Question 1

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

In the short-run, an increase in the costs of production will lead to a decrease in the supply of the product. This will cause the equilibrium price to increase, leading to a rise in prices. At the same time, the decrease in supply will lead to a decrease in output. Therefore, both output and prices will fall, making option D incorrect. Option A is incorrect as an increase in costs will not lead to an increase in output. Option B is incorrect as an increase in costs will not lead to a decrease in prices.

Question 2

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 shift the aggregate supply left because it would result in higher costs of production, less output, and higher prices for consumers. This would cause a decrease in the overall supply of goods and services in the economy, leading to a leftward shift in the aggregate supply curve.

Question 3

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, it decreases demand in the economy, which leads to a decrease in price level. As people revise their price-level expectations downward, firms and workers strike bargains for lower nominal wages, which reduces the costs of production for firms. This leads to an increase in profitability and a shift of the short-run aggregate supply curve to the right, ultimately resulting in a movement back to long-run equilibrium.

Question 4

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

Policymakers who want to offset the effects on output of an economic contraction caused by a shift in aggregate supply would need to use policy to shift aggregate demand to the right. By increasing aggregate demand, they can help stimulate demand for goods and services, thereby offsetting the decrease in supply caused by the shift in aggregate supply.

Question 5

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. This increase in wages causes an increase in production costs and thus reduces the level of profits for firms. To maintain their previous levels of profits, firms will reduce the quantity of output they produce. This reduction in the quantity of output produced shifts the short-run aggregate supply curve to the left. Therefore, the correct answer is B, workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.

Question 6

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 7

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 aggregate supply shifted left during the Great Depression, then output would have decreased and price level would have decreased as well. For both of these to happen at the same time, aggregate demand would have to shift left by a greater amount than aggregate supply, causing a decrease in both output and the price level.

Question 8

If there are floods or droughts or a decrease in the availability of raw materials
A) aggregate supply shifts right.
B) output falls in the short run.
C) prices fall in the short run.
D) None of the above is correct.

Accepted Answer

Floods, droughts or a decrease in the availability of raw materials can negatively affect the production capacity of firms, leading to a decrease in output in the short run. Therefore, option B is correct. Option A is incorrect because a negative shock to the economy would shift the aggregate supply curve to the left, not to the right. Option C is also incorrect because a decrease in supply usually leads to an increase in prices, not a decrease.

Question 9

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 find it more expensive to produce and supply goods and services, leading to a decrease in output. This causes the short-run aggregate supply curve to shift to the left.

Question 10

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 was the time of the Great Depression, which resulted in a large decrease in output. However, the early 1940s saw a large increase in output due to the United States entry into World War II and the subsequent increase in government spending on defense production. Therefore, option C is the best choice.

Question 11

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 12

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 resulted mostly from increased government expenditures, particularly on the military during World War II. This stimulated production and employment, leading to economic growth.

Question 13

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 did not conduct expansionary monetary policy during the onset of the Great Depression. In fact, their actions were contractionary, which contributed to the severity of the economic downturn.

Question 14

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 a shift in aggregate demand creates an economic contraction and policymakers want to offset it, they need to shift aggregate demand to the right. This can be achieved through fiscal or monetary policy, such as increasing government spending or decreasing interest rates. Shifting aggregate supply to the right would not address the initial shift in demand and could potentially worsen the contraction.

Question 15

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 16

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 17

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 the long-run aggregate supply curve shifted right, it implies that the economy's potential output has increased. This should result in an increase in output and a decrease in prices. For this to happen, aggregate demand would have to shift left, as a rightward shift in aggregate demand would result in even higher output and prices than before, which is not consistent with a rightward shift in the long-run aggregate supply curve. However, the extent to which aggregate demand would have to shift left is not specified, so we cannot choose option B or D. Option C implies that the increase in potential output was not matched by an increase in demand, which would result in a decrease in output and prices, and is therefore incorrect.

Question 18

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 mentioned factors- a decline in the money supply, a decrease in stock prices, and the collapse of the banking system- have been suggested as causes of the Great Depression. However, some historians and economists have also pointed to other factors such as government policies, international trade imbalances, and overproduction as contributing factors.

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

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

During the first few years of the Great Depression, unemployment rose to approximately 25 percent, and prices fell about 22 percent.

Quiz 33: Aggregate Demand and Aggregate Supply

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

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?

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

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

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

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?

If there are floods or droughts or a decrease in the availability of raw materials

When production costs rise,

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

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

The economic boom of the early 1940s resulted mostly from

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

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

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

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?

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?

During World War II,

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