Question 1

The long-run aggregate supply curve shifts to the right when there is
A)an increase in the total amount of capital in the economy.
B)an increase in the available technology.
C)a decrease in the natural rate of unemployment.
D)A and B.
E)A,B,and C.

Accepted Answer

The long-run aggregate supply curve shifts to the right with an increase in the total amount of capital in the economy, an increase in available technology, and a decrease in the natural rate of unemployment. All these factors enhance the economy's productive capacity.

Question 2

Everything else held constant,which of the following does NOT cause aggregate demand to increase?
A)an increase in net exports
B)an increase in government spending
C)an increase in taxes
D)an increase in consumer optimism

Accepted Answer

An increase in taxes reduces disposable income, which reduces consumption and therefore reduces aggregate demand.

Question 3

Everything else held constant,aggregate demand increases when
A)taxes are cut.
B)government spending is reduced.
C)animal spirits decrease.
D)the money supply is reduced.

Accepted Answer

When taxes are cut, consumers have more disposable income and can increase their spending, leading to an increase in aggregate demand. Reducing government spending, decreasing animal spirits, and reducing the money supply all tend to have a contractionary effect on the economy and decrease aggregate demand.

Question 4

The aggregate supply curve shows the relationship between
A)the level of inputs and aggregate output.
B)the inflation rate and the level of inputs.
C)the wage rate and the level of employment.
D)the inflation rate and the level of aggregate output supplied.

Accepted Answer

The aggregate supply curve shows the relationship between the inflation rate and the level of aggregate output supplied. It shows how much output firms are willing and able to produce at different price levels. As prices rise, firms are willing to produce more output, so the aggregate supply curve slopes upward.

Question 5

The fact that an economy always returns to the natural rate level of output is known as
A)the excess demand hypothesis.
B)the price-adjustment mechanism.
C)the self-correcting mechanism.
D)the natural rate of unemployment.

Accepted Answer

The self-correcting mechanism states that any deviation from the natural rate level of output will eventually be corrected by market forces, such as changes in prices and wages, leading the economy back to the natural rate level of output.

Question 6

Assuming the economy is starting at the natural rate of output and everything else held constant,the effect of ________ in aggregate ________ is a rise in both inflation and output in the short-run,but in the long-run the only effect is a rise in inflation.
A)a decrease;supply
B)a decrease;demand
C)an increase;supply
D)an increase;demand

Accepted Answer

An increase in aggregate demand leads to a short-run increase in both output and inflation, as firms are initially able to increase production to meet the increased demand. However, in the long-run, firms can only produce the natural rate of output, so any increase in aggregate demand leads to higher prices (i.e. inflation) but no sustained increase in output. A decrease in aggregate supply would lead to a decrease in output and an increase in inflation in both the short-run and long-run. Therefore, the correct choice is D) an increase in demand.

Question 7

________ flexible wages and prices imply that the short-run aggregate supply curve is ________.
A)More;flatter
B)Less;steeper
C)less;vertical
D)More;steeper

Accepted Answer

The answer of ________ flexible wages and prices imply that...

Question 8

The short-run aggregate supply curve shifts to the right when
A)output gap is higher.
B)output gap is lower.
C)expected inflation is higher.
D)expected inflation is lower.

Accepted Answer

The short-run aggregate supply curve shows the relationship between the price level and the quantity of output that firms are willing to produce in the short run. A rightward shift of the short-run aggregate supply curve signifies an increase in the quantity of output supplied at any given price level. This shift can be caused by a decrease in input prices, an increase in the quantity and quality of physical and human capital, or improvements in technology. This, in turn, reduces the cost of production and, therefore, increases the profitability of firms. Consequently, firms will be willing and able to produce more at any given price level. The shift to the right is not affected by output gap or expected inflation.

Question 9

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate.Be sure to discuss two channels through which changes in inflation rates affect demand.

Accepted Answer

The answer of Explain through the component parts of aggregate...

Question 10

Which of the following increases aggregate supply in the short-run,everything else held constant?
A)an increase in the price of crude oil
B)a successful wage push by workers
C)expectations of a higher inflation
D)a technological improvement that increases worker productivity

Accepted Answer

A technological improvement that increases worker productivity will lead to a lower cost of production for firms, which allows them to supply more goods and services at any given price level, thereby increasing aggregate supply. An increase in the price of crude oil (A) will increase production costs for firms and decrease aggregate supply. A successful wage push by workers (B) will increase production costs for firms and decrease their ability to supply goods and services in the short-run. Expectations of higher inflation (C) may lead firms to increase prices and wages, but this will not increase the quantity of goods and services they are able to supply in the short-run.

Question 11

The long-run aggregate supply curve shifts to the right when there is
A)a decrease in the total amount of capital in the economy.
B)a decrease in the total amount of labor supplied in the economy.
C)a decrease in the available technology.
D)a decline in the natural rate of unemployment.

Accepted Answer

The long-run aggregate supply curve represents the level of output that an economy can produce at the natural rate of unemployment, given its resources and technology. A decline in the natural rate of unemployment means that there is a decrease in the amount of labor that is unemployed and available to work, which leads to an increase in the economy's potential output. Therefore, the long-run aggregate supply curve shifts to the right. Choices A, B, and C would all lead to a decrease in the economy's potential output and a leftward shift in the long-run aggregate supply curve.

Question 12

Everything else held constant,aggregate demand increases when
A)net exports decrease.
B)taxes increase.
C)planned investment spending increases.
D)the money supply decreases.

Accepted Answer

According to the aggregate demand equation (Y = C + I + G + NX), an increase in planned investment spending (I) will increase aggregate demand (Y) assuming all other factors remain constant.

