Chapter Ten: Chapter Quiz -- The Fixed Price AD/AS Model

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1. The fixed-price AD/AS model is appropriate to use when

the economy is in a recession.
the economy's level of output is far below the potential level of output.
we are analyzing the very short run.
all of the above.

2. Suppose that the AD curve shifts left in the fixed-price model. We know that

the level of output falls.
the price level falls.
unemployment falls.
all of the above are true.
Only the first and second options above are true.

3. If the MPC is 0.8, Ca (autonomous consumption) is \$100, and DI (disposable income) is \$1,000, then consumption in the economy is

\$100
\$800
\$900
\$1,000
cannot tell from the information

4. If the MPC is 0.75, Ca is \$100, and Investment is \$400, then equilibrium output is

\$0
\$100
\$900
\$1,300
\$2,000

5. Which of the following will make investment increase?

a rise in interest rates
a decrease in capacity utilization rates
none of the above

6. If investment shifts rightward, then

The AS curve shifts right.
The AS curve shifts left.

7. Suppose that autonomous consumption falls. This change will shift the

AS curve to the right.
AS curve to the left.
none of the above.

8. If the economy is fully employed and there is a big increase in investment spending, the most likely outcome is that

there is an increase in output only.
there is a big drop in interest rates.
there is an increase in both output and the price level; the fixed-price model is not the best one to use in this scenario.
there is a decrease in output.

9. The fixed-price model and the income-expenditure model embody the same assumptions.

True
False

10. The fixed-price model is only relevant when government sets prices in the economy.

True
False