1. Martha lends $200 to a friend who promises to return it after a year. Instead of lending it to her friend, Martha could have put the money in a bank where she could have earned an interest rate of 2 percent per annum. Martha’s opportunity cost of lending the money is _____.
2. The exhibit given below shows the short-run aggregate demand and supply curves in an economy, AD1 and AS1, and the long-run aggregate supply curve, LRAS. The economy was initially in equilibrium when there was a decrease in aggregate demand, causing a shift of the aggregate demand curve from AD1 to AD2. Which of the following is true in this case?
The economy will move from point B to point A in the short run and then to point C in the long run
The economy will move from point C to point B in the short run and then eventually to point A
The economy will move from point D to point A in the short run and then to point C in the long run
The economy will move from point D to point C in the long run.
3. Suppose an economy is in long-run equilibrium. An increase in consumption expenditure will:
shift the short-run aggregate supply curve rightward and increase both the price level and real output in the long run.
decrease both the price level and real gross domestic product in the long run.
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