Households and businesses were surprised by oil price increases in 1970s. What happened  because of this supply shock? A) The economy experienced disinflation. B) Lenders were made better off at the expense of borrowers becoming worse off. C) Households had an increased incentive to save money. D) Firms experienced an increase in their operating costs.

The aggregate supply curve is upward sloping in the short-run because of the    Profit effect which says the rate of output will increase as the price level increases. Profit effect which says higher input costs will cause an increase in the rate of output. Cost effect which says the rate of output will increase if production costs increase. Cost effect which says higher input costs will cause an increase in the rate of inputs. Inflation effect which says that everything costs more because U.S. debt is so large.

Assuming a stable short-run supply curve, what will happen if there is a shift in aggregate demand? a) Profits and output increase in the long-run.  b) Unemployment decreases in the long-run.  c) Profits and output decrease in the short-run.  d) Unemployment increases in the short-run.  e) Unemployment and prices move in opposite directions in the short-run.

Which of the following would properly be classified as an unfavorable supply shock?   a)The interest rate decreases, spurring investment spending.   b)The government introduces a set of market reforms that strengthens property rights and makes it easier and safer for buyers and sellers to write contracts.   c)The world price of oil increases rapidly without warning and is expected to remain at the new high level for many years, making it more expensive for all firms to produce goods and services.   d)There is a technological improvement that allows firms to reduce their costs of production permanently.   e)There is an increase in government spending.