Deck 9: Aggregate Supply and Macroeconomic Equilibrium

Question 1

What will an increase in the price level result in?

A)a decrease short-run aggregate supply
B)an increase in the quantity of real GDP supplied, but not an increase in short-run aggregate supply
C)a decrease in the quantity of real GDP supplied, but not a decrease in short-run aggregate supply
D)an increase short-run aggregate supply

Answer 1

an increase in the quantity of real GDP supplied, but not an increase in short-run aggregate supply

Question 2

What is the relationship between the level of real GDP supplied and the price level along the long-run aggregate supply curve?

A)Real GDP supplied decreases with increases in the price level.
B)Real GDP supplied does not change with increases in the price level.
C)Real GDP supplied increases with increases in the price level.
D)Real GDP supplied increases with decreases in the price level.

Answer 2

Real GDP supplied does not change with increases in the price level.

Question 3

In the short run,what will an increase in the price level result in?

A)an increase in the natural rate of output
B)an increase in the profit margins of many producers
C)an increase in output prices relative to input prices
D)an increase in unemployment rates

Answer 3

an increase in the profit margins of many producers

Question 4

What does the long-run aggregate supply relationship refer to?

A)a time period long enough for the prices of both outputs and inputs to adjust to changes in the economy
B)a time period in which input prices can change, but output prices have not had time to adjust
C)a time period in which output prices can change but input prices have not had time to adjust
D)any time period of more than a year

Question 5

How does the misperception effect explain why a short-run aggregate supply curve is upward sloping?

A)Because the costs of production rise as the price level rises.
B)Because of fixed wage labour contracts.
C)Because people mistake changes in aggregate demand for changes in the demand for their goods relative to other goods and services.
D)Because profit margins fall as the price level rises.

Question 6

When the price level rises,what happens to real output in the short run and long run as a result?

A)Real output tends to increase in the short run but not in the long run.
B)Real output tends to increase in the long run but not in the short run.
C)Real output tends to decrease in the short run but not in the long run.
D)Real output tends to increase in both the short run and the long run.

Question 7

How is the LRAS curve drawn?

A)as a vertical line
B)as a downward sloping curve
C)as a horizontal line
D)as an upward sloping curve

Question 8

What is the typical response of firms to an increase in the price of what they sell,for given input prices?

A)There is no change in the profit level of firms.
B)There is a decrease in employment in the industry.
C)There is an increase in hiring factors of production.
D)There is no change in output in the short run.

Question 9

What effect explains why the short-run aggregate supply curve is positively sloped?

A)the income effect
B)the misperception effect
C)the substitution effect
D)the market effect

Question 10

If the price level rises,what happens to the level of real GDP supplied?

A)It will decrease in both the short run and the long run.
B)It will decrease in the short run but not in the long run.
C)It will increase in both the short run and the long run.
D)It will increase in the short run but not in the long run.

Question 11

Which of the following best describes the relationship between the SRAS curve and real output levels?

A)The SRAS curve is upward sloping with real output levels that vary negatively with the price level.
B)The SRAS curve is upward sloping with real output levels that vary positively with the price level.
C)The SRAS curve is vertical with real output levels that can be either greater than or less than the natural level of real output.
D)The SRAS curve is vertical with real output levels that are equal to the natural level of real output at all price levels.

Question 12

Which of the following statements about short-run aggregate supply is the most accurate?

A)It is not affected in any manner by the price level.
B)It reflects how much real GDP suppliers are willing and able to produce at different price levels.
C)It shifts only when the LRAS shifts.
D)It is a fixed volume of output.

Question 13

Which of the following statements about the short-run aggregate supply curve is most accurate?

A)It shifts only when the LRAS shifts in the same direction.
B)It is not as steeply sloped as the LRAS.
C)It normally has a slope of zero, meaning the curve is horizontal.
D)It normally slopes upward to the right because the costs of labour and other inputs are relatively fixed in the short run.

