Question 1

Why does the slope of the aggregate supply curve change from the short run to the long run?

Accepted Answer

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Question 2

What are the different phases of the business cycle,and how are production and employment affected in each phase?

Accepted Answer

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Question 3

Business cycles result from recurrent shifts of the aggregate supply and demand curves.
Assuming that neither the AD or AS line is vertical,if AD or AS shifts,the economy's output will change.

Accepted Answer

Business cycles result from shifts in both the aggregate supply and demand curves. If either of these curves shifts, the economy's output will change accordingly.

Question 4

The quantity of real output supplied rises as the price level rises,ceteris paribus.
There is a direct and positive relationship between the price level and the economy's output.

Accepted Answer

This statement describes the upward-sloping aggregate supply curve, which indicates that as the price level increases, firms are willing and able to produce more output.

Question 5

Supply-side theories of the business cycle focus on how improper incentives lead to the unwillingness of producers to supply more goods and services at existing prices.
Supply-side theory focuses on lowering taxes and improving infrastructure to boost supply.

Accepted Answer

Supply-side theory suggests that lowering taxes and improving infrastructure can incentivize producers to increase supply by removing barriers and providing better conditions for businesses to operate.

Question 6

What are the differences between classical theory and what Keynes believed?

Accepted Answer

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Question 7

Is equilibrium always at an optimal level of output? Explain your answer.

Accepted Answer

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Question 8

Both Keynesian and monetarist theories emphasize the potential of aggregate demand shifts to alter macro outcomes.
By altering spending,taxes,or the money supply,we can manipulate the AD curve.

Accepted Answer

Both Keynesian and monetarist theories indeed emphasize the potential of aggregate demand shifts to alter macro outcomes, and by altering spending, taxes, or the money supply, we can manipulate the AD (aggregate demand) curve.

Question 9

Keynes argued that policy levers were both effective and necessary.
Keynesian theory holds that policy levers such as taxes can be used to maintain output close to full employment.

Accepted Answer

Keynes believed that government intervention through policy measures could be effective in managing the economy and maintaining full employment. This is a key aspect of Keynesian economics.

Question 10

If the level of prices and output are compatible with both buyers' and sellers' intentions,then the policy goals are satisfied.
Ideally,macro equilibrium occurs at the full-employment level of output,but this is not always the case.

Accepted Answer

Macro equilibrium does not necessarily mean that policy goals are satisfied, as it may not occur at the full-employment level of output, which is often a key policy goal.

Question 11

Equilibrium is unique; it is the only price-output combination that is mutually compatible with aggregate supply and demand.
Macro equilibrium occurs at the intersection of the AS and AD curves.

Accepted Answer

This statement is true. Macro equilibrium is indeed achieved at the intersection of aggregate supply and aggregate demand, and this equilibrium point is unique.

Question 12

The short-run aggregate supply curve is upward-sloping,while the long-run aggregate supply curve tends to be vertical.
In the long run,the output tends to be constant at the level of full employment,whereas in the short run it may vary.

Accepted Answer

This is correct according to the basic principles of macroeconomics.

Question 13

What is the real balances effect,and how does it explain the shape of the aggregate demand curve?

Accepted Answer

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Question 14

Changes in the availability of money have little impact on the macro performance of the economy.
Changes in the supply of money lead to changes in interest rates that influence aggregate demand and therefore output and the price level.

Accepted Answer

Changes in the availability of money, specifically in its supply, have a significant impact on the macro performance of the economy. The increase or decrease in the supply of money by central banks can lead to changes in interest rates, which in turn influence investment and borrowing decisions by households and firms. These changes ultimately affect aggregate demand, output, and the price level, making money supply an important tool for macroeconomic policy.

Question 15

The profit effect occurs because,in the short run,resource costs typically do not increase as rapidly as the price of goods and services.
Some costs,like labor contracts or rents,do not immediately increase when the price level rises.

Accepted Answer

In the short run, some costs such as labor contracts or rents do not increase immediately when the price level rises, leading to the profit effect.

Question 16

During a recession,real output actually falls.
Real GDP falls during a recession,and unemployment rises.

Accepted Answer

This is because during a recession, there is decreased demand for goods and services, resulting in decreased production, lower profits, and eventually, layoffs and increased unemployment.

Question 17

In the long run,shifts in the aggregate demand curve affect the price level but not the level of output.
Because the AS curve is vertical in the long run,a change to AD,which intersects the vertical AS curve at a different point,will result in a change in the price level only.

Accepted Answer

In the long run, the level of output is determined by factors like technology, capital, and labor, which are represented by the vertical AS curve. As a result, changes to the AD curve only affect the price level in the long run.

Question 18

What is the foreign trade effect,and how does it explain the shape of the aggregate demand curve?

Accepted Answer

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Quiz 8: The Business Cycle

Why does the slope of the aggregate supply curve change from the short run to the long run?

What are the different phases of the business cycle,and how are production and employment affected in each phase?

Business cycles result from recurrent shifts of the aggregate supply and demand curves. Assuming that neither the AD or AS line is vertical,if AD or AS shifts,the economy's output will change.

The quantity of real output supplied rises as the price level rises,ceteris paribus. There is a direct and positive relationship between the price level and the economy's output.

Supply-side theories of the business cycle focus on how improper incentives lead to the unwillingness of producers to supply more goods and services at existing prices. Supply-side theory focuses on lowering taxes and improving infrastructure to boost supply.

What are the differences between classical theory and what Keynes believed?

Is equilibrium always at an optimal level of output? Explain your answer.

Both Keynesian and monetarist theories emphasize the potential of aggregate demand shifts to alter macro outcomes. By altering spending,taxes,or the money supply,we can manipulate the AD curve.

Keynes argued that policy levers were both effective and necessary. Keynesian theory holds that policy levers such as taxes can be used to maintain output close to full employment.

If the level of prices and output are compatible with both buyers' and sellers' intentions,then the policy goals are satisfied. Ideally,macro equilibrium occurs at the full-employment level of output,but this is not always the case.

Equilibrium is unique; it is the only price-output combination that is mutually compatible with aggregate supply and demand. Macro equilibrium occurs at the intersection of the AS and AD curves.

The short-run aggregate supply curve is upward-sloping,while the long-run aggregate supply curve tends to be vertical. In the long run,the output tends to be constant at the level of full employment,whereas in the short run it may vary.

What is the real balances effect,and how does it explain the shape of the aggregate demand curve?

Changes in the availability of money have little impact on the macro performance of the economy. Changes in the supply of money lead to changes in interest rates that influence aggregate demand and therefore output and the price level.

The profit effect occurs because,in the short run,resource costs typically do not increase as rapidly as the price of goods and services. Some costs,like labor contracts or rents,do not immediately increase when the price level rises.

During a recession,real output actually falls. Real GDP falls during a recession,and unemployment rises.

In the long run,shifts in the aggregate demand curve affect the price level but not the level of output. Because the AS curve is vertical in the long run,a change to AD,which intersects the vertical AS curve at a different point,will result in a change in the price level only.

What is the foreign trade effect,and how does it explain the shape of the aggregate demand curve?