Question 1

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. If the economy is at Point A currently producing Y₀ and the Z factors decrease, the economy will move to Point ________ in the short run and to Point ________ in the long run. A) B; C B) D; E C) E; D D) C; B

Accepted Answer

In the short run, a decrease in Z factors (such as a decrease in aggregate demand) will move the economy from Point A to Point B, where output is lower. In the long run, the economy will adjust to a new equilibrium at Point C, where output returns to its natural level.

Question 2

Potential output is the level of aggregate output that can be sustained in the long run without
A) unemployment.
B) government regulation.
C) taxes.
D) inflation.

Accepted Answer

Potential output refers to the level of output that an economy can sustain over the long term without generating inflation. It does not imply the absence of unemployment, government regulation, or taxes, but rather a state where resources, including labor, are utilized in a way that does not lead to increasing price levels.

Question 3

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. If the economy is currently at Point B producing output level Y₁ A) the economy is operating above full employment. B) input prices are likely to rise. C) aggregate supply shifts to the left and the economy ends up at Point C. D) all of the above

Accepted Answer

At Point B, the economy is operating above its full employment level, which typically leads to an increase in input prices due to higher demand for inputs. As input prices rise, the aggregate supply curve shifts to the left, moving the economy towards Point C.

Question 4

Refer to the information provided in Figure 11.8 below to answer the questions that follow.  Figure 11.8
-Refer to Figure 11.8. For this economy to produce at Point B and sustain it without inflation,
A) the price of oil must increase.
B) government spending must increase.
C) government spending must decrease.
D) potential output must increase.

Accepted Answer

Point B represents the potential output of the economy, which is the maximum sustainable output without causing inflation. To sustain Point B without inflation, the economy must increase its potential output, which can be achieved through investments in technology, education, and infrastructure. Therefore, the correct choice is D, potential output must increase. Choices A and B are incorrect because they do not directly address the issue of sustaining Point B without inflation, and choice C is incorrect because decreasing government spending could lead to a contraction in the economy and a decrease in output.

Question 5

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, the aggregate supply curve
A) is downward sloping.
B) is completely horizontal.
C) is completely vertical.
D) is horizontal in part, and vertical in part.

Accepted Answer

The answer of Related to the Economics in Practice on...

Question 6

If wages and other costs fully adjust to changes in prices in the long run, the long-run aggregate supply curve is
A) vertical.
B) horizontal.
C) positively sloped.
D) negatively sloped.

Accepted Answer

If wages and other costs fully adjust to changes in prices in the long run, it means that all factors of production will adjust and the economy will be in a state of equilibrium. In this case, the long-run aggregate supply curve will be vertical, indicating that changes in aggregate demand will only result in changes in price level, not output.

Question 7

Assuming a long-run aggregate supply curve, an increase in government spending results in ________ in output and ________ in prices.
A) no change; a decrease
B) no change; an increase
C) a decrease; a decrease
D) an increase; no change

Accepted Answer

In the context of a long-run aggregate supply curve, an increase in government spending typically does not change the output because the economy is already at its full employment level. However, it leads to an increase in prices due to higher demand, resulting in inflation.

Question 8

If wages do not fully adjust to changes in prices, the aggregate supply curve is vertical.

Accepted Answer

The aggregate supply curve being vertical is indicative of an economy at full employment where output cannot increase, regardless of price changes. Wages not fully adjusting to price changes affects the slope of the aggregate supply curve but does not make it vertical; it typically makes it upward sloping in the short run, reflecting some price/wage stickiness.

Question 9

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, maximum output is not defined by the
A) existing labor force.
B) current capital stock.
C) existing state of technology.
D) level of consumption.

Accepted Answer

In the Keynesian view, maximum output is not defined by the level of consumption, but rather by the level of aggregate demand in the economy. Consumption is just one component of aggregate demand, which also includes investment, government spending, and net exports. Therefore, the level of consumption alone cannot determine maximum output.

Question 10

If the economy produces full employment output, an increase in government spending increases output but not the price level.

Accepted Answer

At full employment output, the economy is producing at its maximum sustainable level, so an increase in government spending is more likely to increase the price level (inflation) rather than output, because the capacity to increase production is limited.

Question 11

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. Suppose the economy is currently at Point A producing potential output Y₀. If the government decreases spending, the economy moves to Point ________ in the short run and to Point ________ in the long run. A) D; E B) B; C C) C; B D) B; D

Accepted Answer

The correct answer is A because when the government decreases spending, the aggregate demand curve shifts to the left, causing the economy to move from Point A to Point D in the short run. In the long run, the economy will move to Point E as the price level adjusts and the economy returns to potential output.

Question 12

In the long run
A) the level of output is independent of the price level.
B) the level of output is depends on the price level.
C) price and output levels are mutually dependent.
D) the price level is independent of the level of output.

Accepted Answer

In the long run, the level of output is determined by factors such as technology, natural resources, and capital stock, which are independent of the price level. Therefore, the level of output is independent of the price level.

Question 13

If ________ equilibrium output ________, the price level decreases.
A) potential; is equal to actual aggregate output
B) potential; is below actual aggregate output
C) actual; is below potential aggregate output
D) actual; exceeds potential aggregate output

Accepted Answer

If actual equilibrium output is below potential aggregate output, it signals a recessionary gap, meaning that there is a lower level of demand for goods and services than what the economy is capable of producing. This results in a decrease in overall price levels as businesses are forced to lower their prices in order to sell their goods and services.

