Question 1

Wage decreases lead to a decrease in aggregate quantity supplied.

Accepted Answer

A decrease in wages typically reduces production costs, which can lead to an increase in aggregate quantity supplied as firms are willing to produce more at lower costs.

Question 2

Like the supply curve for individual goods and services, the aggregate supply curve slopes upward and to the right.

Accepted Answer

The aggregate supply curve represents the total amount of goods and services that all firms in an economy are willing and able to produce at a given price level. As prices increase, firms have an incentive to produce more and the aggregate supply curve slopes upward and to the right.

Question 3

The 2006-2008 period can be accurately described as a time of stagflation.

Accepted Answer

False

Question 4

If wages or prices of other inputs change, the aggregate supply curve will shift to another position.

Accepted Answer

A change in the cost of other inputs, such as labor or materials, will impact the overall cost of production and change the level of output firms are willing to supply at every price level. This will shift the aggregate supply curve to a new position.

Question 5

A change in the aggregate price level moves the economy along a given aggregate supply curve.

Accepted Answer

A change in the aggregate price level will cause a movement along a given aggregate supply curve, illustrated by the upward sloping relationship between price level and quantity of output supplied. This is because changes in the price level impact firms' production decisions and their willingness to supply output at different prices.

Question 6

Input prices are fixed for a period of time and this causes firms to increase production as prices increase.

Accepted Answer

When input prices are fixed, firms can produce more units of output without incurring additional costs. As a result, they are incentivized to increase production as prices increase. This is because they can earn higher profits by selling more goods at a higher price, while their production costs remain constant.

Question 7

Labor contracts often fix wages for more than one year.

Accepted Answer

Labor contracts commonly fix wages for a specified amount of time, usually one or more years. This allows for stability and predictability in compensation for employees and employers.

Question 8

Decreasing profit margins indicate a need to increase production in an economy.

Accepted Answer

Decreasing profit margins can be caused by various factors such as increasing costs of production, competition, or changes in consumer demand. Increasing production without addressing the underlying causes of decreasing profit margins can actually lead to further losses. Therefore, it is important to analyze the root causes of declining profits and implement appropriate strategies to address them.

Question 9

Supply-side economics concerns itself with the interaction between demand and supply, the price level, and real GDP.

Accepted Answer

Supply-side economics focuses on policies and incentives that can increase the supply of goods and services in the economy, which can in turn boost economic growth and ultimately increase real GDP. This involves considering the factors that influence production, such as technology, investment, labor, and entrepreneurship, and how these can be supported through tax policy, regulation, and other measures. Supply-side economics also recognizes the importance of demand in shaping the overall performance of the economy, as consumer spending drives much of the demand for goods and services. Therefore, it considers the interplay between demand and supply, as well as the impact of price levels on both suppliers and consumers, in shaping the economic landscape.

Question 10

The aggregate supply curve is a fixed point representing potential GDP.

Accepted Answer

The aggregate supply curve represents the relationship between the price level and the quantity of real GDP that firms are willing to produce. It is not a fixed point, as it can shift due to changes in factors such as input prices, technology, and government policies. Potential GDP refers to the level of output that the economy can produce when operating at full employment, but it is not the same as the aggregate supply curve.

Question 11

The aggregate supply curve shows how much the nation's businesses are willing and able to produce at each price level.

Accepted Answer

The statement is true. The aggregate supply curve shows the quantity of goods and services that businesses are willing and able to supply at different price levels.

Question 12

If the selling price falls and input costs are fixed, profit margins will increase.

Accepted Answer

If the selling price falls and input costs are fixed, profit margins will decrease. This is because the revenue generated from each unit sold will be less, while the cost to produce each unit remains the same. Therefore, the difference between the revenue and cost (i.e. the profit margin) will decrease.

Question 13

An increase in the price level causes the aggregate supply curve to shift to another supply schedule.

Accepted Answer

An increase in the price level affects the aggregate demand curve, not the aggregate supply curve. The aggregate supply curve shifts due to factors like changes in production costs, technology, or inputs, not because of changes in the price level.

Question 14

Wage increases are resisted by firms because they decrease profits.

Accepted Answer

Wage increases increase the cost of labor for firms, which decreases their profits unless they can increase productivity or pass on the increased cost to consumers through higher prices. Therefore, it is common for firms to resist wage increases.

Question 15

The aggregate supply curve slopes upward because as price rises the quantity of output supplied rises.

Accepted Answer

As prices rise, firms are willing to produce more output to take advantage of the higher prices and increase their profits, leading to an upward sloping aggregate supply curve.

Question 16

The money wage rate has little effect on the supply curve.It mainly affects the aggregate demand curve.

Accepted Answer

The money wage rate affects the cost of production for firms, which in turn affects their willingness to supply goods and services at different price levels. An increase in the money wage rate will lead to a leftward shift in the short-run aggregate supply curve as firms face higher costs of production. This shift will result in higher prices and lower output levels in the short run. Therefore, changes in the money wage rate will affect the supply curve.

Question 17

Demand-side changes explain everything about stagflation.

Accepted Answer

Stagflation is a combination of high inflation and high unemployment, which contradicts the traditional Phillips curve theory. Demand-side changes, such as changes in aggregate demand or government policies, can contribute to inflation and unemployment but are not the only factors that explain stagflation. Other factors, such as supply shocks or productivity declines, can also contribute to stagflation.

Question 18

Profit per unit can be expressed as price - cost per unit.

Accepted Answer

This is correct. Profit per unit is calculated as the difference between the selling price and the cost per unit.

Question 19

The slope of the aggregate supply curve decreases as total output increases.

Accepted Answer

The slope of the aggregate supply curve typically increases as total output increases, reflecting higher costs and resource constraints at higher levels of production.

Question 20

The aggregate supply curve is the relationship between the price level and the quantity of real GDP purchased.

Accepted Answer

The aggregate supply curve shows the relationship between the price level and the quantity of real GDP supplied by producers, not purchased.

Quiz 27: Bringing in the Supply Side: Unemployment and Inflation