1. Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if consumer confidence decreases.

Question: Starting from long-run equilibrium means that the economy is starting at full-employment?

• True
• False

2.Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if consumer confidence decreases.

Question: The graphical illustration of long-run equilibrium includes AD, SRAS, and LRAS?

• True
• False

3. Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if consumer confidence decreases.

Question: Starting from long-run equilibrium means that actual RGDP is the same as full-employment RGDP.

• True
• False

4. Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if consumer confidence decreases.

Question: Which one of the following best depicts the effect of a decrease in consumer confidence on consumer spending and aggregate demand.

• ---> increase in savings --> decrease consumer spending ---> decrease aggregate demand
• ---> decrease in savings -- decrease consumer spending ---> decrease aggregate demand
• ---> decrease in consumer income --> decrease consumer spending ---> decrease aggregate demand
• ---> increase in savings --> decrease consumer wealth --> decrease consumer spending --> decrease aggregate demand
• None of the responses are correct

5. Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if consumer confidence decreases.

Question: A decrease in consumer confidence results in rising costs of production, which will tend to reduce profits and thereby aggregate supply.

• True
• False

6.Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if consumer confidence decreases.

Question: Which one of the following best illustrates the effect of a decrease in consumer confidence.

	None of the responses are correct.
	AD and SRAS shift left, price level falls and RGDP falls
	AD shifts left, price level rises and RGDP falls
	AD and SRAS shift left, price level remains relatively constant and RGDP falls
	SRAS shifts left, price level rises and RGDP falls

7.Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if consumer confidence decreases.

Question: A decrease in consumer confidence will tend to reduce RGDP and unemployment.

• True
• False

8. Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if the cost of labor declines and business expectations decline.

Question: A decrease in business expectations results in a decrease in both AD and SRAS.

• True
• False

9. Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if the cost of labor declines and business expectations decline.

Question: Which one of the following best illustrates the effect of a decline in the cost of labor and a decrease in business expectations on AD, SRAS, and LRAS.

• AD shifts left and SRAS shifts right.
• Both AD and SRAS shift left.
• AD shifts left and SRAS remains constant.
• AD shifts left and both SRAS and LRAS shift right.
• None of the responses are correct.

10. Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if the cost of labor declines and business expectations decline.

Question: Which one of the following best illustrates the effect of a decline in the cost of labor and a decrease in business expectations on the average price level, RGDP, and unemployment.

• Price level falls, RGDP remains relatively constant (ambiguous), and unemployment remains relatively constant (ambiguous)
• RGDP falls, price remains relatively constant (ambiguous), and unemployment rises.
• Price level falls, RGDP falls, and unemployment rises
• Price level falls, unemployment rises, and RGDP remains relatively constant (ambiguous)
• None of the responses are correct

11. Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if the cost of labor declines and business expectations decline.

Follow-up: Based on the outcomes (conclusions) from the above scenario, the economy is at the natural rate of unemployment.

• True
• False

12.Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if the cost of labor declines and business expectations decline.

Follow-up: Based on the outcomes (conclusions) from the above scenario, which one of the following best describes the state of the economy:

• The economy is in long-run equilibrium
• The economy is in short-run equilibrium but experiencing a recessionary gap
• The economy is experiencing an inflationary gap and producing above the full-employment level of RGDP
• The economy is producing below the full-employment level of RGDP.
• None of the responses are correct.

13.Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if the cost of labor declines and business expectations decline.

Follow-up: Based on the outcomes (conclusions) from the above scenario, what types of unemployment exist.

Choose the best response:

• The economy is experiencing only frictional and structural unemployment.
• The economy is experiencing frictional, structural, and cyclical unemployment.
• The economy is experiencing only cyclical unemployment.
• The economy is at the natural rate of unemployment and only experiencing frictional unemployment.
• None of the responses are correct.