Question

1. As prices fall, the value of people's existing assets rises and people increase expenditures. This occurs as a result of the:

a. international effect.

b. interest rate effect.

c. money wealth effect.

d. multiplier effect.

 

2. An increase in aggregate demand, in the long run, will change:

a. both output and the price level.

b. neither output nor the price level.

c. the price level but not output.

d. output but not the price level.

 

3. A change in which of the following will shift the long-run aggregate supply curve?

a. The price level

b. Aggregate demand

c. Available resources

d. Sales or excise taxes

 

4. If potential output exceeds actual output, the economy:

a. is experiencing a recessionary gap.

b. is in neither a short-run nor long-run equilibrium.

c. may be in a long-run equilibrium but is not in short-run equilibrium.

d. is experiencing an inflationary gap.

 

5. Keynes believed the economy was:

a. always moving toward potential income.

b. always at potential income.

c. always moving away from potential income.

d. fluctuating around potential income.