Question 1

Suppose there is a drop in the price of an important factor input.What will be the effect on the aggregate supply curve?
A)There will be movement to the left,along the AS curve.
B)The AS curve will shift to the left.
C)There will be movement to the right,along the AS curve.
D)The AS curve will shift to the right.
E)There will be no change in the AS curve.

Accepted Answer

A drop in the price of an important factor input will lower production costs for firms, leading to an increase in aggregate supply. This will cause the AS curve to shift to the right.

Question 2

Consider the economy's aggregate supply curve.Other things being equal,firms' unit costs will tend to increase if
A)there is a reduction in the price of oil.
B)the government reduces payroll taxes.
C)wage increases exceed productivity increases.
D)wages rise.
E)wage and price controls are in effect.

Accepted Answer

If wages increase more than productivity, firms will have to pay more for each unit of output, which will increase their unit costs and shift the aggregate supply curve to the left. Reduction in the price of oil (A) would decrease production costs and shift the aggregate supply curve to the right. Reduction in payroll taxes (B) would decrease production costs and shift the aggregate supply curve to the right. Wages rising (D) would increase unit costs and shift the aggregate supply curve to the left. Wage and price controls (E) would limit the ability of firms to adjust their prices and wages, causing shortages or surpluses in the market and no effect on the aggregate supply curve.

Question 3

Consider the basic AD/AS model.When wage rates rise faster than the increase in labour productivity,the
A)AD curve shifts left.
B)AS curve shifts upward.
C)output gap falls.
D)output gap increases.
E)AS curve shifts downward.

Accepted Answer

When wage rates rise faster than the increase in labor productivity, the cost of production for firms increases. This leads to a decrease in the aggregate supply (AS) as firms are willing to supply less at the same price levels, hence the AS curve shifts upward.

Question 4

Which of the following could cause the economy's AS curve to shift upward in the short run?
A)an improvement in technology
B)a decrease in the cost of capital
C)an increase in the price level
D)a decrease in nominal wages
E)an increase in nominal wages

Accepted Answer

An increase in nominal wages would lead to higher production costs for firms, causing them to decrease their supply of goods and services at any given price level. This would shift the aggregate supply curve upward in the short run. A shift in the AS curve caused by an increase in the price level (C) would be a movement along the curve rather than a shift. An improvement in technology (A) or a decrease in the cost of capital (B) would shift the AS curve downward, while a decrease in nominal wages (D) would shift it upward.

Question 5

In the short run,the aggregate supply curve has a positive slope because,as the price level rises,producers can
A)accumulate inventories.
B)charge a higher price sufficient to cover their higher unit costs.
C)experience rising factor prices.
D)produce less in response to falling profits.
E)increase output at unchanged unit costs.

Accepted Answer

As the price level rises, producers can charge a higher price for their goods, which will cover their higher unit costs. This is because in the short run, some input prices (such as wages and raw material costs) are fixed, meaning that an increase in the price level will increase the cost of production. To maintain their profit margins, producers must increase the price at which they sell their goods.

Question 6

The economy's aggregate supply curve is drawn under two main assumptions.They are
A)firms' unit costs are constant; prices of all factors of production are constant.
B)firms' unit costs are constant; the state of technology is constant.
C)firms will produce more output only if prices rise; technology improves only if prices rise.
D)the prices of all factors of production are constant; the state of technology is constant.
E)the prices of all factors of production are constant; productivity improves as the price level rises.

Accepted Answer

The aggregate supply curve is drawn under the assumption that the prices of all factors of production are constant and the state of technology is constant. This simplifies the analysis by focusing on the relationship between the overall price level and the total output produced in the economy, without the need to account for changes in input costs or technological advancements.

Question 7

Consider the basic AD/AS model.Suppose that high-school graduates have better computing skills than did graduates in the past,resulting in an increase in average labour productivity.This change will
A)shift the AS curve to the left.
B)shift the AS curve to the right.
C)shift the AD curve to the left.
D)shift the AD curve to the right.
E)cause a movement along the AS curve to the right.

Accepted Answer

An increase in average labour productivity due to better computing skills will shift the AS curve to the right, as firms are now able to produce more output at each price level. This leads to lower costs of production and a lower price level. There is no reason for the change to affect the AD curve.

Question 8

Which of the following is implied by a leftward shift in the economy's AS curve?
A)There is an increase in aggregate supply.
B)There is a demand shock.
C)At any given price level,a lower level of output will be supplied.
D)At any given price level,a higher level of output will be supplied.
E)The same output will be produced in equilibrium,but at a lower price level.

