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Aggregate Demand And Supply

8 Questions
Aggregate Demand And Supply

Chap 16 & 17- Economics Course Companion (Oxford)

Questions and Answers
  • 1. 
    Refer to the diagram. Assume that wages are initially set on the basis of price level P1 and that the economy is operating at its full-employment level of Qf. The short-run effect of an increase in demand is best reflected by a move from:
    • A. 

      Point e to point g

    • B. 

      Point e to point b

    • C. 

      Point e to point a

    • D. 

      Point e to point c

  • 2. 
    Refer to the diagram above. If P1 is the price level and Qf is the full-employment output, then the long-run aggregate supply curve:
    • A. 

      Is AS1

    • B. 

      Connects points a and e

    • C. 

      Is AS2

    • D. 

      Connects points e, b, and d

  • 3. 
    Refer to the diagram. Assume aggregate demand is initially given by AD1 and cost-push inflation pushes the aggregate supply curve from AS1 to AS2. If the government uses fiscal policy to restrain the inflation:
    • A. 

      Aggregate demand will increase to AD2

    • B. 

      Aggregate supply will shift even further to the left

    • C. 

      Aggregate demand will shift to the left

    • D. 

      The economy will move from point b to point a

  • 4. 
    Refer to the diagram. If Q1 represents the full-employment output, then the curve labeled B is the:
    • A. 

      LRAS curve

    • B. 

      SRAS curve

  • 5. 
    If the economy is initially at a point on its long-run aggregate supply curve, a decrease in aggregate demand will:
    • A. 

      Permanently increase unemployment

    • B. 

      Temporarily increase unemployment

    • C. 

      Permanently increase inflation

    • D. 

      Temporarily increase inflation

  • 6. 
    Refer to the diagram. Assume the economy is initially at point a. A movement to point b might be caused by:
  • 7. 
    What is Aggregate Demand?
  • 8. 
    What is Aggregate Supply?