Exhibit 17-2 Aggregate demand and aggregate supply curves
As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:
A. directly from 100 to 105 and then remain at 105.
B. directly from 100 to 110 and then remain at 110.
C. from 100 to 105 initially and then eventually move back to 100.
D. from 100 to 105 initially and then eventually move to 110.
Answer: B
You might also like to view...
Which of the following helps explain why the aggregate demand curve slopes downward?
a. If the price level increases, the purchasing power of the fixed quantity of money decreases, causing people to buy less. b. If the price level increases, the purchasing power of the fixed quantity of money increases, causing people to buy more. c. If domestic prices increase, we substitute domestic goods for imported goods. d. If domestic prices decrease, we substitute imported goods for domestic goods.
If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is
a. 7 percent. b. 4 percent. c. 3 percent. d. 10 percent.
Almost 70 percent of U.S. garbage:
a. is incinerated. b. is recycled. c. goes to landfills. d. is sent on barges to other countries.
Suppose that college professors at public universities are unionized. If public university college professors change their minds and vote not to be unionized, the quantity of public university college professors demanded will
a. rise. The supply of workers in other similar professions will also rise. b. rise. The supply of workers in other similar professions will fall. c. fall. The supply of workers in other similar professions will rise. d. fall. The supply of workers in other similar professions will also fall.