Economics MCQ - Economics Section 1

56 As the price level increases along the aggregate demand curve, the interest rate is most likely to:

An increase in the price level decreases the real money supply and shifts the LM curve to the left. Since the IS curve is downward sloping, the IS and LM curves will intersect at a lower level of income and a higher interest rate.

57 Two analysts make the following statements:
Analyst 1: The short run aggregate supply curve is vertical and the long run aggregate supply curve is upward sloping.
Analyst 2: The short run aggregate supply curve is upward sloping and the long run aggregate supply curve is vertical. Which analyst is most likely correct?

The short run aggregate supply curve is upward sloping and the long run aggregate supply curve is vertical.

58 If rents were automatically adjusted for changes in the price level, the shortrun aggregate supply curve would most likely be:

The slope of the short-run aggregate supply curve reflects the extent to which rents and other input costs adjust to the overall price level. With automatic adjustment of rent, firms will not adjust output as much in response to changing output prices. Hence the SRAS curve will be steeper.

59 In the short run, the aggregate supply curve is best described as:

The short run aggregate supply curve is upward sloping because input prices do not fully adjust to the price level in the short run.

60 Decreased household wealth will most likely cause a decrease in:

As asset values decrease, consumers save more and spend less out of current income since they will not be able to meet their wealth accumulation goals. Therefore, a decrease in household wealth results in a leftward shift in the aggregate demand curve.