4.02

In the graph below, the nation's economy begins on AD1 and AS1 (in equilibrium at point A). If there's an oik embargo (a foreign oil supplier reduces or cuts off its flow of oil to the nation), then equilibrium in this economy:

None of the above.

An increase in aggregate demand will result in:

a much higher level of real GDP if the economy has a lot of excess capacity.

Equilibrium is:

a state of balance between opposing forces.

If both the equilibrium price level and real GDP rise, the economy must have experienced:

an increase in aggregate demand.

An increase in real GDP and a decrease in the price level are consistent with:

an increase in aggregate supply.

On the graph, equilibrium occurs at:

any point where AD and AS meet.

Stagflation happens when:

price levels increase, and real GDP decreases.

In equilibrium:

prices remain the same.

On an AD/AS graph, the horizontal and vertical axes, respectively, show:

real GDP and the price level.

The equilibrium point for price level and RGDP is given by:

the intersection of the short-run AS and the AD curves.

In the Great Depression of the 1930s, price levels fell and real GDP fell. This must have been:

the result of a demand shock.

The difference between the short-run and long-run AS curves is that:

the short-run AS curve is upward sloping and the long-run AS curve is vertical.

If an economy is operating near full capacity, like the economy shown in the graph, a further increase in AD )from AD1 to AD2) results in:

much higher prices and minimal increases in output.

If there's a big increase in AS and a small increase in AD:

we'll probably see the opposite of stagflation.

A demand shock that decreases output will: Decrease the price level also. Cause aggregate demand to decrease. Cause a movement along the aggregate supply curve. Have the largest effect on the quantity of output when the economy is well below full capacity. All of these are correct.

all of these are correct.

When production costs decrease:

aggregate supply increases.

If aggregate demand increases and aggregate supply decreases, this will cause:

an increase in the price level and indeterminate change in real GDP.

A decrease in aggregate supply will result in:

an increase in the price level because the AS curve will shift to the left.

The price at which the AD and short-run AS curve intersect is an equilibrium point because:

if the price level is higher than this, market forces will push the price level down, and if the price level is lower than this, market forces will push the price level up.

If an economy begins in equilibrium at point A, and AD and AS both increase, the new equilibrium most likely:

is at a greater level of output.

What is the primary difference between a graph of AD/AS equilibrium in the short run and in the long run?

long-run AS is vertical.

In the graph, the economy begins on AD1 and AS1 (in equilibrium at point A). If the country simultaneously experiences an oil embargo and suddenly goes to war, then equilibrium in this economy will:

shift to point C.

Suppose a nation begins in equilibrium at point A, but then goes to war. This results in greater government spending, moving the economy to point C. At the same time, the government undertakes a campaign to get many more people in the workforce. If the campaign succeeds, what point does the economy move to?

shifts to point D.

In the graph, suppose an economy begins in equilibrium on AD1. If spending increases, driving AD from AD1 to AD2, then equilibrium:

shifts upward from point A to point D.

We can tell that the OPEC oil crisis was a supply shock because:

the price level increased, and real GDP decreased.