Question 14

When referring to the aggregate supply curve,what is the short run?

A)a time period in which output prices can change in response to supply and demand, but in which all input prices have not yet been able to completely adjust
B)a time period in which neither the prices of output nor the prices of inputs are able to change
C)any time period of less than a year
D)a time period in which the prices of output cannot change, but in which the prices of inputs have time to adjust

Question 15

Which of the following statements about the aggregate supply curve is most accurate?

A)It is typically flat for levels of output lower than the full-employment level.
B)It is a schedule showing the relationship between the price level and the quantity of nominal GDP supplied.
C)It is derived from product prices.
D)It is typically upward sloping.

Question 16

How is the aggregate supply curve drawn?

A)with the price level on the vertical axis and real GDP on the horizontal
B)with nominal GDP on the vertical axis and real GDP on the horizontal
C)with real GDP on the horizontal axis and the rate of unemployment on the vertical
D)with the price level on the vertical axis and nominal GDP on the horizontal

Question 17

What is the profit effect?

A)At equilibrium prices, when costs rise, profit margins are able to float with them and be passed along.
B)When the price level rises, output prices rise relative to input prices (costs), raising producers' short-run profit margins.
C)When the price level decreases, output prices rise relative to input prices (costs), raising producers' short-run profit margins.
D)It is only a long-run phenomenon.

Question 18

How is the SRAS curve drawn?

A)as a vertical line
B)as an upward sloping curve
C)as a downward sloping curve
D)as a horizontal line

Question 19

If the price level rises,what will happen to the quantity of real GDP produced along the long-run aggregate supply curve?

A)It will increase.
B)It will stay the same.
C)It will usually increase, but not always.
D)It will decrease.

Question 20

Which of the following statements about the long-run aggregate supply curve is the most accurate?

A)It is upward sloping.
B)The level of real GDP supplied changes as input prices change.
C)The level of real GDP supplied changes with the levels of capital, land, labour, and technology available to the economy.
D)The LRAS shifts when the SRAS shifts.

Question 21

If,due to rising demand,the price of cotton rose 15 percent while the price of other goods and services rose an average of 10 percent,what would this imply about the price and output of cotton?

A)The relative price of cotton has risen, and one would expect the output of cotton to rise as a result.
B)The relative price of cotton has fallen, and one would expect the output of cotton to rise as a result.
C)The relative price of cotton has risen, and one would expect the output of cotton to fall as a result.
D)The relative price of cotton has fallen, and one would expect the output of cotton to fall as a result.

Question 22

If wheat prices fell by 2 percent when producers thought other prices were falling by 5 percent,what would be the effect on wheat output?

A)We could not predict the likely change in wheat output that would result.
B)It would tend to rise as a result.
C)It would tend to remain unchanged as a result.
D)It would tend to fall as a result.

Question 23

What will be the result if the nation experiences a technological breakthrough in the production process?

A)Business costs will rise, profits will fall, and production will decrease.
B)Business costs will fall, but profits also will fall and production will remain at the pre-breakthrough level.
C)Business costs will decline, improving profitability, and production will increase.
D)Firms will make higher profits but will not increase production.

Question 24

Which of the following change in conditions could result in increased productivity?

A)a larger workforce
B)new and improved technology
C)higher wage rates
D)fewer machines

Question 25

When the price of cotton has risen 12 percent,how could the misperception effect lead cotton producers to increase their output when they otherwise would not have?

A)if input prices have risen 12 percent
B)if overall prices have risen 4 percent
C)if overall prices have risen 20 percent
D)if overall prices have risen 12 percent

Question 26

How can the long-run,or natural,level of real output be represented?

A)by a LRAS that is an upward-sloping line
B)by a LRAS that is a downward-sloping line
C)by a LRAS that is a horizontal line
D)by a LRAS that is a vertical line

Question 27

If there was no profit effect,but there was a misperception effect in the short run,how would the SRAS and LRAS curve be drawn?

