Aggregate Supply and Aggregate Demand Review

If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate supply curve should be vertical.

• True

• False

If a country’s central bank increases the money supply, the aggregate demand curve shifts to the left.

• True

• False

According to the interest rate effect, aggregate demand slopes downward (negatively) because

• lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls.

• lower prices increase the value of money holdings and consumer spending increases

• lower prices decrease the value of money holdings and consumer spending decreases.

• lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases.

Which of the following would not cause a shift in the long-run aggregate supply curve?

• An increase in the available capital

• An increase in the available labour

• An increase in the available technology

• An increase in price expectations

• All of these answers shift the long-run aggregate supply curve

Which of the following is not a reason why the aggregate demand curve slopes downward?

• The exchange-rate effect

• The wealth effect.

• The classical dichotomy/monetary neutrality effects.

• The interest-rate effect

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to

• shift the short-run aggregate supply curve to the left.

• shift the aggregate demand curve to the right.

• shift the short-run aggregate supply curve to the right.

• shift the aggregate demand curve to the left.

Suppose the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production. This is a demonstration of the

• sticky-wage theory of the short-run aggregate supply curve.

• classical dichotomy theory of the short-run aggregate supply curve.

• misperceptions theory of the short-run aggregate supply curve.

• sticky-price theory of the short-run aggregate supply curve.

Stagflation occurs when the economy experiences

• rising prices and rising output.

• rising prices and falling output.

• falling prices and falling output.

• falling prices and rising output.

Which of the following events shifts the short-run aggregate supply curve to the right?

• a decrease in the money supply

• a drop in oil prices

• an increase in government spending on military equipmentd

• an increase in price expectations

According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause

• prices to rise and output to rise.

• prices to fall and output to remain unchanged.

• prices to fall and output to fall.

• prices to rise and output to remain unchanged.