Deck 10: Aggregate Supply

Question 1

Wage rates are typically flexible upward but "sticky" downward.​

Answer 1

True

Question 2

If resource prices are flexible,the long-run aggregate supply curve is vertical.​

Answer 2

True

Question 3

If the price level increases by 5 percent and the nominal wage increases by 3.5 percent,the real wage will decrease by 1.5 percent.​

Answer 3

True

Question 4

In the figure given below,when aggregate supply is AS,the equilibrium output and price level will be Y₂ and P₂.​

Question 5

The actual price level is assumed to be constant along a given short-run aggregate supply curve.​

Question 6

During a particular year,nominal wages increased by 4 percent but real wages declined by 2 percent.This implies that the price level increased by 6 percent.​

Question 7

Given a downward-sloping aggregate demand curve,if short-run aggregate supply increases,real GDP must increase and nominal GDP must fall.​

Question 8

At the potential level of output,there is no seasonal unemployment.​

Question 9

A failure in coordination between workers and employers is most likely to cause an expansionary gap.​

Question 10

The short-run equilibrium output in the economy described by the figure given below is Y₁.​

Question 11

​The aggregate demand-aggregate supply model shows that closing an expansionary gap involves deflation and closing a recessionary gap involves inflation.

Question 12

An adverse supply shock generally decreases the price level and the real GDP.​

Question 13

If the actual price level is lower than the expected price level,the economy will contract in the short run.​

Question 14

The natural rate of unemployment includes frictional,cyclical,and structural unemployment.​

Question 15

Workers usually negotiate compensation in terms of the nominal wage because wage agreements are based on expected price levels.​

Question 16

If the rate of increase in the price level exceeds the rate of increase in nominal GDP,real GDP declines.​

Question 17

In the long run,the price level is determined by aggregate supply.​

Question 18

An expansionary gap generally creates inflationary pressure in an economy.​

Question 19

Actual output can exceed the economy's potential both in the short run and the long run.​

Question 20

The nominal cost per unit of output rises when production is pushed beyond an economy's potential output.​

Question 21

Which of the following is true of the short-run aggregate supply curve?​

A)It shows the relation between the inflation rate and the quantity of aggregate output firms supply,other things constant.
B)It shows the relation between the price of labor and the aggregate quantity of labor workers supply,other things constant.
C)It shows the relation between the interest rate and the quantity of capital goods firms supply,other things constant.
D)It shows the relation between the price level and the quantity of aggregate output firms supply,other things constant.
E)It shows an inverse relationship between the price level and real GDP.

Question 22

An increase in the federal minimum wage will shift the long-run aggregate supply curve to the left.​

Question 23

Suppose the price level increases by 5 percent and the nominal wages of workers increase by 3 percent during a particular year.This implies that the real wage has:​

A)declined by 2 percent.
B)declined by 8 percent.
C)also increased by 2 percent.
D)also increased by 8 percent.
E)remained constant.

Question 24

The nominal wage represents:​

A)the wage measured in terms of the quantity of goods and services a worker can purchase with it.
B)the wage measured in terms of the dollar value of the goods and services a worker can purchase with it.
C)the real wage from which personal taxes has been deducted.
D)the standard of living of workers across time.
E)the change in real wage brought about by changes in aggregate supply.

Question 25

The potential output of an economy is the level of output produced when the:​

A)real wage equals the nominal wage.
B)price level is constant.
C)expected real wage equals the nominal wage.
D)seasonal unemployment rate is zero.
E)expected price level equals the actual price level.

Question 26

Identify the correct statement.​

A)In periods of low inflation,real wages are constant but nominal wages decline.
B)If the price level increases,real wages will increase.
C)If the price level increases,nominal wages will fall.
D)In periods of high inflation,real wages change even if nominal wages remain constant.
E)If the inflation rate is high,real wages and nominal wages change by the same amount.

Question 27

Which of the following is true?

A)The nominal wage will be constant only if the inflation rate is constant.
B)The real wage will be greater than the nominal wage only if the inflation rate is constant.
C)The nominal wage and the real wage will change by the same amount if the price level is constant.
D)The real wage will be equal to one only if the price level is zero.
E)The real wage will be constant only if the nominal wage is constant.

