Price Level b Multiple Choice O AS Real Domestic Output O U a Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD₁ to AD2 will AD₂ AD₁ move the economy from a to b to c. move the economy directly from a to c. move the economy from a to a new equilibrium at b. shift the AS curve to the right.

Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, a shift in neither curve, or shift in both curves.      If a shift is caused, indicate which curve shifts, and in which direction it shifts. What happens to aggregate output and the price level in each case?  4. The wages rate decreases.

on Indicate whether the following factor will affect aggregate demand (AD) or aggregate supply (AS) and whether the effect would be an increase or a decrease. Then indicate what will happen to the price level and the level of Real GDP and what type of equilibrium will result assuming that the economy is initially in long-run equilibrium. a) A decrease in the nominal wage rate. b) A decrease in exports. c) A decrease in the exchange rate. d) The discovery of vast new oil field in AD no effect decrease + increase no effect AS increase no effect increase increase decrease decrease decrease Real GDP increase decrease increase increase Equilibrium recessionary gap ⇒ inflationary gap inflationary gap inflationary gap AP ? Q Fir

Aggregate demand is more likely to     than aggregate supplyl in the short run a- bigger leakages b-national income c-domestic investment d- shift substantually

Use the diagram below. If the economy is initially at point C, to which point will it move if there is an increase in aggregate demand?   a) point Ab) point Bc) point Dd) point Ee) point F