Question 1

In the early 1930s in the United States, there was a
A) large increase in output. In the early 1940s there was also a large increase in output.
B) large increase in output. In the early 1940s there was a large decrease in output.
C) large decrease in output. In the early 1940s there was a large increase in output.
D) large decrease in output. In the early 1940s there was also a large decrease in output.

Accepted Answer

The early 1930s in the United States were marked by the Great Depression, which led to a large decrease in output. However, in the early 1940s, the United States entered World War II, which led to a large increase in output due to the needs of the war effort. Therefore, choice C, which states that there was a large decrease in output in the early 1930s and a large increase in output in the early 1940s, is the best choice.

Question 2

Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?
A) as people revise their price-level expectations upward, firms and workers strike bargains for higher nominal wages.
B) as people revise their price-level expectations upward, firms and workers strike bargains for lower nominal wages.
C) as people revise their price-level expectations downward, firms and workers strike bargains for higher nominal wages.
D) as people revise their price-level expectations downward, firms and workers strike bargains for lower nominal wages.

Accepted Answer

When the government decreases its expenditures, aggregate demand in the short run decreases, putting downward pressure on prices. As people revise their price-level expectations downward, firms and workers eventually agree to lower nominal wages, which contributes to a decrease in production costs and an increase in short-run aggregate supply. The economy moves back to long-run equilibrium as prices and wages decrease, and the short-run aggregate supply curve shifts to the right.

Question 3

Suppose that during World War II the long-run aggregate supply curve shifted right. In order for price and output to have changed in the direction they did, what would have to have happened to aggregate demand?
A) It would have to have shifted left by less than aggregate supply shifted
B) It would have to have to shifted left by more than aggregate supply shifted.
C) It would have to have shifted right by less than aggregate supply shifted
D) It would have to have to shifted right by more than aggregate supply shifted.

Accepted Answer

If aggregate demand had shifted left by more than aggregate supply shifted right, then output would have decreased and prices would have increased, which is the opposite of what happened. If aggregate demand had shifted right by more than aggregate supply shifted, then output would have increased but prices would have also increased, which is not what happened either. Therefore, the only option left is that aggregate demand must have shifted left by less than aggregate supply shifted right, leading to an increase in output and a decrease in prices.

Question 4

Which of the following has been suggested as a cause of the Great Depression?
A) a decline in the money supply
B) a decrease in stock prices
C) the collapse of the banking system
D) All of the above are correct.

Accepted Answer

All of the answer choices have been suggested as causes of the Great Depression. The decrease in stock prices and collapse of the banking system were major contributing factors, and the decline in the money supply exacerbated the economic downturn.

Question 5

Which of the following alone can explain the change in the price level and output during World War II?
A) aggregate demand shifted right
B) aggregate demand shifted left
C) aggregate supply shifted right
D) aggregate supply shifted left

Accepted Answer

The answer of Which of the following alone can explain...

Question 6

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting
A) aggregate supply right.
B) aggregate supply left.
C) aggregate demand right.
D) aggregate demand left.

Accepted Answer

If there is an economic contraction caused by a shift in aggregate demand, policymakers can respond by shifting aggregate demand to the right. This can be achieved through various means, such as increasing government spending, lowering taxes, or lowering interest rates. By increasing aggregate demand, policymakers can offset the initial shift and prevent a prolonged economic downturn. Shifting aggregate supply to the left may worsen the contraction, as it can lead to higher prices and reduced output.

Question 7

If output is above its natural rate, then according to sticky-wage theory
A) workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve right.
B) workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.
C) workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate supply curve right.
D) workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate supply curve left.

Accepted Answer

According to sticky-wage theory, if output is above its natural rate, workers and firms will strike bargains for higher wages. However, because wages are sticky in the short run, the increase in wages will not immediately adjust to the new level, resulting in higher production costs for firms. As a result, the short-run aggregate supply curve shifts left, leading to higher prices and lower output.

Question 8

During World War II, the economy's production increased about
A) 25 percent and prices rose about 5 percent.
B) 50 percent and prices rose about 10 percent.
C) 75 percent and prices rose about 15 percent.
D) 100 percent and prices rose about 20 percent.

Accepted Answer

The answer of During World War II, the economy's production...

Question 9

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift
A) aggregate supply to the right.
B) aggregate supply to the left.
C) aggregate demand to the right.
D) aggregate demand to the left.

Accepted Answer

If policymakers want to offset the effects of an economic contraction caused by a shift in aggregate supply, they need to increase aggregate demand so that businesses have more incentive to produce goods and services. Therefore, they should use policy to shift aggregate demand to the right.

Question 10

In the short-run an increase in the costs of production makes
A) output and prices rise.
B) output rise and prices fall.
C) output fall and prices rise.
D) output and prices fall.

Accepted Answer

An increase in costs of production will lead to a decrease in supply. This will cause the equilibrium price to increase while the new equilibrium quantity will decrease. Therefore, output falls and prices rise.

Question 11

A decrease in the availability of an important major resource such as oil shifts
A) aggregate supply right.
B) aggregate supply left.
C) aggregate demand right.
D) aggregate demand left.

