## Thursday, February 16, 2017

### 2012 Macro Multiple Choice - AD/AS

2012 Macro Multiple Choice - AD/AS
Aggregate Demand Cheat Sheet Here.

Answer - (C) an increase in the interest rate

From the post about investment and growth - here

Let's step a bit back, If business men are to invest in investment projects they want cheaper rates of interest compared to higher rates of interest.
So, all of the above except for (C) will increase investment.

Answer - (D)

This is an equilibrium problem and you should have learned enough in the beginning supply and demand section of the course to be able to answer this.

Answer - (D)

If income taxes increase, then people have less disposable income and will consume less, if (C) consumption decreases then AD will shift less, (decrease).

Answer - (C)

An increase in Government spending will increase the AD curve, thus PL and RGDP and
Y(incomes) will increase.

Answer - (C)

Understand that PL = Inflation rate & Output = RGDP

Answer - (A)

Understand that an increase in investment is an increase in capital formation, so naturally there is more capital per worker.

Answer - (E)

This sounds a lot like stagflation.
Understand that (real  = nominal minus inflation)
Real wages vs Nominal wages post is here
If the PL is increasing we assume that real wages are falling. (ceteris paribus)

Answer - (C)

(A) - Pension Payments - an increase would increase disposable income thus increasing AD but not LRAS = LR Growth
(B) Unemployment Compensation - an increase will increase AD but not LRAS
(C) Subsidies for capital goods - an increase will shift LRAS curve rightward (more capital formation = more LR growth)
(D) Tariffs on capital goods - an increase of tariffs would shift LRAS leftward (less LR growth)
(E) Tariffs on oil  - increase would cause the SRAS curve to shift leftward (Cost push inflation) (Stagflation)

Answer - (D)

Wages increasing would affect the SRAS curve as wages are an input or resource costs for businesses. The SRAS curve shifts leftward.

Answer - (A)

From the AD cheat sheet.

This one is a bit tricky,
As the PL (inflation) increases then each individual dollar spent looses purchasing power.
Purchasing power decreasing means that each dollar received can by less goods.
You might receive a higher amount of money for your asset (good) but with that higher amount you can actually buy less as the value of each additional dollar has decreased.
This is the Wealth Effect - if prices (inflation) is rising the value of your assets are falling.

Real = nominal minus inflation