For questions 1 through 4, for the event listed on its own, indicate whether (a) aggregate demand increases, (b) aggregate supply increases, (c) both aggregate demand and aggregate supply increase, or (d) neither changes.

1. Technology improves, increasing both productivity [output from existing resources] and investment in the new technology.

2. More people continue working beyond normal retirement age.

3. The federal government reduces income taxes by $500 per person.

4. The world price of soybeans (a major US export) increases.

5. The long run aggregate supply curve (LRAS) reflects a belief about the capacity of the economy to produce output and the natural rate of unemployment. This belief suggests an LRAS which is:

a. negatively sloped b. vertical c. positively sloped d. horizontal

6. When the price level increases while the stock of money is constant, wealth is decreased (the money will buy less) and therefore aggregate demand decreases. This is called:

a. Goods market equilibrium b. Real balance effect c. interest-sensitive demand effect

7. If the money interest rate is 11% per annum, and everybody expects inflation of 5%, then the real interest rate is:

a. 16% b. roughly 2.2% [11/5 = 2.2] c. roughly 6% d. insufficient info to answer.

8. In the loanable funds market, the main reason we believe that the supply of loanable funds slopes upward, i.e. more funds are offered for borrowing if the real interest rate is higher, is that

a. loanable funds are mobile internationally b. households are bound to save more if real interest rates go up

c. if the real interest rate is higher, it is more expensive to borrow d. the real balance effect

9. In terms of expenditure on final goods, aggregate demand is

a. C+I+G+S+T b. C+I+G c. C+S+T-P d. C+I+G+X-M

10. Which of the following is an intermediate good?

a. Paperclips bought by a pizza company b. Paperclips bought by the City of Tallahassee

c. Paperclips bought by an FSU student d. Paperclips bought by FSU.

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