EC202D1Homework3Spring2010

EC202D1Homework3Spring2010 - EC202-D1 Homework 3 (Due back...

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EC202-D1 Homework 3 (Due back on Tuesday, April 6) Spring 2010 Name: __________________________ Date: _____________ 1. Most economists believe that prices are: A) flexible in the short run but many are sticky in the long run. B) flexible in the long run but many are sticky in the short run. C) sticky in both the short and long runs. D) flexible in both the short and long runs. 2. The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______. A) positive; money supply B) negative; money supply C) positive; price level D) negative; price level 3. In the long run, the level of output is determined by the: A) interaction of supply and demand. B) money supply and the levels of government spending and taxation. C) amounts of capital and labor and the available technology. D) preferences of the public. 4. When a long-term aggregate supply curve is drawn with real GDP ( Y ) along the horizontal axis and the price level ( P ) along the vertical axis, this curve: A) slopes upward and to the right. B) slopes downward and to the right. C) is horizontal. D) is vertical. 5. If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect: A) level of output but not prices. B) prices but not level of output. C) both prices and level of output. D) neither prices nor level of output. 6. If the short-run aggregate supply curve is horizontal, then a change in the money supply will change ______ in the short run and change ______ in the long run. A) only prices; only output Page 1
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B) only output; only prices C) both prices and output; only prices D) both prices and output; both prices and output 7. If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will ______ and output will ______. A) increase; increase B) decrease; decrease C) increase; decrease D) decrease; increase 8. Which of the following is an example of a demand shock? A) a large oil-price increase B) the introduction and greater availability of credit cards C) a drought that destroys agricultural crops D) unions obtain a substantial wage increase Use the following to answer questions 13-15: (Exhibit: Supply Shock) 9. (Exhibit: Supply Shock) In this graph, assume that the economy starts at point A and there is a favorable supply shock that does not last forever. In this situation, point ______ represents short-run equilibrium and point ______ represents long-run equilibrium. A) B; C B) B; A C) E; D D) E; A Page 2
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10. (Exhibit: Supply Shock) Assume that the economy starts at point A and there is a drought that severely reduces agricultural output in the economy for just one year. In this situation, point ______ represents the short-run equilibrium immediately following the drought and point ______ represents the eventual long-run equilibrium. A)
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This note was uploaded on 10/25/2010 for the course EC EC202 taught by Professor Abdullah during the Spring '10 term at BU.

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EC202D1Homework3Spring2010 - EC202-D1 Homework 3 (Due back...

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