate of unemployment will increase

• Long run aggregate supply will increase

• Aggregate demand will decrease