According to classical economic theory, which of the following describes the potential long-run self-correction of the economy depicted in the graph above? a. Consumption will come out of its stagnation and shift AD to the right, bringing output back to full employment levels. b. Wage rates will increase, attracting labor back to full employment levels ans increasing output back to its natural rate. c. Long-run aggregate supply will shift left due to decreases in spending and restore long-run equilibrium. d. Nominal wages will decrease as the duration of unemployment extends, eventually shifting short-run aggregate supply to the right, bringing output back to its natural level. e. Economies do not self-correct.

Only a change in the price level can cause shifts in both the aggregate expenditure line and the aggregate demand curve. a. True b. False

Suppose the economy is initially at K. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium?   Select one:   a. Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed.   b. Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS1 closing the gap at H.   c. In response to rising prices, firms will increase production moving along SRAS2 until long- run equilibrium is restored at J and the gap is closed.   d. Rising unemployment puts pressure on nominal wages to fall. Firms employ more workers moving along SRAS2 until long-run equilibrium is restored at J and the gap is closed.

Which of the following is an assumption of the aggregate demand-aggregate supply model? A. An economy is always at full-employment level in the short run. B. Capital stock cannot be varied in the short run. C. Producers are reluctant to change prices of their products even in the long run. D. Long-run aggregate supply curve slopes upward.

3. Graphically illustrate the Keynesian Model, show the equilibrium level of GDP (label it Ye) and the full employment level of GDP (label it Yf).

a.  What are the short-run equilibrium real GDP and price level in 2019?b.  What is the long-run equilibrium real GDP?c. Is the short-run macroeconomic equilibrium a full-employment equilibrium, belowfull-employment equilibrium, or above full-employment equilibrium?d. In transition to the long run, how would the wages in this economy change?e.  Following from d, explain how would the short run supply curve move to its long runposition, as the changes in the nominal wages take effect.f.  What will the long run price level be?

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase? Multiple choice  a. when the dollar appreciates b. when real wealth rises c. when the interest rate rises d. when the expected price level rises.