SOLVED

AD – AS Equilibrium  1) On the graph above, at the point where quantity demanded equals quantity supplied (let’s call it point A), the economy has reached its ________. A) general equilibrium, and barring any shocks, it will not move from A B) long-run equilibrium, and barring any shocks, it will not move from A C) short-run equilibrium, and even without any shocks, it may move away from A D) short-run equilibrium, and barring any shocks, it will not move from A E) none of the above 2) On the graph above, consider a point A on the aggregate demand curve and above the aggregate supply curve. At this point, ________. A) quantity demanded equals output, but the inflation rate will fall, so output will rise B) quantity demanded is greater than quantity supplied, so the inflation rate will rise C) output is greater than the quantity demanded, so output will fall D) the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied E) none of the above 3) On the graph above, consider a point A on the aggregate supply curve and above the aggregate demand curve. At this point, ________. A) quantity demanded equals output, but the inflation rate will fall, so output will rise B) quantity demanded is greater than quantity supplied, so the inflation rate will rise C) output is greater than the quantity demanded, so output will fall D) the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied E) none of the above 4) On the graph above, consider a point A at which output is greater than potential output. At this point, ________. A) the inflation rate will rise B) output will rise C) potential output will rise D) the aggregate demand curve will shift to the left E) none of the above 5) On the graph above, if output is falling, while the quantity demanded is rising, the economy may be at a point on ________. A) the aggregate supply curve above the aggregate demand curve B) the aggregate supply curve below the aggregate demand curve C) the aggregate demand curve above the aggregate supply curve D) the aggregate demand curve below the aggregate supply curve E) none of the above 6) On the graph above, if inflation is falling, while the quantity demanded and output are rising, the economy may be at a point on ________. A) the aggregate supply curve above the aggregate demand curve B) the aggregate supply curve below the aggregate demand curve C) the aggregate demand curve above the aggregate supply curve D) the aggregate demand curve below the aggregate supply curve E) none of the above 7) On the graph above, if inflation is rising, while the quantity demanded and output are rising, the economy may be at a point on ________. A) the aggregate supply curve above the aggregate demand curve B) the aggregate supply curve below the aggregate demand curve C) the aggregate demand curve above the aggregate supply curve D) the aggregate demand curve below the aggregate supply curve E) none of the above 8) In the AD-AS framework, long-run equilibrium implies that ________. A) quantity demanded equals quantity supplied at a moderate level of equilibrium inflation B) quantity demanded equals quantity supplied at a point consistent with the short-run equilibrium level of inflation C) quantity demanded equals quantity supplied at a point consistent with the natural rate of unemployment D) all of the above E) none of the above 9) According to the “self-correcting mechanism” in the AD-AS framework, ________. A) the aggregate demand curve shifts up or down as needed to bring the economy to full employment B) the inflation rate changes as needed to move the economy along the short-run aggregate supply curve until output is at potential output C) the long-run aggregate supply curve shifts until it intersects both the aggregate demand and short-run aggregate supply curves at a single point D) inflation and expected inflation are unaffected by deviations of output from potential output E) none of the above 10) If the unemployment rate is below its natural rate, then ________. A) output is above its potential level B) there is excess tightness in the labor market C) wages and prices will rise more rapidly and the AS curve will shift to the left D) all of the above E) none of the above