4.1. in the AD-AS model 191 1 the AS curve iustrates the leveis of iatal espendi

Question

4.1. in the AD-AS model 191 1 the AS curve iustrates the leveis of iatal espenditure in the economy at varioua pnc levels 2] we cannot study mornetary policy because the model assumes iberest rotos to be fixed 131 the 41 1 level of economic activity is determined by sgaregale supply. given the genera prices in the economy we seek to explain the general prie ievel andthe aggregate production of goods ond services 42. Which of the following statements regarding the AD-AS model islare cormect? a. An expansionary fiscal policy occurs when either consumpton spanding. c govenment spending are increased b. A contractionary monetary policy occurs when there is a decrease in inbterest rates ceteris parbus c. In the AD-AS model, demand management polcies can be used to infuence aggregate demand and aggregate supply (11 All the statements are correct 121 b 131 14) a and b 5) a and c 83

Explanation / Answer

4.1 Select [4] because AS curve shows production levels at different prices while AD reflects total expenditures at general price levels.

4.2 Select [3] because expansionary policy results in changes in G or T. Demand management can influence AD and AS both. Contractionary monetary policy raises the rate of interest and this decreases AD.

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