Question 28

In a particular year,if the price level rises by 4 percent and the nominal wage of workers rises by 6 percent,we can conclude that the real wage has:​

A)fallen by 2 percent.
B)fallen by 10 percent.
C)increased by 2 percent.
D)increased by 10 percent.
E)remained constant.

Question 29

The real wage is equal to the:​

A)wage measured in terms of the quantity of goods and services it buys.
B)wage measured in terms of the dollar value of the goods and services it buys.
C)nominal wage net of taxes paid on wages.
D)non-wage benefits received by workers.
E)product of the nominal wage and the price level.

Question 30

Which of these is true of the expected price level in a labor market?​

A)It is the equilibrium price level in the short run.
B)It determines the actual price level in the short run.
C)It determines the actual price level in the long run.
D)It allows firms and resource owners to make long-term wage agreements.
E)The difference between the expected and actual price levels is equal to the actual inflation rate.

Question 31

If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year,which of the following is correct?​

A)Real wages will increase by 2 percent per year.
B)Real wages will increase by 3 percent per year.
C)Real wages will decrease by 3 percent per year.
D)Real wages will decrease by 2 percent per year.
E)Real wages will remain constant.

Question 32

Floods in the Midwest that diminish farm output would shift the aggregate supply curve outward.​

Question 33

Suppose the real wage remains unchanged between Year 1 and Year 2 but the nominal wage increases from $20 to $24.Based on this information,we can conclude that the price level has:​

A)increased by 20 percent.
B)increased by 25 percent.
C)remained unchanged.
D)decreased by 10 percent.
E)decreased by 20 percent.

Question 34

Suppose Jack's salary increased from $100,000 to $200,000 per year between 2004 and 2014 and the price index increased from 100 to 300 during the same period.Which of the following statements best describes Jack's situation?​

A)His real income and money income have both increased.
B)His real income has increased and money income has decreased.
C)His real income and money income have both decreased.
D)His real income has decreased and money income has increased.
E)His real income has remained unchanged.

Question 35

A nominal wage is:​

A)always equal to the legal minimum wage.
B)the same as the efficiency wage.
C)measured in terms of the amount of goods and services it can purchase.
D)measured in current dollars rather than in constant dollars.
E)measured in constant dollars rather than in current dollars.

Question 36

Potential output is the amount produced when:​

A)firms' and workers' expectations about the price level are realized.
B)the actual price level is higher than the price level expected by workers.
C)firms and workers have the same expectations about the price level.
D)the actual price level remains constant.
E)the actual price level is lower than the price level expected by firms.

Question 37

The longer the unemployment rate remains above the natural rate,the higher the natural rate.This theory is known as historical analysis.​

Question 38

The international oil price hike by OPEC was an adverse supply shock faced by the U.S.in the 1970s.​

Question 39

Suppose the real wage of a worker remains unchanged between Year 1 and Year 2 but the nominal wage decreases from $20 in Year 1 to $18 in Year 2.This implies that the price level has:​

A)increased by 20 percent.
B)increased by 25 percent.
C)remained unchanged.
D)fallen by 10 percent.
E)fallen by 20 percent.

Question 40

If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year,real wages will:​

A)increase by 3 percent per year.
B)increase by 5 percent per year.
C)increase by 2 percent per year.
D)decrease by 5 percent per year.
E)decrease by 3 percent per year.

Question 41

The fact that some resource prices are fixed by contracts help explain why firms:​

A)increase output in the short run when the price level increases.
B)keep production levels constant in the short run when the price level decreases.
C)sell output in the short run at fixed prices.
D)increase output in the long run when the price level increases.
E)decrease production when nominal wages fall in the long run.

Question 42

When the economy's actual price level exceeds the expected price level in the short run,:​

A)the real wages of workers decline.
B)the nominal wages of workers increase.
C)firms decrease output below the potential level.
D)the economy produces the natural rate of output.
E)cyclical unemployment in the economy falls to zero.

Question 43

Which of the following is true in the short run but not in the long run?​

A)Actual output is equal to potential output.
B)Actual output can exceed potential output.
C)Structural unemployment can exist.
D)Frictional unemployment can exist.
E)Real and nominal GDP can differ.