Accepted Answer

A leftward shift in the economy's AS (aggregate supply) curve indicates that at any given price level, a lower level of output will be supplied. This could be due to factors such as increased input costs or decreased productivity. It does not necessarily imply an increase in aggregate supply or a demand shock, and it does not mean that the same output will be produced in equilibrium but at a lower price level (that would be a movement along the AS curve, not a shift).

Question 9

Which of the following could cause the economy's AS curve to shift upward in the short run?
A)an increase in the cost of capital
B)a decrease in the cost of capital
C)a decrease in nominal wages
D)a decrease in the price level
E)an improvement in technology

Accepted Answer

An increase in the cost of capital would lead to an increase in firms' costs, causing a decrease in short-run aggregate supply and shifting the AS curve upward.

Question 10

Which of the following is implied by a rightward shift in the economy's AS curve?
A)At any given price level,a lower level of output will be supplied.
B)At any given price level,a higher level of output will be supplied.
C)There is a decrease in aggregate supply.
D)There is a demand shock.
E)The same output will be produced,but only at a higher price level.

Accepted Answer

A rightward shift in the economy's AS curve indicates an increase in aggregate supply. This means that at any given price level, a higher level of output can be supplied, as firms are able to produce more goods and services.

Question 11

The economy's AS curve is often assumed to be relatively flat at low levels of real GDP.The underlying reasoning is that
A)consumer demand for most goods tends to be non-responsive to price when output is low.
B)consumer demand for most goods tends to be very responsive to price when output is low.
C)at low levels of output,firms are faced with unused capacity and thus can increase output without significantly increasing their costs.
D)the price level is constant.
E)profits are normally high in this section of the AS curve,so firms are willing to expand output.

Accepted Answer

At low levels of output, firms have unused capacity and can increase output without significantly increasing their costs. This means that the AS curve is relatively flat, indicating that small increases in demand can lead to large increases in output with minimal increases in the price level.

Question 12

Which of the following could cause a movement along the economy's AS curve?
A)a change in labour productivity
B)a change in the cost of capital
C)a change in the price level
D)a change in technology
E)a change in the wage rate

Accepted Answer

A movement along the AS curve is caused by a change in the price level. This is because the AS curve shows the relationship between the price level and the quantity of real GDP supplied, assuming that other factors that affect GDP, such as technology and labour productivity, are held constant. A change in the price level will cause a movement along the AS curve, as the quantity of real GDP supplied changes in response to the change in price level. The other options listed could shift the AS curve (i.e. a change in labour productivity or technology could increase or decrease the amount of output that can be produced at any given price level), but they would not cause a movement along the curve.

Question 13

In building a macro model with an AS curve,it is assumed that producers will
A)increase prices without changing their output.
B)decrease their prices without changing output.
C)decrease their prices when they expand output.
D)produce as much as possible at the existing price level.
E)produce more output only if prices rise.

Accepted Answer

In a macroeconomic model with an Aggregate Supply (AS) curve, it is typically assumed that producers will increase output only if prices rise, reflecting the positive relationship between the price level and the quantity of output supplied.

Question 14

Consider the economy's aggregate supply curve.Other things being equal,firms' unit costs will tend to fall if
A)there is a rise in the price of oil.
B)the government increases payroll taxes.
C)wages fall.
D)wage and price controls are in effect.
E)wage increases are less than productivity increases.

Accepted Answer

If wage increases are less than productivity increases, firms will be producing more output with the same amount of labor cost. This leads to a decrease in unit costs for firms, which shifts the aggregate supply curve to the right. A rise in the price of oil (A) would increase firms' costs and shift the aggregate supply curve to the left. Government increases in payroll taxes (B) would increase firms' costs and also shift the aggregate supply curve to the left. If wages fall (C), this could potentially decrease unit costs, but it depends on the overall impact on production costs. Wage and price controls (D) could distort the market and reduce flexibility for firms, leading to inefficiencies and potentially higher costs.

Question 15

Consider the basic AD/AS model.Suppose that a rising percentage of high-school graduates are illiterate,resulting in a decrease in average labour productivity.This change will
A)shift the AD curve to the left.
B)shift the AD curve to the right.
C)shift the AS curve to the left.
D)shift the AS curve to the right.
E)cause a movement to the right along the AS curve.

Accepted Answer

A decrease in average labour productivity implies a decrease in the level of output that can be produced with a given amount of inputs. This means that the AS curve shifts to the left, as the economy can now produce less at any given price level. There is no direct effect on the AD curve, as the decrease in productivity does not directly affect the demand for goods and services.

