Refer to the figure below. In response to gradually falling inflation, this economy will eventually move from its short-run equilibrium to its long-run equilibrium. Graphically, this would be seen as 
A. long-run aggregate supply shifting leftward
B. Short-run aggregate supply shifting upward
C. Short-run aggregate supply shifting downward
D. Aggregate demand shifting leftward
Answer: B
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Consider the ordinary and compensated demand curves for a normal good. If the price of the good falls, then
a. the ordinary demand curve will show the larger increase in quantity demanded. b. the compensated demand curve will show the larger increase in quantity demanded. c. the increase in quantity demanded will be the same for the ordinary and compensated demand curves. d. we cannot predict whether ordinary or compensated demand will show the larger response in quantity demanded.
For each of the following situations, choose a fiscal policy and explain how it could be used to correct the economic problem
a. Real GDP is below potential GDP following a financial market crisis. b. A positive demand shock increases aggregate expenditure beyond the full employment level and leads to fears of rising inflation. c. The economy is in a recession due to rising defaults on mortgages following the bursting of a housing bubble.
When people hold money to transact purchases they expect to make, this is known as the:
a. precautionary demand for money. b. liquidity demand for money. c. spending demand for money. d. speculative demand for money. e. transactions demand for money.
Shane just received a pay raise. Which of the following actions would be an example of the substitution effect on labor?
a. deciding to work extra hours b. deciding to spend more time on leisure c. deciding to purchase more expensive brands d. deciding to save more money for retirement