1. For the aggregate demand, income and the price level are:

a) both falling

b) inversely related

c) directly related

d) both rising

2. For the aggregate supply, in the short run, income and price level are:

a) indirectly related, but in the long-run, the price level is constant.

B) indirectly related, but in the long-run, income is constant at full employment GDP.

c) directly related, but in the long-run, the price level is constant.

d) directly related, but in the long-run, income is constant at full employment GDP.

3. Sticky wages and sticky prices explain the sloped short-run aggregate supply curve because:

a) higher prices are an advantage to suppliers, even if their costs increase.

b) as the prices of a firm's products rise, they are willing to supply more if their input costs are not rising at the same time.

c) the price level always increases when more is supplied.

d) people want to buy more as the price rises, because they are afraid of future price increases.

4. Sticky wages or sticky prices don't affect the long-run aggregate supply curve because:

a) the price level is constant in the long-run.

b) wages and prices are renegotiated so that prices and wages are only sticky in the short-run, not in the long-run.

c) minimum wage sets the long-run wages.

d) consumers tend to buy the same quantities over the long-run.

5. Whenever AD or AS shifts, putting an economy out of long-run equilibrium, AS has a natural tendency to shift in such a way so as to bring the economy back into long-run equilibrium. If the economy always eventually comes back to long-run equilibrium, the reason that the government even tries to implement policies to bring the economy into equilibrium is that:

a) the appropriate government response can eliminate the short-run effect on prices but does little to speed up the process of reducing unemployment.

b) politicians feel that it will be advantageous to take some action.

c) businesses expect the government to take some action.

d) the appropriate government response can eliminate the long-run effect on prices and can speed up the process of reducing unemployment.