Question 1

When potential GDP increases,long-run aggregate supply also increases.

Accepted Answer

Potential GDP is the maximum level of output that an economy can produce with its existing resources, and long-run aggregate supply (LRAS) represents the level of output that can be produced in the long run when all inputs are flexible. Therefore, an increase in potential GDP implies that the economy can produce more goods and services in the long run, which means that LRAS must also increase to accommodate this higher potential output level.

Question 2

Which of the following would cause the short-run aggregate supply curve to shift to the left?

Accepted Answer

An increase in inflation expectations can cause the short-run aggregate supply curve to shift to the left because producers might anticipate higher costs in the future, leading them to reduce supply at current price levels.

Question 3

Long-run macroeconomic equilibrium occurs when

Accepted Answer

Long-run macroeconomic equilibrium occurs when the aggregate demand and short-run aggregate supply curves intersect at a point on the long-run aggregate supply curve. This is because in the long-run, wages and prices are flexible and adjust to changes in the economy, allowing the economy to reach its potential GDP without inflationary or recessionary pressures. Option A is incorrect because short-run equilibrium may not reflect a sustainable macroeconomic equilibrium. Option C is incorrect because structural and frictional unemployment may still exist even in long-run equilibrium. Option D is incorrect because being above potential GDP would suggest inflationary pressures rather than equilibrium.

Question 4

Why does the short-run aggregate supply curve slope upward?

Accepted Answer

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Question 5

What variables cause the short-run aggregate supply curve to shift? For each variable,identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left.

Accepted Answer

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Question 6

When potential GDP increases,short-run aggregate supply also increases,but long-run aggregate supply does not change.

Accepted Answer

Long-run aggregate supply shifts to the right when potential GDP increases, reflecting the economy's increased capacity to produce goods and services, while short-run aggregate supply may not necessarily change as it is influenced by temporary factors.

Question 7

An increase in aggregate demand causes an increase in ________ only in the short run,but causes an increase in ________ in both the short run and the long run.

Accepted Answer

In the short run, an increase in aggregate demand can lead to higher real GDP as resources are utilized more fully. However, in the long run, the economy tends to return to its potential output, and the primary effect of increased aggregate demand is a higher price level (inflation).

Question 8

What are sticky prices,and how can contracts make them "sticky"?

Accepted Answer

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Question 9

The long-run aggregate supply curve is vertical.

Accepted Answer

The long-run aggregate supply curve is vertical because in the long-run, prices and wages are flexible, allowing for adjustments to changes in demand and supply without affecting the overall level of output. Therefore, the level of output is determined by the economy's productive capacity, which is represented by the vertical line.

Question 10

A supply shock causes the long-run aggregate supply curve to shift left,decreasing the price level.

Accepted Answer

A supply shock that shifts the long-run aggregate supply curve to the left typically increases the price level due to a decrease in supply, leading to higher prices for the goods and services in the economy.

Question 11

Explain why the long-run aggregate supply curve is vertical.

Accepted Answer

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Question 12

A decrease in investment causes the price level to ________ in the short run and ________ in the long run.

Accepted Answer

In the short run, a decrease in investment reduces aggregate demand, leading to a lower price level. In the long run, the economy adjusts to a new equilibrium with potentially lower output and price levels, causing the price level to decrease further.

Question 13

The short-run aggregate supply curve is vertical.

Accepted Answer

The short-run aggregate supply curve is upward sloping, indicating that as prices increase, the quantity of output firms are willing to supply also increases.

Question 14

An adverse supply shock causes the short-run aggregate supply curve to shift left,increasing the price level.

Accepted Answer

An adverse supply shock, for example, an increase in the price of oil, reduces the availability of inputs for production, causing the short-run aggregate supply curve to shift leftward. This results in a decrease in real GDP and an increase in the price level.

Question 15

Explain how menu costs affect the slope of the short-run aggregate supply curve.

Accepted Answer

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Question 16

An increase in aggregate demand results in a(n)________ in the ________.

Accepted Answer

An increase in aggregate demand leads to an expansion in the short run, as firms increase production and employment to meet the higher demand. However, in the long run, prices and wages adjust, causing the aggregate supply curve to shift leftward, leading to higher prices and ultimately a return to the original level of output. So, a short-run expansion caused by an increase in aggregate demand might be followed by a long-run recession.

