IB Econs

1. In the monetarist/new classical view, the long-run aggregate supply (LRAS) curve is:

• Horizontal
• Vertical
• Upward-sloping
• Downward-sloping

2. The Keynesian AS curve is divided into how many distinct sections?

• 1
• 2
• 3
• 4

3. An inflationary gap occurs when:

• Real GDP < Potential GDP
• Real GDP = Potential GDP
• Real GDP > Potential GDP
• Unemployment is high

4. In the horizontal section of the Keynesian AS curve, aggregate supply is:

• Perfectly price inelastic
• Relatively price elastic
• Perfectly price elastic
• Unitary elastic

5. Which factor shifts the LRAS curve to the right?

• A rise in consumer spending
• Technological advancements
• A decrease in interest rates
• Higher government subsidies

6. The vertical LRAS curve in the monetarist model implies that long-run output depends on:

• The price level
• Non-price factors (e.g., technology)
• Aggregate demand
• Government policies

7. A deflationary gap is most likely caused by:

• Excessive aggregate demand
• A leftward shift in SRAS
• A fall in aggregate demand
• An increase in LRAS

8. In the Keynesian view, the economy may not reach full employment in the long run due to:

• Price rigidity
• Flexible wages
• Self-correcting markets
• Spare capacity

9. If the economy operates in the vertical section of the Keynesian AS curve, an increase in AD will result in:

• Higher output and inflation
• Higher output only
• Inflation only
• Lower output

10. The monetarist LRAS curve is vertical because:

• Prices are sticky
• Output is at full employment
• There is spare capacity
• AD determines output