Accepted Answer

A decrease in the availability of an important major resource such as oil would lead to an increase in production costs, which would shift the aggregate supply curve leftward. This is because it becomes more expensive for firms to produce goods and services, and therefore they are willing to supply fewer goods at any given price level.

Question 12

Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset of the Great Depression?
A) aggregate demand shifted right
B) aggregate demand shifted left
C) aggregate supply shifted right
D) aggregate supply shifted left

Accepted Answer

The answer of Which of the following by itself is...

Question 13

In the first few years of the Great Depression, unemployment rose to about
A) 10 percent, and prices rose about 14 percent.
B) 15 percent, and prices rose about 22 percent.
C) 20 percent, and prices fell about 14 percent.
D) 25 percent, and prices fell about 22 percent.

Accepted Answer

The first few years of the Great Depression saw unemployment rise to 25 percent and prices fall about 22 percent according to historical records.

Question 14

Which of the following shifts short-run aggregate supply left?
A) an increase in price expectations
B) an increase in the actual price level
C) a decrease in the money supply
D) a decrease in the price of oil

Accepted Answer

The answer of Which of the following shifts short-run aggregate...

Question 15

Which of the following did not happen during the onset of the Great Depression?
A) The money supply fell as households took money out of bank deposits.
B) The Fed conducted expansionary monetary policy.
C) Stock prices fell about 90 percent.
D) Disruption of the banking system made it difficult for some firms to obtain funds for investment.

Accepted Answer

The Fed actually conducted contractionary monetary policy during the onset of the Great Depression by reducing the money supply and raising interest rates. This decision is believed to have worsened the economic downturn.

Question 16

Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand?
A) It would have to have shifted left by less than aggregate supply.
B) It would have to have shifted left by more than aggregate supply.
C) It would have to have shifted right by less than aggregate supply.
D) It would have to have shifted right by more than aggregate supply.

Accepted Answer

If long-run aggregate supply shifted left during the Great Depression, it means that there was a decrease in the economy's potential output. In order for the price level and output to simultaneously decrease, aggregate demand would have had to shift left as well, but by a greater amount than the shift in aggregate supply. This is because a leftward shift in aggregate demand by the same amount as aggregate supply would result in a decrease in output, but no change in the price level. A greater leftward shift in aggregate demand would cause both output and the price level to decrease.

Question 17

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to
A) rise. This rise in price expectations shifts the short-run aggregate supply curve to the right.
B) rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.
C) fall. This fall in price expectations shifts the short-run aggregate supply curve to the right.
D) fall. This fall in price expectations shifts the short-run aggregate supply curve to the left.

Accepted Answer

When the government increases its expenditures, it causes an increase in aggregate demand. As a result, firms may face supply-side constraints such as scarcity of labor, raw materials, or capital equipment. So, in the short run, the increase in aggregate demand causes a rise in the price level. This rise in the price level creates upward pressure on the expected price level. As economic agents revise their price expectations upward, the short-run aggregate supply curve shifts upward and to the left. This process continues until the economy returns to the long-run equilibrium, where the aggregate supply curve is vertical. In other words, in the long-run, the increase in government expenditures only affects the price level, not the level of output or employment.

Question 18

The economic boom of the early 1940s resulted mostly from
A) increased government expenditures.
B) falling prices of oil and other natural resources.
C) an increase in the growth rate of the money supply.
D) rapid developments in transportation, electronics, and communication.

Accepted Answer

The economic boom of the early 1940s was primarily a result of increased government expenditures due to World War II. The government's spending on military goods and services created jobs, increased demand for goods, and stimulated economic growth.

Question 19

During World War II,
A) government purchases of goods and services increased fivefold.
B) the economy's production increased about 25 percent.
C) unemployment fell to about 5%.
D) All of the above are correct.

Accepted Answer

The answer of During World War II,
A) government purchases of...

Question 20

When production costs rise,
A) the short-run aggregate supply curve shifts to the right.
B) the short-run aggregate supply curve shifts to the left.
C) the aggregate demand curve shifts to the right.
D) the aggregate demand curve shifts to the left.

Accepted Answer

When production costs rise, firms face higher costs of production, which reduces their profit margins. As a result, they will produce less output at any given price level, and the short-run aggregate supply curve will shift to the left. This leads to higher equilibrium prices and lower levels of output in the economy.

Quiz 23: Aggregate Demand and Aggregate Supply

In the early 1930s in the United States, there was a

Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?

Suppose that during World War II the long-run aggregate supply curve shifted right. In order for price and output to have changed in the direction they did, what would have to have happened to aggregate demand?

Which of the following has been suggested as a cause of the Great Depression?

Which of the following alone can explain the change in the price level and output during World War II?

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting

If output is above its natural rate, then according to sticky-wage theory

During World War II, the economy's production increased about

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

In the short-run an increase in the costs of production makes

A decrease in the availability of an important major resource such as oil shifts

Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset of the Great Depression?

In the first few years of the Great Depression, unemployment rose to about

Which of the following shifts short-run aggregate supply left?

Which of the following did not happen during the onset of the Great Depression?

Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand?

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

The economic boom of the early 1940s resulted mostly from

During World War II,

When production costs rise,