Oxford University Press - Online Resource Centres

King: Economics

Chapter 21

Instructions

Answer the following questions and then press 'Submit' to get your score.

Question 1

Which of the following is a shortcoming of the simple multiplier model that the AS-AD model overcomes?

1. The multiplier model ignores the fact that a rise in planned spending which causes a rise in output will also lead to a rise in incomes and the demand for money, and so in turn lead to a rise in the interest rate.
2. The multiplier model ignores the fact that a rise in injections leads to a rise in prices which will cause people to reduce their spending plans.

Question 2

Which of the following arguments for a sloping AD curve is unconvincing?

Question 3

Which of the following will not cause a country's AD curve to shift left?

Question 4

Which of the following would lead to an upwards movement along a country's aggregate demand for labour curve, ADL?

Question 5

Suppose the real wage in a country is at the equilibrium level, but there is some natural unemployment. Which of the following does not help to explain this natural unemployment?

Question 6

Suppose that a country is in short-run equilibrium at the point where its aggregate demand curve intersects its aggregate supply curve. Then aggregate demand falls. Which of the following does not help to explain why output may then move to a lower short-run equilibrium level?

Question 7

Which of the following statements about a country's long-run aggregate supply curve, LAS, is true?

Question 8

Suppose an economy is in short-run and long-run equilibrium where its AD, SAS, and LAS curves intersect. Then there is a demand shock and AD shifts to the right. Which of the following statements is false?

Question 9

Suppose an economy is in short-run and long-run equilibrium where its AD, SAS and LAS curves intersect. Then there is an improvement in technology which leads to a higher demand for labour, so increasing the level of natural employment and the level of potential output. Which of the following statements about the new long-run equilibrium position is false?

Question 10

Suppose an economy is in short-run and long-run equilibrium where its AD, SAS and LAS curves intersect. Then there is an increase in the price of imported inputs. Which of the following statements about the new long-run equilibrium position is false?