A)The SRAS and LRAS would both be vertical.
B)The SRAS would be vertical and the LRAS would be upward sloping.
C)The SRAS would be upward sloping and the LRAS would be vertical.
D)The SRAS and LRAS would both be upward sloping.

Question 28

Suppose that the saving rate in Canada increases,and firms use the increased saving to invest.What will happen to long-run aggregate supply?

A)The LRAS will not shift, but the economy moves along the LRAS curve to a lower price level.
B)It will increase.
C)It will decrease.
D)The LRAS will not shift, but the economy moves along the LRAS curve to a higher price level.

Question 29

If investment as a fraction of GDP rose substantially and then stayed at a high level,what effect would this have on aggregate supply over time?

A)It will shift both the SRAS and LRAS right.
B)It will shift the SRAS right, but not the LRAS.
C)It will shift the LRAS to the left, but not the SRAS.
D)It will shift both the SRAS and the LRAS left.

Question 30

In the short run,what is the result of an increase in the price level?

A)Output prices will not change relative to input prices.
B)Output prices will rise relative to input prices.
C)Output prices could either rise or fall relative to input prices.
D)Output prices will fall relative to input prices.

Question 31

Which of the following changes would shift the long-run aggregate supply curve?

A)a change in the wage rate paid to labour in the economy
B)a change in technology in the economy
C)a change in the cost of capital in the economy
D)a change in the rental value of land in the economy

Question 32

If wheat prices rose by 12 percent when producers thought other prices were rising by 15 percent,what is the effect on wheat output?

A)We could not predict the likely change in wheat output that would result.
B)It would tend to rise as a result.
C)It would tend to remain unchanged as a result.
D)It would tend to fall as a result.

Question 33

Under what circumstances would the SRAS be vertical?

A)if there was no profit effect
B)under no conceivable set of circumstances
C)if there was no misperception effect
D)if there was no profit effect or misperception effect

Question 34

If there was no profit effect or misperception effect in the short run,how would the SRAS and LRAS curve be drawn?

A)The SRAS and the LRAS would both be vertical.
B)The SRAS would be vertical and the LRAS would be upward sloping.
C)The SRAS would be upward sloping and the LRAS would be vertical.
D)The SRAS and LRAS would both be upward sloping.

Question 35

When the post-World War II "baby boom" babies grew to maturity and entered the labour force about 20 years after birth,what impact did this have on the SRAS curve?

A)It resulted in a movement downwards along the SRAS curve.
B)It shifted the SRAS curve to the right.
C)It shifted the SRAS curve to the left.
D)It resulted in a movement upwards along the SRAS curve.

Question 36

In the long run,what impact will a decrease in the price level have?

A)It will leave output prices unchanged relative to input prices.
B)It will decrease real GDP supplied.
C)It will raise real wages.
D)It will increase the profit margins of many producers.

Question 37

Which of the following best describes the relationship between the LRAS curve and real output levels?

A)The LRAS curve is vertical with real output levels that can be either greater than or less than the natural level of real output.
B)The LRAS curve is upward sloping with real output levels that vary positively with the price level.
C)The LRAS curve is upward sloping with real output levels that vary negatively with the price level.
D)The LRAS curve is vertical with real output levels that are equal to the natural level of real output at all price levels.

Question 38

Which of the following statements best illustrates the misperception effect?

A)Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 22 percent.
B)Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 10 percent.
C)Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 5 percent.
D)Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 12 percent.

Question 39

Which of the following statements best illustrates a correct shift of the short run aggregate supply curve?

A)The short-run aggregate supply curve is shifted rightward by an increase in the price of any input, and it is shifted leftward by a decrease.
B)The short-run aggregate supply curve is shifted rightward by a technological breakthrough that increases the productivity of the labour force.
C)The short-run aggregate supply curve is shifted leftward by a decrease in the price of any input, and it is shifted rightward by an increase.
D)The short-run aggregate supply curve is shifted leftward by an increase of skilled workers in the labour force.