Question 44

If the actual price level is higher than the expected price level,the economy will:​

A)have no structural unemployment.
B)experience a recession.
C)experience stagflation.
D)expand output in the short run.
E)have no seasonal unemployment.

Question 45

If the price level in the current year is much higher than the expected price level,_____.​

A)firms will increase production beyond the economy's potential level
B)the unemployment rate will increase​
C)firms will decrease production below the economy's potential level​
D)the short-run aggregate supply curve will become steeper​
E)the unemployment rate will fall to zero​

Question 46

When the economy is at its potential output level,which of the following is true?​

A)The price level is higher than that expected by workers.
B)The nominal wage is equal to the real wage.
C)The unemployment rate is about 14 percent.
D)The economy is producing its maximum sustainable output.
E)The actual price level is less than the expected price level.

Question 47

Potential output depends on all of the following except one.Which is the exception?​

A)The supply of labor
B)Labor productivity​
C)Household choices regarding labor and leisure​
D)The technology in current use​
E)The number of consumers in the market​

Question 48

In constructing the short-run aggregate supply curve,we define the short run as the period in which:​

A)the price level is constant.
B)output is fixed.
C)profit is constant.
D)the costs of some resources are fixed.
E)the economic growth rate is less than 4 percent.

Question 49

The potential output of an economy is:​

A)the output level at which inflation is very high.
B)the output level at which nominal GDP is equal to real GDP.
C)less than the full-employment rate of output.
D)the output level at which total unemployment is zero.
E)also referred to as the natural rate of output.

Question 50

The short run is a period of time during which:​

A)there is an expansionary gap that cannot be corrected using the passive approach.
B)actual output equals potential output.
C)there is a recessionary gap that cannot be corrected through discretionary policy.
D)resource buyers and sellers cannot adjust fully to changes in the price level.
E)resource buyers and sellers can adjust fully to changes in the price level.

Question 51

If the actual price level is less than the expected price level reflected in long-term contracts,_____.​

A)firms will find production more profitable in the short run than they had expected and will decrease the quantity of output supplied
B)firms will find production less profitable in the short run than they had expected and will decrease the quantity of output supplied​
C)firms will find production more profitable in the short run than they had expected and will increase the quantity of output supplied​
D)resource owners will earn higher returns in the short run than they had expected and will decrease the quantity of resources supplied​
E)unemployment will increase in the short run as firms will substitute labor with capital inputs​

Question 52

When the actual price level in an economy turns out to be lower than that expected in the short run,_____.​

A)businesses cut back production
B)the potential output level decreases​
C)the aggregate supply curve shifts leftward​
D)the aggregate supply curve shifts rightward​
E)an expansionary gap develops​

Question 53

In constructing a short-run aggregate supply curve,we assume that the goal of business is to:​

A)maximize sales revenue.
B)maximize profit.
C)maximize growth in assets.
D)maximize growth in sales.
E)minimize cost.

Question 54

Which of the following is true in the short run?​

A)The aggregate supply curve is horizontal.
B)The aggregate supply curve is vertical.
C)Per-unit costs do not increase as much as output prices when the price level rises.
D)An increase in price per unit results in a decrease in profit per unit.
E)Firms' total costs of production decrease as output expands beyond the potential level.

Question 55

Cyclical unemployment in an economy will be zero when:​

A)there is an expansionary gap in the economy.
B)the economy is producing its natural rate of output.
C)there is a recessionary gap in the economy.
D)the actual price level is equal to the expected price level in the economy.
E)the actual price level exceeds the expected price level in the economy.

Question 56

When the economy produces its potential output,_____ is zero.​

A)frictional unemployment
B)cyclical unemployment​
C)seasonal unemployment​
D)structural unemployment​
E)disguised unemployment​

Question 57

Which of the following types of unemployment is likely to exist in an economy that is at its potential output level?​

A)Cyclical unemployment only
B)Structural unemployment only​
C)Frictional,cyclical,and seasonal unemployment only​
D)Frictional,seasonal,and structural unemployment only​
E)Seasonal unemployment only​

Question 58

Given implicit or explicit resource price agreements,if the actual price level is below the expected price level,the:​

A)economy will move rightward along the short-run aggregate supply curve.
B)economy will move leftward along the short-run aggregate supply curve.
C)short-run aggregate supply curve will shift to the left.
D)long-run aggregate supply curve will become steeper.
E)short-run aggregate supply curve will become flatter.