Question 13

The aggregate supply curve is the total quantity of
A)raw materials offered for sale at different inflation rates.
B)final goods and services offered for sale at the current inflation rate.
C)final goods and services offered for sale at different inflation rates.
D)intermediate and final goods and service offered for sale at different inflation rates.

Accepted Answer

The aggregate supply curve represents the total quantity of final goods and services that all firms in an economy are willing and able to produce at different price levels (inflation rates). It does not include raw materials or intermediate goods, as those are used in the production process and not offered for sale directly to consumers.

Question 14

The long-run rate of unemployment to which an economy always gravitates is the
A)normal rate of unemployment.
B)natural rate of unemployment.
C)neutral rate of unemployment.
D)inflationary rate of unemployment.

Accepted Answer

The natural rate of unemployment is the long-run rate of unemployment to which an economy always gravitates. It is the rate of unemployment when the economy is operating at full employment, where cyclical unemployment is zero and only frictional and structural unemployment exist.

Question 15

Everything else held constant,when actual output exceeds the natural rate of output ________ aggregate supply ________.
A)short-run;decreases
B)short-run;increases
C)long-run;increases
D)long-run;decreases

Accepted Answer

When actual output exceeds the natural rate of output in the short-run, aggregate supply decreases, as the economy experiences temporary and unsustainable increases in production that cannot be maintained in the long-run.

Question 16

The long-run aggregate supply curve is a vertical line passing through
A)the natural rate of output.
B)the natural-rate price level.
C)the actual rate of unemployment.
D)the expected rate of inflation.

Accepted Answer

The long-run aggregate supply curve is a vertical line passing through the natural rate of output. This is because in the long run, all input factors are assumed to be flexible, including the level of capital stock, the size of the labor force, and the available technology. Therefore, the economy will produce at its maximum potential output, which is the natural rate of output, regardless of changes in the price level.

Question 17

The long-run aggregate supply curve is
A)a vertical line through the non-inflationary rate of output.
B)a vertical line through the current level of output.
C)a vertical line through the natural rate level of output.
D)a horizontal line through the current level of output.

Accepted Answer

The long-run aggregate supply curve (LRAS) represents the potential output level of the economy when all resources are fully employed, and there is no inflationary or recessionary pressure. This potential output level is also known as the natural rate level of output. The LRAS curve is a vertical line through the natural rate level of output since the economy cannot sustain output above this level in the long run without causing inflationary pressure, nor can it sustain output below this level without causing recessionary pressure. Therefore, option C is the correct answer. Option A is incorrect because it implies that the non-inflationary rate of output is fixed, which is not true in the long run. Option B is incorrect because it implies that the current output level is the potential output level of the economy, which is not necessarily true. Option D is incorrect because it implies that output can be sustained at the current level without causing any inflationary or recessionary pressure, which is not true in the long run.

Question 18

Which of the followings does NOT shift the short-run aggregate supply curve?
A)supply shocks.
B)persistent positive output gap.
C)changes in expected inflation.
D)an increase in output gap.

Accepted Answer

The answer of Which of the followings does NOT shift...

Question 19

Everything else held constant,if workers expect an increase in inflation,________ aggregate supply ________.
A)long-run;increases
B)long-run;decreases
C)short-run;decreases
D)short-run;increases

Accepted Answer

In the short run, if workers expect an increase in inflation, they will likely expect an increase in their nominal wages to compensate for the rise in prices. As a result, firms' costs of production increase and they will reduce their aggregate supply in the short run. However, in the long run, as wages and prices adjust, aggregate supply becomes insensitive to changes in the price level, and thus the answer would be (A) long-run; increases.

Question 20

Everything else held constant,a change in workers' expectations about inflation will cause ________ to change.
A)aggregate demand
B)short-run aggregate supply
C)the production function
D)long-run aggregate supply

Accepted Answer

Workers' expectations about inflation affect their wages, which is a cost of production for firms. If workers expect higher inflation, they will demand higher wage increases to keep up with the increased cost of living. This increase in wages will increase the cost of production for firms and shift the short-run aggregate supply curve to the left, as firms will produce less at every price level. Therefore, a change in workers' expectations about inflation will cause a change in short-run aggregate supply.

Quiz 22: Aggregate Demand and Supply Analysis

The long-run aggregate supply curve shifts to the right when there is

Everything else held constant,which of the following does NOT cause aggregate demand to increase?

Everything else held constant,aggregate demand increases when

The aggregate supply curve shows the relationship between

The fact that an economy always returns to the natural rate level of output is known as

Assuming the economy is starting at the natural rate of output and everything else held constant,the effect of in aggregate is a rise in both inflation and output in the short-run,but in the long-run the only effect is a rise in inflation.

flexible wages and prices imply that the short-run aggregate supply curve is .

The short-run aggregate supply curve shifts to the right when

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate.Be sure to discuss two channels through which changes in inflation rates affect demand.

Which of the following increases aggregate supply in the short-run,everything else held constant?

The long-run aggregate supply curve shifts to the right when there is

Everything else held constant,aggregate demand increases when

The aggregate supply curve is the total quantity of

The long-run rate of unemployment to which an economy always gravitates is the

Everything else held constant,when actual output exceeds the natural rate of output aggregate supply .

The long-run aggregate supply curve is a vertical line passing through

The long-run aggregate supply curve is

Which of the followings does NOT shift the short-run aggregate supply curve?

Everything else held constant,if workers expect an increase in inflation, aggregate supply .

Everything else held constant,a change in workers' expectations about inflation will cause ________ to change.