Question 1

Identify four changes in the economy that would cause the aggregate demand curve to decrease (shift to the left).

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Question 2

What are the major factors that determine investment, and what impact does each have on aggregate demand?

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Question 3

If the price of oil increased by 15 percent when oil producers believed that other prices were rising 10 percent over the same period, what would happen to the quantity of real output supplied by the oil industry?

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Question 4

Along the long-run aggregate supply curve, the level of RGDP supplied ____ with increases in the price level.
A)does not change
B)increases
C)decreases
D)None of the above.

Accepted Answer

Along the long-run aggregate supply curve, the level of RGDP supplied is determined by the economy's potential output, which is determined by factors such as labor, capital, technology, and natural resources. Therefore, changes in the price level do not affect the level of RGDP supplied in the long run, as the economy will adjust to full employment over time.

Question 5

If wheat prices rose by 12 percent when producers thought other prices were rising by 15 percent,
A)wheat output would tend to rise as a result.
B)wheat output would tend to fall as a result.
C)wheat output would tend to remain unchanged as a result.
D)we could not predict the likely change in wheat output that would result.

Accepted Answer

If producers believe that other prices are rising more than the price of wheat, they may choose to shift their resources to produce those goods instead. This would lead to a decrease in wheat output, causing wheat prices to rise.

Question 6

Which of the following would lead to stagflation?
A)demand-pull inflation
B)cost-push inflation
C)both of the above
D)none of the above

Accepted Answer

Cost-push inflation can lead to stagflation because it involves rising prices (inflation) due to increasing costs of production (such as wages and raw materials) which can simultaneously slow economic growth by reducing demand, leading to higher unemployment and stagnant economic conditions.

Question 7

What happens to aggregate demand if the demand for consumption goods decreases? If the demand for investment goods increases?

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Question 8

Describe the difference between a microeconomic demand curve and an aggregate demand curve.

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Question 9

Demand-pull inflation is caused by:
A)an increase in aggregate demand.
B)a decrease in aggregate demand.
C)an increase in short-run aggregate supply.
D)a decrease in short-run aggregate supply.

Accepted Answer

Demand-pull inflation occurs when there is an increase in aggregate demand, meaning there is more demand for goods and services but not enough supply to meet that demand. This can be caused by factors such as an increase in consumer confidence, government spending, or investment.

Question 10

The aggregate demand curve portrays the relationship between price level and real GDP.What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.

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Question 11

Discuss the difference between an increase in the aggregate demand curve and an increase in the quantity of real GDP demanded.Include discussion of how the price level relates to each event.

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Question 12

What would happen to the short-run and long-run aggregate supply curves if the capital stock grew and available supplies of natural resources expanded over the same period of time?

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Question 13

Explain how changes in the stock of capital affect aggregate supply.

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Question 14

What role do imports play in aggregate demand? Under which conditions will changes in imports expand aggregate demand? Reduce aggregate demand?

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Question 15

____ are unexpected temporary events that can either increase or decrease the short-run aggregate supply.
A)Profit effects
B)Volatilities
C)Supply shocks
D)Misperception effects

Accepted Answer

Supply shocks are unexpected temporary events that can either increase or decrease the short-run aggregate supply. Examples of supply shocks include natural disasters, wars, and changes in technology.

Question 16

Explain why the short-run supply curve is not vertical, but the long-run aggregate supply curve is vertical.

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Question 17

The misperception effect explanation for an upward-sloping short-run aggregate supply curve is based on:
A)falling profit margins as the price level rises.
B)rising costs of production as the price level rises.
C)fixed wage labor contracts.
D)people mistaking changes in aggregate demand for changes in the demand for their goods relative to other goods and services.

Accepted Answer

The misperception effect explanation suggests that an upward-sloping short-run aggregate supply curve can result from individuals mistaking changes in the overall demand for goods and services (aggregate demand) for changes in the demand specifically for their goods and services, leading them to adjust their supply accordingly.

Question 18

Cost-push inflation is caused by:
A)an increase in aggregate demand.
B)a decrease in aggregate demand.
C)an increase in aggregate supply.
D)a decrease in aggregate supply.

Accepted Answer

Cost-push inflation is caused by a decrease in aggregate supply, which leads to an increase in the costs of production, and hence, an increase in prices. This type of inflation is often caused by factors such as an increase in the price of raw materials, an increase in wages, or an increase in taxes.

Question 19

What is the natural level of output?

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Question 20

Which of the following is true of the long-run aggregate supply curve?
A)It is vertical.
B)The level of RGDP supplied does not change as the price level changes.
C)The level of RGDP supplied changes with the levels of capital, land, labor, and technology available to the economy.
D)Sometimes the LRAS also shifts when the SRAS shifts, and sometimes it does not.
E)All of the above are true of the long-run aggregate supply curve.

Accepted Answer

The long-run aggregate supply (LRAS) curve is vertical, indicating that the level of real GDP supplied is not affected by changes in the price level. It reflects the economy's potential output, which is determined by the available resources and technology. Therefore, all the statements A, B, C, and D are true regarding the LRAS curve.

Quiz 13: Aggregate Demand and Aggregate Supply

Identify four changes in the economy that would cause the aggregate demand curve to decrease (shift to the left).

What are the major factors that determine investment, and what impact does each have on aggregate demand?

If the price of oil increased by 15 percent when oil producers believed that other prices were rising 10 percent over the same period, what would happen to the quantity of real output supplied by the oil industry?

Along the long-run aggregate supply curve, the level of RGDP supplied ____ with increases in the price level.

If wheat prices rose by 12 percent when producers thought other prices were rising by 15 percent,

Which of the following would lead to stagflation?

What happens to aggregate demand if the demand for consumption goods decreases? If the demand for investment goods increases?

Describe the difference between a microeconomic demand curve and an aggregate demand curve.

Demand-pull inflation is caused by:

The aggregate demand curve portrays the relationship between price level and real GDP.What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.

Discuss the difference between an increase in the aggregate demand curve and an increase in the quantity of real GDP demanded.Include discussion of how the price level relates to each event.

What would happen to the short-run and long-run aggregate supply curves if the capital stock grew and available supplies of natural resources expanded over the same period of time?

Explain how changes in the stock of capital affect aggregate supply.

What role do imports play in aggregate demand? Under which conditions will changes in imports expand aggregate demand? Reduce aggregate demand?

____ are unexpected temporary events that can either increase or decrease the short-run aggregate supply.

Explain why the short-run supply curve is not vertical, but the long-run aggregate supply curve is vertical.

The misperception effect explanation for an upward-sloping short-run aggregate supply curve is based on:

Cost-push inflation is caused by:

What is the natural level of output?

Which of the following is true of the long-run aggregate supply curve?