Question 16

Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift
A)downward (to the right),reducing the price level.
B)downward (to the right)and then return immediately to its original position.
C)upward (to the left)and then return immediately to its original position.
D)upward (to the left),increasing the price level.
E)None of the above; there will no effect on the AS curve.

Accepted Answer

When major labor unions succeed in increasing wages across the economy, it leads to an increase in production costs for firms. This, in turn, causes a leftward shift of the short-run AS curve, indicating a decrease in output and an increase in the price level. Thus, the correct choice is D - upward (to the left), increasing the price level.

Question 17

Which of the following could cause the economy's AS curve to shift downward in the short run?
A)a decrease in labour productivity
B)a decrease in the cost of capital inputs
C)a decrease in the price level
D)an increase in the price level
E)an increase in nominal wages

Accepted Answer

A decrease in the cost of capital inputs can cause the economy's aggregate supply (AS) curve to shift downward in the short run because it reduces the cost of production for businesses, allowing them to produce more at every price level.

Question 18

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell,given the assumption that
A)all firms are price takers.
B)all firms are price setters.
C)the state of technology is constant.
D)the prices of all factors of production are constant.
E)both C and D

Accepted Answer

The aggregate supply curve assumes that the state of technology is constant and the prices of all factors of production are constant. This means that the curve represents the relationship between price level and output when all other factors that could affect production are held constant. However, the curve does not assume that all firms are price takers or price setters. In reality, different firms have different degrees of market power and can affect prices to varying degrees.

Question 19

Which of the following explains why we assume that the economy's aggregate supply (AS)curve has a positive slope?
A)Inputs become more expensive at higher levels of output.
B)Inputs become less expensive at higher levels of output.
C)Firms' unit costs rise as output increases.
D)Firms' unit costs fall as output increases.
E)Aggregate demand increases at higher levels of national income.

Accepted Answer

The economy's aggregate supply (AS) curve has a positive slope because firms' unit costs rise as output increases. This is because of diminishing marginal product of labor and increasing opportunity costs of production factors, such as land and capital. As firms produce more output, they must hire more workers, but each additional worker adds less and less to the overall production due to limited resources. Additionally, firms may have to use less efficient production methods or employ less skilled workers as they expand output, which further raises costs.

Question 20

Consider the basic AD/AS model.If there is a decrease in the cost of non-labour inputs to production,the result will be to
A)shift the AD curve to the left.
B)shift the AD curve to the right.
C)shift the AS curve to the left.
D)shift the AS curve to the right.
E)cause a movement to the left along the AS curve.

Accepted Answer

A decrease in the cost of non-labor inputs to production will decrease the overall cost of production, leading to an increase in aggregate supply (AS). This will cause the AS curve to shift to the right. The decrease in costs could also lead to a decrease in prices, which would lead to an increase in aggregate demand (AD) due to a decrease in the price level. However, the magnitude of the shift in AS is likely to be greater than the increase in AD. As a result, the net effect will be an increase in output and a decrease in prices.

Quiz 23: Real Gdp and the Price Level in the Short Run

Suppose there is a drop in the price of an important factor input.What will be the effect on the aggregate supply curve?

Consider the economy's aggregate supply curve.Other things being equal,firms' unit costs will tend to increase if

Consider the basic AD/AS model.When wage rates rise faster than the increase in labour productivity,the

Which of the following could cause the economy's AS curve to shift upward in the short run?

In the short run,the aggregate supply curve has a positive slope because,as the price level rises,producers can

The economy's aggregate supply curve is drawn under two main assumptions.They are

Consider the basic AD/AS model.Suppose that high-school graduates have better computing skills than did graduates in the past,resulting in an increase in average labour productivity.This change will

Which of the following is implied by a leftward shift in the economy's AS curve?

Which of the following could cause the economy's AS curve to shift upward in the short run?

Which of the following is implied by a rightward shift in the economy's AS curve?

The economy's AS curve is often assumed to be relatively flat at low levels of real GDP.The underlying reasoning is that

Which of the following could cause a movement along the economy's AS curve?

In building a macro model with an AS curve,it is assumed that producers will

Consider the economy's aggregate supply curve.Other things being equal,firms' unit costs will tend to fall if

Consider the basic AD/AS model.Suppose that a rising percentage of high-school graduates are illiterate,resulting in a decrease in average labour productivity.This change will

Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift

Which of the following could cause the economy's AS curve to shift downward in the short run?

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell,given the assumption that

Which of the following explains why we assume that the economy's aggregate supply (AS) curve has a positive slope?

Consider the basic AD/AS model.If there is a decrease in the cost of non-labour inputs to production,the result will be to