Question 1

Which of the following characterizes stagflation?

Accepted Answer

Stagflation is characterized by a situation where there is both a high level of unemployment and inflation in the economy. This is a challenging situation for policymakers as typically policies that would work to reduce one problem may exacerbate the other.

Question 2

A leftward shift in aggregate demand will cause a decrease in both output and price level if aggregate supply is

Accepted Answer

A leftward shift in aggregate demand will cause a decrease in both output and price level if aggregate supply is upward-sloping to the right, as this reflects a typical supply curve where both output and price level can change.

Question 3

A rightward shift in aggregate demand will cause an increase in output and price level if aggregate supply is

Accepted Answer

If aggregate supply is upward-sloping, a rightward shift in aggregate demand will cause both output and price level to increase as suppliers are able to increase production to meet the higher demand at higher prices.

Question 4

Which of the following is an accurate statement about the aggregate supply curve?

Accepted Answer

The consensus view is that the aggregate supply curve begins as horizontal at low levels of output, then starts to slope upward to the right as the economy approaches full employment. However, beyond full employment, the curve becomes vertical as output cannot increase further due to limited resources. This view is supported by both Keynesians and monetarists. Therefore, options A, B, and D are incorrect.

Question 5

The consensus view

Accepted Answer

The consensus view is an approach to macroeconomic policy-making that aims to incorporate both Keynesian and monetarist perspectives. It recognizes that both fiscal and monetary policy can be effective in influencing aggregate demand and ultimately affecting economic growth and stability.

Question 6

A horizontal aggregate supply curve below the level of full employment is most consistent with which of the following views of the economy?

Accepted Answer

A horizontal aggregate supply curve below the level of full employment indicates that increases in aggregate demand results in an increase in output, rather than an increase in prices. This is consistent with the Keynesian view that the economy can experience a prolonged period of underemployment equilibrium due to sticky wages and prices, and that government intervention is necessary to stimulate demand and push the economy towards full employment. Monetarists and supply-siders, on the other hand, believe that the economy will naturally adjust towards equilibrium, and that government intervention can cause more harm than good. Consensus views typically fall somewhere in between these two extremes.

Question 7

Which view of aggregate supply predicts that the outcomes of fiscal and monetary policy depend on how close the economy is to full employment?

Accepted Answer

The answer of Which view of aggregate supply predicts that...

Question 8

In the simple Keynesian model,

Accepted Answer

In the simple Keynesian model, as long as there is unused capacity in the economy, an increase in demand will result in an increase in production and employment rather than inflation. Inflation becomes a problem only when the economy reaches full employment, and any additional demand will lead to rising prices without any increase in output. Therefore, option A is the best choice.

Question 9

An aggregate supply curve that is always vertical is most consistent with which of the following views of the economy?

Accepted Answer

Monetarist economics, associated with Milton Friedman, posits that in the long run, the aggregate supply curve is vertical, indicating that the quantity of goods and services supplied is independent of the price level. This reflects the view that in the long run, the economy's output is determined by factors such as technology and resources, not by the price level.

Question 10

The idea that a shift in aggregate demand affects both inflation and unemployment is consistent with

Accepted Answer

The answer of The idea that a shift in aggregate...

Question 11

A rightward shift in aggregate demand will cause an increase in output and no change in the price level if aggregate supply is

Accepted Answer

When aggregate supply is horizontal, it indicates that the economy can increase output without changing the price level, which aligns with the effects of a rightward shift in aggregate demand increasing output without affecting prices.

Question 12

Extreme monetarists assert that changes in the money supply

Accepted Answer

Extreme monetarists believe that changes in the money supply can only affect the price level in the long run, not real GDP or the unemployment rate, which are determined by real factors in the economy.

Question 13

According to the hybrid,or consensus,view of aggregate supply,the chance for an aggregate demand increase to cause inflation accelerates as

Accepted Answer

The hybrid or consensus view of aggregate supply suggests that as the economy moves toward its capacity or full employment, the chances for an increase in aggregate demand to cause inflation accelerate. This is because, near full capacity, additional demand tends to push prices up rather than increase output.

Question 14

The closer the economy is to capacity,the greater the risk that fiscal or monetary stimulus will cause

Accepted Answer

When the economy is close to capacity, any fiscal or monetary stimulus is likely to increase demand in the economy, which would result in an increase in the price level due to higher levels of aggregate demand chasing limited supply. However, since the economy is already close to capacity, there may not be enough spare resources to increase output significantly, so there may be no change in output. Therefore, the best choice is C - an increase in the price level and no change in output.

Question 15

Which of the following shifts,ceteris paribus,will cause lower rates of both unemployment and inflation?

Accepted Answer

An increase in aggregate supply will shift the aggregate supply curve to the right, causing an increase in output and a decrease in prices. The decrease in prices will lead to lower inflation rates, and the increase in output will create more job opportunities, leading to lower unemployment rates.

Question 16

Which of the following is consistent with the general consensus about the shape of the short-run aggregate supply curve?

Accepted Answer

The general consensus about the shape of the short-run aggregate supply curve is that it is horizontal at low levels of output, then upward sloping, and ultimately vertical at the level of output corresponding to full employment. This is because at low levels of output, there are unemployed resources that can be readily utilized without putting upward pressure on wages and prices. However, as output approaches the full-employment level, resource utilization becomes more difficult, and wages and prices begin to rise. At the level of full employment, the economy is producing at its potential, and any attempt to increase output beyond this level will result in higher costs as resources become scarce.

Question 17

A rightward shift in aggregate demand will cause an increase in the price level and no change in output if aggregate supply is

Accepted Answer

If aggregate supply is vertical, it means that the economy has reached its full capacity and cannot produce any more output. In this case, a shift in aggregate demand will only lead to an increase in the price level and no change in output.

Question 18

The total quantity of output producers are willing and able to supply at alternative price levels in a given time period is

Accepted Answer

The definition describes the concept of aggregate supply, which represents the total quantity of output that firms are willing and able to produce and sell at alternative price levels in a given time period. Therefore, the correct answer is B, aggregate supply.

Question 19

Which of the following will cause an increase in unemployment and inflation at the same time?

Accepted Answer

A leftward shift of aggregate supply can cause both unemployment and inflation to increase simultaneously. This phenomenon is known as stagflation. It occurs because the decrease in aggregate supply leads to higher prices (inflation) and lower output, which can increase unemployment.

Question 20

Stagflation is the result of

Accepted Answer

Stagflation is a phenomenon in which the economy experiences a combination of stagnant economic growth (low aggregate demand) and high inflation (decrease in aggregate supply). This can be caused by a decrease in aggregate supply due to higher input prices, such as oil prices, which results in cost-push inflation. Therefore, the best choice is D, a decrease in aggregate supply.

Quiz 16: Supply-Side Policy: Short-Run Options