Question 59

If the price level in an economy turns out to be higher than that expected by workers and firms,_____.​

A)businesses increase production.
B)the economy's potential output level increases.
C)the economy's short-run aggregate supply curve shifts rightward.
D)the economy's short-run aggregate supply curve shifts leftward.
E)a recessionary gap develops.

Question 60

The short-run aggregate supply curve shows a(n):​

A)direct relationship between the expected price level and nominal GDP supplied.
B)inverse relationship between the actual price level and real GDP supplied.
C)direct relationship between the actual price level and nominal GDP supplied.
D)direct relationship between the actual price level and real GDP supplied.
E)inverse relationship between the expected price level and real GDP supplied.

Question 61

The long run is the period of time during which:​

A)real wage is exactly equal to nominal wage.
B)inflation is zero.
C)excess aggregate demand leads to a shortage.
D)real wages are constant.
E)all resource prices can be varied.

Question 62

An expansionary gap is equal to:​

A)real GDP minus nominal GDP.
B)nominal GDP minus real GDP.
C)the actual short-run output minus potential output.
D)the actual price level minus expected price level.
E)the actual long-run real GDP minus actual short-run disposable income.

Question 63

For the aggregate demand and aggregate supply listed in schedule #3 of the table given below,the equilibrium output level and price level are:​ ​
Table 10.1
​
Quantity of
Aggregate Output
Demanded
​
Price
Level
Quantity of
Aggregate Output Supplied
#1
#2
#3
$7)0
110
$5)0
$6)0
$4)0
6)5
120
5)5
6)5
4)5
6)0
130
6)0
7)0
5)0
5)5
140
6)5
7)5
5)5
5)0
150
7)0
8)0
6)0

A)$7.0 and 110,respectively.
B)$6.5 and 120,respectively.
C)$6.0 and 130,respectively.
D)$5.5 and 140,respectively.
E)$5.0 and 150,respectively.

Question 64

The slope of the short-run aggregate supply curve depends on how sharply:​

A)the marginal cost of production rises as real GDP expands.
B)the average cost of production rises as real GDP expands.
C)real GDP increases as the price level rises.
D)nominal GDP increases as the price level rises.
E)product prices change as the price level rises.

Question 65

For the aggregate demand and aggregate supply listed in schedule #2 of the table given below,the equilibrium output level and price level are: ​
Table 10.1​
Quantity of
Aggregate Output
Demanded
​
Price
Level
Quantity of
Aggregate Output Supplied
#1
#2
#3
$7)0
110
$5)0
$6)0
$4)0
6)5
120
5)5
6)5
4)5
6)0
130
6)0
7)0
5)0
5)5
140
6)5
7)5
5)5
5)0
150
7)0
8)0
6)0

A)$7.0 and 110,respectively.
B)$6.5 and 120,respectively.
C)$6.0 and 130,respectively.
D)$5.5 and 140,respectively.
E)$5.0 and 150,respectively.

Question 66

In the aggregate demand-aggregate supply model,which of these changes is most likely when the cost of production increases in the long run?​

A)A leftward shift of the short-run aggregate supply curve
B)A leftward shift of the short-run aggregate demand curve​
C)A rightward shift of the short-run aggregate supply curve​
D)An increase in the potential output level increases.
E)A decrease in the actual price level decreases.

Question 67

The short-run aggregate supply curve:​

A)is positively sloped.
B)is negatively sloped.
C)is a vertical line parallel to the price level axis.
D)is a horizontal line parallel to the output axis.
E)is a ray from the origin with slope exactly equal to 1.

Question 68

The more the short-run output exceeds an economy's potential,_____.​

A)the smaller the expansionary gap
B)the greater the upward pressure on the price level​
C)the larger the recessionary gap​
D)the greater the downward pressure on the price level​
E)the lesser the demand for resources​

Question 69

When actual output increases the potential output,_____.​

A)more resources become unemployed.
B)prices remain constant.
C)prices tend to increase.
D)nominal GDP decreases.
E)resource prices decrease.

