Deck 23: Aggregate Supply and Demand and the Growth Diamond

Question 1

The invention of the internet was a negative supply shock.

Answer 1

False

Question 2

If a government spending program increases the natural rate of output, then the equilibrium price level does not necessarily rise in the AS-AD model.

Answer 2

True

Question 3

The IS-LM model and the quantity theory of money have the same implications for the slope of AD.

Answer 3

True

Question 4

An increase in consumption causes AS to shift to the left.

Question 5

People who believe the adjustment of AS happens quickly in the short run are less likely to be in favor of activist policies.

Question 6

If output is above the natural rate, the labor market is tight and AS would be expected to shift left due to a decrease in wages.

Question 7

An increase in the interest rate shifts AD to the left.

Question 8

An increase in investment shifts aggregate demand to the right, which also implies an increase in velocity.

Question 9

If there is high unemployment, AS would shift to the right.

Question 10

The AS-AD model shows long-run money neutrality.

Question 11

According to the AS-AD model with output starting at the natural rate, an increase in government spending leads to an increase in the equilibrium price level and no change in the equilibrium level of output in the long run.

Question 12

According to the AS-AD model, if oil prices fall, then equilibrium output and the equilibrium prices rise in the short run.

Question 13

According to the quantity theory of money, an increase in the supply of money would shift AD to the right.

Question 14

An improvement in productivity can increase the natural rate of output.

Question 15

If input prices and output prices were perfectly flexible in the short run, AS would be the same in the short and long runs.

Question 16

An increase in government spending implies an increase in velocity.

Question 17

Wars induce long-term growth.

Question 18

If unions are unable to negotiate a large wage increase, then AS would shift to the left in the short run.

Question 19

According to the AS-AD model starting at the natural rate, if the central bank lowers the money supply, then equilibrium output and the equilibrium price level fall in the short run.

Question 20

An increase in autonomous consumption shifts aggregate demand to the left.

Question 21

A decrease in oil prices will lead to ____ equilibrium output and a _____ equilibrium price level in the short run.

A) lower, lower
B) lower, higher
C) higher, lower
D) higher, higher

Question 22

A decrease in government spending shifts _____ to the

A) AD, right.
B) AD, left.
C) AS, right.
D) AS, left.

Question 23

Which of the following would lead to an increase in equilibrium output and a decrease in the equilibrium price level in the short run?

A) decrease in oil prices
B) increase in exports
C) increase in wages
D) decrease in taxes

Question 24

In the long run, the aggregate supply curve is

A) positively sloped.
B) negatively sloped.
C) vertical.
D) horizontal.

Question 25

According to the AS-AD model, if workers demand higher wages, then equilibrium output and the equilibrium price level will fall in the short run.

Question 26

An increase in velocity shifts _____ to the

A) AD, right.
B) AD, left.
C) AS, right.
D) AS, left.

Question 27

An increase in which of the following would lead to decrease in equilibrium output and an increase in equilibrium prices?

A) positive demand shock
B) negative demand shock
C) positive supply shock
D) negative supply shock

Question 28

An increase in investment will lead to ____ equilibrium output and a _____ equilibrium price level in the short run.

A) lower, lower
B) lower, higher
C) higher, lower
D) higher, higher

Question 29

Some types of government spending can raise the natural rate of output.

Question 30

An increase in expected inflation shifts _____ to the

A) AD, right.
B) AD, left.
C) AS, right.
D) AS, left.

Question 31

According to the AS-AD model, money is neutral in the

A) short run.
B) long run.
C) both of the above.
D) neither of the above.

Question 32

The United States developed a modern financial system before Canada.

Question 33

A change in which of the following would not shift long-run AS?

A) capital stock
B) inflation expectations
C) productivity
D) all of the above

Question 34

An increase in velocity would be associated with an increase in

A) taxes.
B) net exports.
C) productivity.
D) all of the above.

Question 35

According to the AS-AD model, an increase in taxes does not change output in the

A) short run.
B) long run.
C) both of the above.
D) neither of the above.

Question 36

The first step on the growth diamond is for a country to have a non-predatory government.

Question 37

Those who believe adjustment to long-run outcomes can take a very long time tend to be in favor of active government intervention.

Question 38

If output is below the natural rate, output will increase due to a _____ in wages, which leads _____ to shift to the right.

A) rise, AD
B) fall, AD
C) rise, AS
D) fall, AS

Question 39

If inflation is expected to decrease, the AS curve move to the right.

Question 40

The AD curve shifts to the right if _____ decrease(s).

A) consumption
B) money supply
C) taxes
D) all of the above

Question 41

If output is below the natural rate, explain why it would automatically fall through changes in the labor market.

Question 42

A loose labor market occurs when output is _____ the natural rate.

A) above
B) below
C) equal to
D) none of the above

Question 43

Why is the theory of aggregate demand and supply attractive?

Question 44

Show the short-run effect of a currency depreciation on an AS-AD graph.

Question 45

Which of the following is NOT a step on the growth diamond?

A) public education
B) open access entrepreneurship
C) modern financial system
D) They are all steps on the growth diamond.

Question 46

An increase in net exports would involve a short-run shift in ____ and a long-run shift in

A) AD, AD.
B) AD, AS.
C) AS, AD.
D) AS, AS.

Question 47

Show (and explain) the short- and long-run effects of a decrease in the money supply, on a graph of AS and AD, starting at the natural rate of output. Is money neutral?

Question 48

When taxes go up, AD

A) moves to the left.
B) moves to the right.
C) achieves equilibrium.
D) none of the above.

Question 49

Which of the following is a step on the growth diamond?

A) modern financial system
B) effective management
C) non-predatory government
D) all of the above

Question 50

The 1990s saw high growth with low inflation. Give a possible explanation that would result in higher equilibrium output with a lower equilibrium price level on an AS-AD graph.

Question 51

Farms of white farmers in Zimbabwe were recently confiscated. What does this suggest about Zimbabwe progress along the growth diamond?

Question 52

According to the quantity theory of money, how would a decrease in velocity affect AD?
A decrease in V would require a lower Y for any given level of P (or vice versa), so AD would shift to the left (down).

Question 53

A negative supply shock

A) increases production.
B) decreases production.
C) has no impact on production.
D) none of the above.

Question 54

A permanent improvement in productivity would mean a shift in

A) AD.
B) AS.
C) ASL.
D) all of the above.

Question 55

Changes in what could affect the natural rate of output?

Question 56

An increase in inflation expectations would involve a short-run shift in ____ and a long-run shift in

A) AD, AD.
B) AD, AS.
C) AS, AD.
D) AS, AS.

Question 57

If unemployment is exceptionally low, wages would be expected to _____, shifting AS to the

A) rise, right.
B) rise, left.
C) fall, right.
D) fall, left.

Question 58

What are the four major steps on the growth diamond?

Question 59

An activist response to a recession would involve a shift in

A) AD.
B) short-run AS.
C) long-run AS.
D) none of the above.