Exhibit 17-2 Aggregate demand and aggregate supply curves
As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move:
A. directly from E1 to E3 and then remain at E3.
B. directly from E1 to E2 and then remain at E2.
C. from E1 to E2 initially and then eventually move back to E1.
D. from E1 to E2 initially and then eventually move to E3.
Answer: D
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Along the short-run Phillips curve SRPC0 the natural unemployment rate is
A) 7 percent. B) 3 percent. C) 6 percent. D) an amount that can be determined from the figure, but none of the above answers is correct. E) an amount that cannot be determined from the figure. The figure above shows some Phillips curves for an economy.
When the cross-price elasticity of demand for two goods is a positive number, one can correctly conclude that:
a. the goods are normal goods. b. the goods are inferior goods. c. the goods are substitutes. d. the goods are complements. e. total revenue will increase when the price increases.
The most essential economic problem is the existence of: a. both an increasing population and the depletion of natural resources. b. both limited economic resources and unlimited desires
c. both inflation and unemployment. d. income inequality and economic freedom.
Which of the following statements is false?
(a) Automatic stabilisers reduce the impact of economic shocks that arise from cyclical fluctuations. (b) Automatic stabilisers are deliberately put in place by government e.g. increase in jobseekers allowance. (c) Automatic stabilisers "kick in" when required and do not require deliberate action by government at the time of the economic shock. (d) All of the above are false.