Question 40

Which of the following best describes the result of an increase in the price level in the long run?

A)Output prices could either rise or fall relative to input prices.
B)Output prices will rise relative to input prices.
C)Output prices will fall relative to input prices.
D)Output prices will not change relative to input prices.

Question 41

If a one-time natural disaster such as an earthquake struck,raising the cost of production,what would the result on the short-run and long-run aggregate supply curves be?

A)It would shift LRAS left, but leave SRAS unchanged.
B)It would leave both the SRAS and LRAS unchanged.
C)It would shift SRAS left, but leave LRAS unchanged.
D)It would shift both the SRAS and the LRAS left.

Question 42

If employers win major wage concessions in many industries,how will this affect short-run aggregate supply?

A)It will shift right (an increase in aggregate supply).
B)It will shift left (an increase in aggregate supply).
C)It will shift left (a decrease in aggregate supply).
D)It will shift right (a decrease in aggregate supply).

Question 43

Other things being equal,under what circumstances will the short-run aggregate supply curve shift to the left?

A)if energy prices fall
B)if there is a short-term increase in input prices
C)if technology and productivity increase in the nation
D)if the capital stock of the nation increases

Question 44

If wages increase 10 percent while worker productivity increases 20 percent,what would we expect the long-run aggregate supply curve to do?

A)shift left (an increase in aggregate supply)
B)shift right (an increase in aggregate supply)
C)shift right (a decrease in aggregate supply)
D)shift left (a decrease in aggregate supply)

Question 45

An unusual series of rainstorms wash out the grain crop in the Prairies,severely curtailing the availability of corn,wheat,and soybeans.What effect would this have on aggregate supply?

A)It would shift the SRAS right, but not the LRAS.
B)It would shift both the SRAS and the LRAS right.
C)It would shift the SRAS left, but not the LRAS.
D)It would shift both the SRAS and the LRAS left.

Question 46

If money wages increase,what is the most likely outcome?

A)an increase output in the long run
B)an decrease short-run aggregate supply
C)an decrease output in the long run
D)an increase short-run aggregate supply

Question 47

Brent,a brilliant inventor,found a way to grind up discarded newspapers and create a new,far lower-cost,effective plaster.What effect would this innovation have on aggregate supply?

A)If it is able to replace existing products with its superior characteristics, it will shift SRAS to the right and LRAS to the right.
B)If it is able to substantially lower the costs of home insulation products, it would shift SRAS to the right but not change the LRAS.
C)By reducing the demand for existing plaster, it would have no net effect on the SRAS but shift LRAS left.
D)By providing a readier market to use discarded papers, it would reduce disposal costs for many producers and thereby shift SRAS to the left, leaving LRAS unchanged.

Question 48

A major drought hits the Prairies,causing sharply decreased harvests of grain.What is the most likely impact of this on short-run aggregate supply?

A)It will not shift, but the economy moves along the SRAS to a higher price level.
B)It will decrease.
C)It will not shift, but the economy moves along the SRAS to a lower price level.
D)It will increase.

Question 49

If the prices of inputs rise,what happens to short-run aggregate supply?

A)It shifts right.
B)It doesn't shift, but the economy moves down along the SRAS curve.
C)It doesn't shift, but the economy moves up along the SRAS curve.
D)It shifts left.

Question 50

Which of the following situations will cause the LRAS to shift leftward?

A)when a decrease in the capital stock occurs
B)when an increase in the capital stock occurs
C)when an advance in technology occurs
D)when an increase in the amount of labour available for production occurs

Question 51

Which of the following would decrease SRAS?

A)A reduction in the amount of capital employed by businesses.
B)Investments in education and vocational programs make workers better prepared.
C)On-the-job training causes worker productivity to rise.
D)Firms adopt more powerful computers and more advanced machine tools for their workers.

Question 52

Which of the following could be expected to shift the short-run aggregate supply curve leftward?

