1. Use the Aggregate Supply - Aggregate Demand model to determine which of the f

Question

1. Use the Aggregate Supply - Aggregate Demand model to determine which of the following will likely lead to inflation

a) a tax increase

b) a decrease in government spending

c) a decrease in interest rates

d) a decrease in world oil prices

2. Following a negative AS shock to the economy which of the following statements is most true?

a) Non-discretionary policies will shift AD to the right and return the economy to its pre-shock state.

b) Non-discretionary and fiscal policies together will shift the AD curve to the right and return the economy to its pre-shock state.

c) Non-discretionary and discretionary fiscal policies together will shift the AS curve to the right and return the economy to its pre-shock state.

d) Non-discretionary and discretionary policies will shift AD to the right and increase RGDP but may not be able to return the economy to its pre-shock state.

Explanation / Answer

c) a decrease in interest rates

AS IT WILL RESULT IN HIGHER DEMAND, THUS HIGH PRICE LEVELS

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