1. To determine the correct answer for the first question, you need to understand the effects of a decrease in aggregate demand on real GDP and the price level in both the short run and the long run. In the short run, a decrease in aggregate demand leads to a decrease in real GDP but does not necessarily cause a decrease in the price level. However, in the long run, a decrease in aggregate demand will cause a decrease in both real GDP and the price level.
Based on this understanding, let's analyze the answer choices:
a) Real GDP; the price level - This is partially correct because the decrease in real GDP only happens in the short run, but it doesn't mention the decrease in the price level in the long run.
b) The price level; the price level - This is incorrect because the decrease in aggregate demand does not necessarily cause a decrease in the price level in the short run.
c) Real GDP; real GDP - This is incorrect because it implies that the decrease in aggregate demand affects real GDP in both the short run and the long run, which is not accurate.
d) The price level; real GDP - This is the correct answer because a decrease in aggregate demand causes a decrease in the price level in the short run and a decrease in both the price level and real GDP in the long run.
Therefore, the correct answer is d) the price level; real GDP.
2. To find the correct answer for the second question, you need to understand the relationship between expected future prices and aggregate demand in the short run. If workers and firms both expect prices to be higher next year, this expectation can cause an increase in aggregate demand in the short run because individuals may try to make purchases earlier to avoid higher prices.
Let's examine the answer choices:
a) Aggregate demand will increase by 3% - This is incorrect because the question only mentions a 3% increase in expected prices, not aggregate demand.
b) The purchasing power of wages will rise if wages increase by 3% - This is incorrect because the question doesn't mention any increase in wages.
c) The short-run aggregate supply curve will shift to the left as wages increase - This is partially correct because if workers expect higher prices, they may demand higher wages, leading to an increase in costs for firms and a leftward shift in the short-run aggregate supply curve.
d) Workers will be willing to take lower wages next year - This is incorrect because the question states that workers and firms expect prices to be higher, so they would not be willing to accept lower wages.
Based on this analysis, the correct answer is c) the short-run aggregate supply curve will shift to the left as wages increase.
3. For the third question, you need to identify the effects of a decrease in aggregate demand on the economy. A decrease in aggregate demand typically leads to a decrease in output and employment, which is known as a recession.
Now let's analyze the answer choices:
a) Recession; long run - This is incorrect because a decrease in aggregate demand results in a recession, but it does not specify the duration.
b) Recession; short run - This is the correct answer because a decrease in aggregate demand causes a recession in the short run.
c) Expansion; short run - This is incorrect because the question asks for the effect of a decrease in aggregate demand, which is contrary to an expansion.
d) Expansion; long run - This is incorrect because a decrease in aggregate demand does not lead to an expansion in either the short run or the long run.
Therefore, the correct answer is b) recession; short run.