A)wage increases with corresponding increases in labour productivity
B)a decrease in the price of oil
C)a natural disaster
D)an increase in interest rates affecting the cost of capital

Question 53

A recent scientific study has concluded that the spotted owl is an endangered species,and it is protected by the Species at Risk Act.To protect the owl,logging operations throughout parts of southern British Columbia have been curtailed.What effect would this have on short-run aggregate supply in Canada?

A)It would shift right (an increase in short-run aggregate supply).
B)It would shift left (a decrease in short-run aggregate supply).
C)It would shift right (a decrease in short-run aggregate supply).
D)It would shift left (an increase in short-run aggregate supply).

Question 54

What impact will higher production costs have on short-run aggregate supply?

A)It will decrease, illustrated by a rightward shift in the SRAS curve.
B)It will increase, illustrated by a leftward shift in the SRAS curve.
C)It will decrease, illustrated by a leftward shift in the SRAS curve.
D)It will increase, illustrated by a rightward shift in the SRAS curve.

Question 55

How will an increase in money wages affect the short-run aggregate supply curve?

A)It will shift left (an increase in short-run aggregate supply).
B)It will shift left (a decrease in short-run aggregate supply).
C)It will shift right (a decrease in short-run aggregate supply).
D)It will shift right (an increase in short-run aggregate supply).

Question 56

What would be the effect on short-run aggregate supply of a large,permanent reduction in the world supply of oil?

A)It would shift left (an increase in short-run aggregate supply).
B)It would shift left (a decrease in short-run aggregate supply).
C)It would shift right (a decrease in short-run aggregate supply).
D)It would shift right (an increase in short-run aggregate supply).

Question 57

Which of the following could be expected to shift the short-run aggregate supply curve leftward?

A)a new technology for creating cold fusion
B)a discovery of new oil reserves
C)a rise in the price of oil
D)an increase in labour productivity

Question 58

Which of the following would shift the SRAS curve but NOT the LRAS curve?

A)increasing the available quantity of available natural resources
B)increasing the level of usable technology
C)increasing the wage rate paid to labour
D)increasing the capital stock

Question 59

What is the effect of an increase in input prices on the short-run aggregate supply curve?

A)It shifts rightward, which means the quantity supplied at any price level increases.
B)It shifts leftward, which means the quantity supplied at any price level increases.
C)It shifts rightward, which means the quantity supplied at any price level declines.
D)It shifts leftward, which means the quantity supplied at any price level declines.

Question 60

Which of the following situations will cause the LRAS to shift rightward?

A)when both an advance in technology and an increase in the capital stock occur
B)when both a decrease in the capital stock and a decrease in the amount of labour available for production occur
C)when both an increase in the capital stock and a decrease in the natural resources that are available for production occur
D)when both an advance in technology and a decrease in the amount of labour available for production occur

Question 61

What impact would a year of unusually bad weather for agriculture have on the SRAS and LRAS curves?

A)It would increase SRAS but not LRAS.
B)It would decrease SRAS but not LRAS.
C)It would increase SRAS and LRAS.
D)It would decrease SRAS and LRAS.

Question 62

What impact will a permanent increase in the supply of a major input have on real output?

A)It will increase real output in both the short run and the long run.
B)It will decrease real output in both the short run and the long run.
C)It will decrease real output in the short run but not the long run.
D)It will increase real output in the short run but not in the long run.

Question 63

What effect will the combination of a decrease in the capital stock and increasingly costly government regulations have on LRAS?

A)It will shift LRAS to the left.
B)It will shift LRAS to the right.
C)It will leave LRAS unchanged.
D)It will have an indeterminate effect on LRAS.

Question 64

When there is a temporary sharp reduction in the price of oil,which curves will shift left?

A)neither SRAS nor LRAS
B)SRAS
C)LRAS
D)both SRAS and LRAS

Question 65

What effect will the combination of an increase in the capital stock and a decrease in the natural resources that are available for production have on LRAS?