Question 70

Which of the following explains the shape of the short-run aggregate supply curve?​

A)The inverse relationship between the quantity supplied and the cost per unit
B)The direct relationship between the quantity supplied and the cost per unit​
C)The direct relationship between the quantity supplied and the price level​
D)The inverse relationship between quantity supplied and GDP​
E)The inverse relationship between quantity supplied and the profit per unit​

Question 71

Suppose the actual and expected price levels in an economy are initially equal.However,the actual price level falls eventually due to a change in economic conditions.Which of the following will occur over the long run?​

A)The economy will move rightward along the short-run aggregate supply curve.
B)The economy will move leftward along the short-run aggregate supply curve.
C)The short-run aggregate supply curve will shift to the right.
D)The short-run aggregate supply curve will shift to the left.
E)The short-run aggregate supply curve will become flatter.

Question 72

Which of these is not assumed to be constant along a short-run aggregate supply curve?​

A)The actual price level
B)The state of technology​
C)The size and quality of the labor force​
D)The expected price level​
E)The size and quality of the capital stock​

Question 73

Suppose the actual and expected price levels in an economy are initially equal.However,the actual price level becomes higher due to some change in economic conditions.Which of the following will occur eventually?​

A)The economy will move rightward along the short-run aggregate supply curve.
B)The economy will move leftward along the short-run aggregate supply curve.
C)The short-run aggregate supply curve will shift to the right.
D)The short-run aggregate supply curve will shift to the left.
E)The short-run aggregate supply curve will become flatter.

Question 74

The figure below shows the short-run aggregate supply of an economy.Which of the following is likely to be true if the actual price level in this figure exceeds the expected price level?​ ​
Figure 10.1

A)Equilibrium output will be Y₂ in the short run.
B)Equilibrium output will be Y₁ in the short run.
C)The actual unemployment rate is below the natural rate.
D)Potential output is greater than actual output.
E)The actual price level is less than the equilibrium price level.

Question 75

Consider schedule #1 in the aggregate demand and aggregate supply table given below.The equilibrium output and price level for the economy described on this schedule are:​ ​
Table 10.1
​
Quantity of
Aggregate Output
Demanded
​
Price
Level
Quantity of
Aggregate Output Supplied
#1
#2
#3
$7)0
110
$5)0
$6)0
$4)0
6)5
120
5)5
6)5
4)5
6)0
130
6)0
7)0
5)0
5)5
140
6)5
7)5
5)5
5)0
150
7)0
8)0
6)0

A)$7.0 and 110,respectively.
B)$6.5 and 120,respectively.
C)$6.0 and 130,respectively.
D)$5.5 and 140,respectively.
E)$5.0 and 150,respectively.

Question 76

The figure below shows the short-run aggregate supply curve of an economy.In this figure,an expansionary gap would be represented by the distance between:​ ​
Figure 10.1

A)Y₂and Y₁.
B)Y₃and Y₁.
C)Y₂and Y₃.
D)P₂and P₁.
E)P₂and P₃.

Question 77

In the short run,there is a positive relationship between:​

A)inflation and unemployment.
B)inflation and real GDP.
C)the actual price level and the aggregate quantity supplied.
D)the actual price level and unemployment.
E)the actual price level and consumption spending.

Question 78

Which of the following is true if marginal costs increase at a slow rate as output increases?​

A)The short-run aggregate supply curve is relatively steep.
B)The short-run aggregate supply curve becomes vertical.
C)The short-run aggregate supply curve is relatively flat.
D)The long-run aggregate supply curve becomes horizontal.
E)The long-run aggregate supply curve becomes downward sloping.

Question 79

The figure below shows the short-run aggregate supply curve of an economy.If the actual price level exceeds the expected price level,then:​ ​
Figure 10.1

A)equilibrium output is likely to be Y₂ in the short run.
B)equilibrium output is likely to be Y₁ in the short run.
C)equilibrium output is likely to be Y₃ in the short run.
D)potential output is greater than actual output.
E)unemployment is above the natural rate.

Question 80

An expansionary gap in the short-run results in:​

A)lower resource prices in the long run.
B)unemployment in the long run.
C)a recessionary gap in the long run.
D)cost-push inflation in the long run.
E)demand-pull inflation in the long run.