Exhibit 0041 Price level Aggregate demand Y, VaReal V1 Y2 GDP 17. The graph in E

Question

Exhibit 0041 Price level Aggregate demand Y, VaReal V1 Y2 GDP 17. The graph in Exhibit 0041 shows a(n) a. increase in short-run aggregate supply b. increase in long-run aggregate supply c. decrease in short-run aggregate supply d. decrease in long-run aggregate supply If every time disposable income increases by S5 billion, consumption increases by $4 billion and saving increases by SI billion, the MPC and MPS are, respectively. 18. c. 1,0 d. 4/5, 1/5 19. The long-run aggregate supply curve is represented by a. an upward-sloping line b. a downward-sloping line c. d. a vertical line a horizontal line As an expansionary gap is closed in the long run, a b. 20. real GDP declines, but nominal GDP can increase, decrease, or remain the same nominal and real GDP increase nominal GDP increases but real GDP declines nominal and real GDP decline c. d. 21. In the long run, the aggregate demand curve determines the price level. a. True b. False

Explanation / Answer

Answer 18:- If every time disposable income increases by $5 billion, consumption increases by $4 billion and saving increases by $1 billion, the MPC and MPS are, respectively,

Correct Answer:- 4/5, 1/5

Answer 19:- the long run aggregate supply curve is represented by

Correct Answer:- Vertical line

Reason:- the long run aggregate supply curve is vertical as it is dependent on the price level

Answer 20:- as an expansionary gap is closed in the long run

Correct Answer:-as an expansionary gap is closed in the long run real GDP declines but nominal GDP can increase, decrease or remain the same

Answer 21:- in the long run the aggregate demand curve determines the price level

Correct Answer:- True

Reason:- Whether equilibrium output changes relatively more than the price level or whether the price level changes relatively more than output is determined by where the AD curve intersects with the aggregate supply curve, or AS curve.

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