A)It will leave LRAS unchanged.
B)It will have an indeterminate effect on LRAS.
C)It will shift LRAS to the left.
D)It will shift LRAS to the right.

Question 66

How will a temporary adverse supply shock shift the SRAS and LRAS curves?

A)Only the SRAS curve will shift left; the LRAS curve will not change.
B)Both the SRAS and LRAS curves will shift left.
C)Only the SRAS curve will shift right; the LRAS curve will not change.
D)Both the SRAS and LRAS curves will shift right.

Question 67

What impact will a temporary decrease in the supply of a major input have on real output?

A)It will increase real output in both the short run and the long run.
B)It will increase real output in the short run but not in the long run.
C)It will decrease real output in both the short run and the long run.
D)It will decrease real output in the short run but not the long run.

Question 68

What could a reduction in LRAS due to a reduction in the working-age population in a country potentially be prevented or offset by?

A)decreasing capital investment
B)increasing business taxes
C)taking young workers out of school and putting them immediately to work
D)increasing the training and education levels of the workforce

Question 69

If labour productivity increases by 15 percent,under which of the following circumstances will a change in wages lead to a decrease in short-run aggregate supply?

A)if wages increase by 20 percent
B)if wages increase by 15 percent
C)if wages increase by 10 percent
D)if wages are stable

Question 70

What effect will the combination of a technological advance and a better-trained and educated workforce have on LRAS?

A)It will shift LRAS to the left.
B)It will have an indeterminate effect on LRAS.
C)It will shift LRAS to the right.
D)It will leave LRAS unchanged.

Question 71

What impact will a permanent decrease in the supply of a major input have on real output?

A)It will increase real output in both the short run and the long run.
B)It will increase real output in the short run but not in the long run.
C)It will decrease real output in the short run but not the long run.
D)It will decrease real output in both the short run and the long run.

Question 72

What impact will an increase in aggregate demand have on real output?

A)It will not increase real output in either the short run or the long run.
B)It will increase real output in both the short run and long run.
C)It will increase real output only in the short run.
D)It will increase real output only in the long run.

Question 73

When wages rise 15 percent,under which of the following circumstances will short-run aggregate supply increase?

A)if productivity is stable
B)if productivity increases by 10 percent
C)if productivity increases by 15 percent
D)if productivity increases by 20 percent

Question 74

Assuming a constant level of aggregate demand,what is included in the short-run effects of an adverse supply shock?

A)a decrease in the price level and a decrease in real output
B)an increase in the price level and an increase in real output
C)a decrease in the price level and an increase in real output
D)an increase in the price level and a decrease in real output

Question 75

When there is a temporary sharp reduction in the price of oil,which curves will shift right?

A)SRAS
B)both SRAS and LRAS
C)neither SRAS nor LRAS
D)LRAS

Question 76

What could a leftward shift of the short-run aggregate supply curve reflect?

A)an increase in the capital stock
B)lower expected input prices
C)a change in technology that increases output per unit of input
D)higher expected input prices

Question 77

When there is a temporary sharp increase in the price of oil,which curves will shift left?

A)both SRAS and LRAS
B)SRAS
C)LRAS
D)neither SRAS nor LRAS

Question 78

What impact will a temporary increase in the supply of a major input have on real output?

A)It will increase real output in both the short run and the long run.
B)It will increase real output in the short run but not in the long run.
C)It will decrease real output in the short run but not the long run.
D)It will decrease real output in both the short run and the long run.

Question 79

If the government permanently eliminated many of the costly paperwork requirements imposed on businesses and individuals,how would this impact the SRAS and LRAS curves?

A)SRAS would increase but LRAS would not.
B)SRAS and LRAS would both increase.
C)SRAS and LRAS would both decrease.
D)SRAS would decrease but LRAS would not.

Question 80

What could an increase in LRAS due to an expansion in the working-age population in a country potentially be offset by?

A)improving training and education levels of the workforce
B)decreasing capital investment
C)increasing the search for usable supplies of natural resources
D)advancing technology