1. (I)  A tornado strikes Michigan, destroying most of the automobile manufacturing plants, and reducing the supply of automobiles.
(II) For the fourth year in a row, the inflation rate is 3 percent.
a. I is most likely an unanticipated change; II is most likely an anticipated change.
b. I is most likely an anticipated change; II is most likely an unanticipated change.
c. Both I and II are most likely unanticipated changes.
d. Both I and II are most likely anticipated changes.

2. Which of the following will most likely accompany an unanticipated increase in aggregate demand?
a. an increase in prices
b. an increase in unemployment
c. a decrease in real GDP
d. a decrease in the demand for resources

3. In the aggregate demand/aggregate supply model, when the output of an economy is less than its long-run potential, the economy will experience
a. falling real wages and resource prices that will stimulate employment and real output.
b. rising interest rates that will stimulate aggregate demand and restore full employment.
c. a budget surplus that will stimulate demand and, thereby, help restore full employment.
d. rising resource prices that will restore equilibrium at a higher price level.

4. Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?
a. a decrease in inflation
b. a decrease in unemployment
c. an increase in prices
d. an increase in the natural rate of unemployment

5. Which of the following will most likely increase aggregate supply in the long run?
a. unfavorable weather conditions in agricultural areas
b. an increase in the expected inflation rate
c. higher real interest rates
d. a high rate of capital investment, which expands the future supply of productive resources

6. Within the AD/AS model, an unanticipated increase in short-run aggregate supply will cause real output to
a. increase and prices to decrease.
b. decrease and prices to increase.
c. increase and prices to increase.
d. decrease and prices to decrease.

7. An increase in the long-run aggregate supply curve indicates that
a. potential real GDP has increased.
b. unemployment has increased.
c. employment has increased.
d. the natural rate of unemployment has increased.

8. Which of the following will most likely accompany an unanticipated decrease in aggregate demand?
a. an increase in the general price level or inflation
b. a decrease in resource prices
c. an increase in real GDP
d. a decrease in unemployment

9. Which of the following statements is most consistent with the view that the economy has a self-corrective mechanism?
a. When the economy is in a recession, it will remain there until the government steps in to bring the economy out of the recession.
b. When the economy is in a recession, falling resource prices will eventually increase short-run aggregate supply, bringing the economy back to full employment.
c. During economic booms, interest rates will fall, causing the economy to fall into a recession.
d. In a market economy, resource prices, such as wages, can only increase; they can never decrease.

10. A decline in the real interest rate in the loanable funds market will cause the
a. aggregate demand curve to shift to the right.
b. aggregate demand curve to shift to the left.
c. long-run aggregate supply curve to shift to the left.
d. natural rate of unemployment to fall.