Tackle the Test: Multiple-Choice Questions

1. Question

   Which of the following causes a negative supply shock?

   
   

   
   

   1. a technological advance

      
      
   
   

   2. increasing productivity

      
      
   
   

   3. an increase in oil prices

      
      
   
   

   A.

   I only

   B.

   II only

   C.

   III only

   D.

   I and III only

   E.

   I, II, and III

   Which of the following causes a negative supply shock?

2. Question

   Which of the following causes a positive demand shock?

   A.

   an increase in wealth

   B.

   pessimistic consumer expectations

   C.

   a decrease in government spending

   D.

   an increase in taxes

   E.

   a relatively high existing stock of capital

   Which of the following causes a positive demand shock?

3. Question

   During stagflation, what happens to the aggregate price level and real GDP?
   Aggregate price levelReal GDP

   A.

   decreasesincreases

   B.

   decreasesdecreases

   C.

   increasesincreases

   D.

   increasesdecreases

   E.

   stays the samestays the same

   During stagflation, what happens to the aggregate price level and real GDP?

4. Question

   Refer to the graph for Questions 4 and 5.

   

   Which of the following statements is true if this economy is operating at P₁ and Y₁?

   
   

   
   

   1. The level of aggregate output equals potential output.

      
      
   
   

   2. It is in short-run macroeconomic equilibrium.

      
      
   
   

   3. It is in long-run macroeconomic equilibrium.

      
      
   
   

   A.

   I only

   B.

   II only

   C.

   III only

   D.

   II and III

   E.

   I and III

   Which of the following statements is true if this economy is operating at

5. Question

   The economy depicted in the graph is experiencing a(n)

   A.

   contractionary gap.

   B.

   recessionary gap.

   C.

   inflationary gap.

   D.

   demand gap.

   E.

   supply gap.

   The economy depicted in the graph is experiencing a(n)