Question : 13.3   Shocks to the System Refer to the information provided in : 1381191

13.3   Shocks to the System

Refer to the information provided in Figure 13.3 below to answer the questions that follow.

Figure 13.3

1) Refer to Figure 13.3. Cost-push inflation occurs if

A) the economy moves from Point A to Point B on aggregate supply curve AS1.

B) the economy moves from Point A to Point C on the aggregate supply curve AS1.

C) the aggregate supply curve shifts from AS1 to AS0.

D) the aggregate supply curve shifts from AS1 to AS2.

2) Refer to Figure 13.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS2. If the government decides to counter the effects of higher oil prices by increasing government spending, then the price level will be ________ than P2 and output will be ________ than Y2.

A) greater; greater

B) greater; less

C) less; less

D) less; greater

3) Refer to Figure 13.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS2. If the government decides to counter the effects of higher oil prices by increasing net taxes, then the price level will be ________ than P2 and output will be ________ than Y2.

A) greater; greater

B) greater; less

C) less; less

D) less; greater

4) Refer to Figure 13.3. Assume the economy is currently at Point A on aggregate supply curve AS1. An increase in inflationary expectations that causes firms to increase their prices

A) shifts the aggregate supply curve to AS0.

B) shifts the aggregate supply curve to AS2.

C) moves the economy to Point C on aggregate supply curve AS1.

D) moves the economy to Point B on aggregate supply curve AS1.

5) A rightward shift in the aggregate demand curve generates a ________ inflation and ________ output.

A) demand-pull; lower

B) cost-push; higher

C) demand-pull; higher

D) cost-push; lower

6) A sudden increase in the price of oil causes a ________ inflation and ________ output.

A) demand-pull; lower

B) cost-push; higher

C) demand-pull; higher

D) cost-push; lower

7) An earthquake destroyed 50% of the Moldovian manufacturing base. The Moldovian government decided to use a contractionary fiscal policy to counter the effects of the earthquake on the economy. The use of the contractionary fiscal policy would have caused

A) the price level to be lower and the output level to be higher than they would have been without the policy action.

B) both the price level and the output level to be higher than they would have been without the policy action.

C) both the price level and output level to be lower than what they would have been without the policy action.

D) the price level to be higher and the output level to be lower than they would have been without the policy action.

8) For an economy to experience both a recession and inflation at the same time,

A) the aggregate supply curve must shift to the right.

B) the aggregate supply curve must shift to the left.

C) the aggregate demand curve must shift to the left.

D) the aggregate demand curve must shift to the right.

9) A(n) ________ in inflationary expectations that causes firms to decrease their prices shifts the aggregate supply curve to the ________.

A) increase; right

B) increase; left

C) decrease; right

D) decrease; left

10) An increase in inflationary expectations that causes firms to increase their prices shifts the

A) aggregate supply curve to the left.

B) aggregate demand curve to the left.

C) aggregate supply curve to the right.

D) aggregate demand curve to the right.