Exam 2 REVIEW

One reason that the aggregate demand curve is downward sloping is that when the price level increases, ____ decreases

• the prices of substitute goods

• the inflation rate

• the purchasing power of a fixed amount of money

• the cost of production

• the money supply

Fill in the blanks to make this sentence a correct explanation of the shape of the short-run aggregate supply (SRAS) curve: Because wages and rents tend to be ___ in the short run, firms ___ have an incentive to increase production in the short run when the price level rises. Therefore, the SRAS curve is ___

• sticky; do; upward sloping

• sticky; do not; upward sloping

• sticky; do not; vertical

• flexible; do; upward sloping

• flexible; do not; upward sloping

Fill in the blanks to make this sentence a correct explanation of the shape of the long-run aggregate supply (LRAS) curve: Because wages and rents tend to be ___ in the long run, firms ___ have an incentive to increase production in the long run when the price level rises. Therefore, the LRAS curve is ___.

• flexible; do; vertical

• flexible; do not; vertical

• flexible; do not; upward sloping

• flexible; do; upward sloping

• sticky; do not; vertical

An increase in government spending will cause which of the following in the short run?

• A rightward shift of the aggregate demand curve

• A leftward shift of the aggregate demand curve

• A rightward shift of the long-run aggregate supply curve

• A rightward shift of the short-run aggregate supply curve

• A leftward shift of the short-run aggregate supply curve

A sharp increase in the price of a key resource (e.g. oil) will cause which of the following in the short run?

• A rightward shift of the aggregate demand curve

• A leftward shift of the aggregate demand curve

• A rightward shift of the long-run aggregate supply curve

• A rightward shift of the short-run aggregate supply curve

• A leftward shift of the short-run aggregate supply curve

Which of the following would be most likely to cause inflation?

• An increase in personal income tax rates

• A decrease in government spending

• An increase in consumer spending

• Improvements in technology

• A decrease in the price of oil

In the short run, a sharp decrease in net exports would most likely cause ___

• a decrease in real GDP and a decrease in the price level

• an increase in real GDP and a decrease in the price level

• an increase in real GDP and an increase in the price level

• a decrease in real GDP and in increase in the price level

• a decrease in real GDP and no change in the price level

How will a country's price level and real GDP change in the short run if there is a sharp increase in both labor productivity and consumer confidence?

• price level increases; real GDP is indeterminate

• price level increases; real GDP decreases

• price level is indeterminate; real GDP increases

• price level is indeterminate; real GDP decreases

• price level is indeterminate; real GDP is indeterminate

Stagflation is caused by a ___

• leftward shift in the short-run aggregate supply curve

• rightward shift in the short-run aggregate supply curve

• leftward shift in the aggregate demand curve

• rightward shift in the aggregate demand curve

• rightward shift in both the short-run aggregate supply and aggregate demand curves

When the economy is in an inflationary gap, real GDP is ___ than the sustainable full-employment level of real GDP (i.e. "potential" output), the unemployment rate is ___ than the usual rate, and the inflation rate is ___ than usual.

• greater; lower; lower

• lower; lower; lower

• greater; lower; higher

• lower; lower; higher

• lower; higher; higher