2023 Economics 372 Assignment 4 Font Definitions font face font family MS Mincho panose 1 2 | Assignments Online

   

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Economics 372 Assignment 4

Use the graph below to answer questions 1 – 2:

 

 Price Level  AS 

  

 P2 

 P1

  P0  AD2

 AD1 

Q0 Q1 Q2 Real GDP 

___ 1. Suppose that the demand for all goods and services in the economy decreases from AD2 to AD1. What is the new short-run equilibrium price level (P) and quantity of output (Q = real GDP)?

a. P0 and Q0  c. P1 and Q1 

b. P1 and Q2  d. P2 and Q2

___ 2. Which of the following events would most likely cause the decrease in aggregate demand shown above (from AD2 to AD1)?

a. An increase in the price level 

b. An increase in household wealth

c. A decrease in consumer confidence 

d. A decrease in interest rates

___ 3. The vertical long-run aggregate supply curve implies that: 

a. changes in aggregate demand will have no effect on the price level.

b. the short-run aggregate supply curve is also vertical.

c. natural or full-employment real GDP does not depend on the price level in 

the long run. 

d. natural or full-employment real GDP is the same as equilibrium real GDP in the 

short run.

___ 4. Keynesian economics suggests that the most effective way to eliminate a recessionary gap is for government to:

a. increase its spending in order to increase aggregate demand.

b. decrease its spending in order to balance the budget.

c. increase taxes in order to increase tax revenues.

d. decrease taxes and decrease government spending by the same amount.