Question 14

The long-run aggregate supply curve reflects the idea that in the long run, output is determined only by
A) the factors of production.
B) given technology.
C) aggregate demand.
D) both A and B

Accepted Answer

In the long run, output is determined by the factors of production (such as labor, capital, and technology) and given technology. Therefore, the long-run aggregate supply curve reflects both A (factors of production) and B (given technology). It is not affected by changes in aggregate demand, which only affects short-run output.

Question 15

When the ________ decreases, then potential output decreases.
A) short-run aggregate supply
B) long-run aggregate supply
C) short-run aggregate demand
D) long-run aggregate demand

Accepted Answer

Long-run aggregate supply represents the maximum output that an economy can produce over a sustained period of time. If it decreases, it means that the economy's productive capacity has decreased, resulting in a decrease in potential output.

Question 16

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, the economy has a
A) clearly defined capacity.
B) set price level.
C) downward sloping aggregate supply curve.
D) horizontal aggregate demand curve.

Accepted Answer

In the simple Keynesian view, the economy is thought to have a clearly defined capacity, beyond which output cannot increase without causing inflation.

Question 17

Potential output is the most that can be produced in an economy at a particular point in time.

Accepted Answer

Potential output refers to the maximum amount of goods and services an economy can produce when it is most efficiently using all its resources, not just what can be produced at a particular point in time. It is a theoretical concept used to estimate the capacity of an economy over the long term, considering factors like technology, labor, and capital, rather than immediate production capabilities.

Question 18

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, if planned aggregate expenditure and aggregate demand exceed capacity output, there is
A) an inflationary gap and price level rises.
B) an inflationary gap and price level falls.
C) a recessionary gap and price level rises.
D) a recessionary gap and price level falls.

Accepted Answer

In the Keynesian view, if planned aggregate expenditure and aggregate demand exceed capacity output, there is an inflationary gap. This means that there is more demand for goods and services than there is supply, leading to upward pressure on prices. As a result, the price level rises.

Question 19

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. This economy cannot continue to produce Y_{2 (or at Point}_D₎ because A) the price of raw material and wages will decrease shifting the aggregate supply curve to AS₂. B) the price of inputs will increase, shifting the aggregate supply curve to AS₁. C) the price of raw material will decrease, shifting the aggregate demand curve to AD₁. D) all of the above

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 20

Long-run aggregate supply is equal to
A) short-run aggregate demand.
B) short-run aggregate supply.
C) inflation minus unemployment.
D) potential output.

Accepted Answer

Long-run aggregate supply represents the capacity of an economy to produce goods and services when all inputs (including labor) are fully employed. This is equivalent to potential output or full employment GDP.

Quiz 11: The Determination of Aggregate Output, the Price Level, and the Interest Rate

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. If the economy is at Point A currently producing Y₀ and the Z factors decrease, the economy will move to Point in the short run and to Point in the long run.

Potential output is the level of aggregate output that can be sustained in the long run without

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. If the economy is currently at Point B producing output level Y₁

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. For this economy to produce at Point B and sustain it without inflation,

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, the aggregate supply curve

If wages and other costs fully adjust to changes in prices in the long run, the long-run aggregate supply curve is

Assuming a long-run aggregate supply curve, an increase in government spending results in in output and in prices.

If wages do not fully adjust to changes in prices, the aggregate supply curve is vertical.

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, maximum output is not defined by the

If the economy produces full employment output, an increase in government spending increases output but not the price level.

In the long run

If equilibrium output , the price level decreases.

The long-run aggregate supply curve reflects the idea that in the long run, output is determined only by

When the ________ decreases, then potential output decreases.

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, the economy has a

Potential output is the most that can be produced in an economy at a particular point in time.

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, if planned aggregate expenditure and aggregate demand exceed capacity output, there is

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. This economy cannot continue to produce Y_{2 (or at Point}_D₎ because

Long-run aggregate supply is equal to

Quiz 11: The Determination of Aggregate Output, the Price Level, and the Interest Rate

Potential output is the level of aggregate output that can be sustained in the long run without

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. If the economy is currently at Point B producing output level Y1

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. For this economy to produce at Point B and sustain it without inflation,

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, the aggregate supply curve

If wages and other costs fully adjust to changes in prices in the long run, the long-run aggregate supply curve is

Assuming a long-run aggregate supply curve, an increase in government spending results in ________ in output and ________ in prices.

If wages do not fully adjust to changes in prices, the aggregate supply curve is vertical.

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, maximum output is not defined by the

If the economy produces full employment output, an increase in government spending increases output but not the price level.

In the long run

If ________ equilibrium output ________, the price level decreases.

The long-run aggregate supply curve reflects the idea that in the long run, output is determined only by

When the ________ decreases, then potential output decreases.

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, the economy has a

Potential output is the most that can be produced in an economy at a particular point in time.

Related to the Economics in Practice on p. 227: In the simple "Keynesian" view, if planned aggregate expenditure and aggregate demand exceed capacity output, there is

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. This economy cannot continue to produce Y2 (or at Point D) because

Long-run aggregate supply is equal to

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. If the economy is currently at Point B producing output level Y₁

Assuming a long-run aggregate supply curve, an increase in government spending results in in output and in prices.

If equilibrium output , the price level decreases.

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. This economy cannot continue to produce Y_{2 (or at Point}_D₎ because