Question 17

Explain how each of the following events would affect the short-run aggregate supply curve.
a.A decrease in the price level
b.A decrease in what the price level is expected to be in the future
c.A price level that is currently lower than expected
d.An unexpected decrease in the price of an important raw material
e.A decrease in the labor force

Accepted Answer

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Question 18

Most recessions in the United States since World War II have begun with

Accepted Answer

According to historical data, most recessions in the US since WWII have been preceded by a decline in residential construction. This is because the housing industry is a key driver of the economy, and when it slows down, it can have a domino effect on other industries and ultimately lead to a recession.

Question 19

Explain how each of the following events would affect the long-run aggregate supply curve.
a.A lower price level
b.A decrease in the labor force
c.A decrease in the quantity of capital goods
d.Technological change

Accepted Answer

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Question 20

Suppose the economy is in long-run equilibrium and there is an increase in investment.As a result,real GDP will ________ in the short run,and ________ in the long run.

Accepted Answer

In the short run, an increase in investment will lead to an increase in real GDP due to higher spending. However, in the long run, the economy will adjust back to its potential output, and real GDP will return to its initial level, as prices adjust.

Quiz 13: Aggregate Demand and Aggregate Supply Analysis

When potential GDP increases,long-run aggregate supply also increases.

Which of the following would cause the short-run aggregate supply curve to shift to the left?

Long-run macroeconomic equilibrium occurs when

Why does the short-run aggregate supply curve slope upward?

What variables cause the short-run aggregate supply curve to shift? For each variable,identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left.

When potential GDP increases,short-run aggregate supply also increases,but long-run aggregate supply does not change.

An increase in aggregate demand causes an increase in only in the short run,but causes an increase in in both the short run and the long run.

What are sticky prices,and how can contracts make them "sticky"?

The long-run aggregate supply curve is vertical.

A supply shock causes the long-run aggregate supply curve to shift left,decreasing the price level.

Explain why the long-run aggregate supply curve is vertical.

A decrease in investment causes the price level to in the short run and in the long run.

The short-run aggregate supply curve is vertical.

An adverse supply shock causes the short-run aggregate supply curve to shift left,increasing the price level.

Explain how menu costs affect the slope of the short-run aggregate supply curve.

An increase in aggregate demand results in a(n) in the .

Most recessions in the United States since World War II have begun with

Explain how each of the following events would affect the long-run aggregate supply curve. a.A lower price level b.A decrease in the labor force c.A decrease in the quantity of capital goods d.Technological change

Suppose the economy is in long-run equilibrium and there is an increase in investment.As a result,real GDP will in the short run,and in the long run.

Quiz 13: Aggregate Demand and Aggregate Supply Analysis

When potential GDP increases,long-run aggregate supply also increases.

Which of the following would cause the short-run aggregate supply curve to shift to the left?

Long-run macroeconomic equilibrium occurs when

Why does the short-run aggregate supply curve slope upward?

What variables cause the short-run aggregate supply curve to shift? For each variable,identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left.

When potential GDP increases,short-run aggregate supply also increases,but long-run aggregate supply does not change.

An increase in aggregate demand causes an increase in ________ only in the short run,but causes an increase in ________ in both the short run and the long run.

What are sticky prices,and how can contracts make them "sticky"?

The long-run aggregate supply curve is vertical.

A supply shock causes the long-run aggregate supply curve to shift left,decreasing the price level.

Explain why the long-run aggregate supply curve is vertical.

A decrease in investment causes the price level to ________ in the short run and ________ in the long run.

The short-run aggregate supply curve is vertical.

An adverse supply shock causes the short-run aggregate supply curve to shift left,increasing the price level.

Explain how menu costs affect the slope of the short-run aggregate supply curve.

An increase in aggregate demand results in a(n) ________ in the ________.

Most recessions in the United States since World War II have begun with

Explain how each of the following events would affect the long-run aggregate supply curve. a.A lower price level b.A decrease in the labor force c.A decrease in the quantity of capital goods d.Technological change

Suppose the economy is in long-run equilibrium and there is an increase in investment.As a result,real GDP will ________ in the short run,and ________ in the long run.

An increase in aggregate demand causes an increase in only in the short run,but causes an increase in in both the short run and the long run.

A decrease in investment causes the price level to in the short run and in the long run.

An increase in aggregate demand results in a(n) in the .

Suppose the economy is in long-run equilibrium and there is an increase in investment.As a result,real GDP will in the short run,and in the long run.