Question 1

Aggregate supply describes the behavior of
A) households.
B) producers.
C) government.
D) foreign buyers.

Accepted Answer

Aggregate supply refers to the total amount of goods and services that producers are willing and able to supply at a given price level in a specific time period. Therefore, the correct answer is B) producers.

Question 2

When talking about aggregate supply, it is necessary to
A) distinguish between long- run full employment and short- run full- employment.
B) distinguish between long- run aggregate supply and short- run aggregate supply.
C) focus on the short run.
D) focus on the long run.

Accepted Answer

It is necessary to distinguish between long-run aggregate supply (LRAS) and short-run aggregate supply (SRAS) when talking about aggregate supply. LRAS represents the maximum amount of output the economy can produce when all factors of production are at their optimal levels and technology is at its highest level. SRAS, on the other hand, represents the amount of output that can be produced in the short run, typically during a period where some factors of production are fixed, and technology is constant. Understanding the difference between LRAS and SRAS helps policymakers and economists to formulate better policies for stabilizing the economy.

Question 3

In the macroeconomic long run,
A) real GDP equals potential GDP.
B) regardless of the price level, the economy is producing at potential GDP.
C) the economy is at full employment.
D) All of the above are correct.

Accepted Answer

In the macroeconomic long run, real GDP equals potential GDP, which means the economy is producing at its maximum sustainable level. This also implies full employment as all available resources are being utilized. Therefore, all of the above choices are correct.

Question 4

The supply of real GDP is a function of
A) the quantities of labor, capital and the state of technology.
B) the total expenditures of consumers, investors and government.
C) only the state of technology.
D) the sum of wages, salaries, corporate profits, rents and interest.

Accepted Answer

Real GDP is the total output produced in an economy, and this output is determined by the quantities of inputs such as labor and capital as well as the level of technology. Therefore, choice A is the correct answer. However, choice B is incorrect as it only reflects the total expenditures in an economy, not the actual supply of goods and services. Choice C is also incorrect as technology is just one of the inputs that contribute to the supply of real GDP. Lastly, choice D is incorrect as it only represents the distribution of income generated from the production of real GDP, not the actual supply of it.

Question 5

The long- run aggregate supply (LAS) curve
A) has a positive slope.
B) is horizontal.
C) has a negative slope.
D) is vertical.

Accepted Answer

The LAS curve is a vertical line because in the long run, the economy is able to produce at its full potential and is not affected by temporary shocks. The LAS curve represents the level of output that can be produced using all available resources in the economy, including labor, capital, and technology. Any changes to aggregate demand only affect the price level, not the level of output in the long run.

Question 6

The quantity of real GDP supplied depends on the
A) level of aggregate demand.
B) quantity of labor, the quantity of capital, and the state of technology.
C) quantity of capital, bonds, and stocks.
D) price level, the unemployment rate, and the quantity of government expenditures on goods and services.

Accepted Answer

Real GDP is determined by the quantity of labor, the quantity of capital, and the state of technology, which are the factors of production. Changes in aggregate demand can impact the level of real GDP in the short run, but in the long run, real GDP will tend to equal the potential output determined by these factors of production. The price level, unemployment rate, and government expenditures can also impact real GDP, but these are not the primary determinants.

Question 7

If the economy is at the natural unemployment rate,
A) real GDP < potential GDP.
B) real GDP > potential GDP.
C) real GDP = potential GDP.
D) All of the above can occur when the economy is at the natural unemployment rate.

Accepted Answer

The natural unemployment rate is the rate which includes structural and frictional unemployment but not cyclical unemployment. When the economy is at the natural unemployment rate, there is no cyclical unemployment, so the economy is producing at its potential level of output (potential GDP), meaning that real GDP equals potential GDP. Therefore, choice C is the correct answer.

Question 8

At potential GDP
A) unemployment is at its natural rate.
B) there is no unemployment but there is not necessarily full employment.
C) there is no unemployment and there is full employment.
D) None of the above is correct.

Accepted Answer

The answer of At potential GDP
A) unemployment is at its...

Question 9

The aggregate supply/aggregate demand model is used to help understand all of the following EXCEPT
A) inflation.
B) growth of potential GDP.
C) the aggregate value of stock traded in the stock market.
D) business cycle fluctuations.

Accepted Answer

The aggregate supply/aggregate demand model is a macroeconomic model used to analyze the fluctuations in the economy such as inflation, growth of potential GDP, and business cycle fluctuations. However, it is not used to understand the aggregate value of stocks traded in the stock market, as that depends on a range of factors beyond macroeconomic variables.

Question 10

The macroeconomic long run is best defined as
A) the time period sufficiently long so that real GDP has adjusted to equal potential GDP.
B) a time period of less than 1 year.
C) the time period sufficiently long so that real GDP has adjusted to exceed potential GDP.
D) a time period of more than 1 year.

Accepted Answer

The macroeconomic long run is the time period sufficiently long so that the economy has fully adjusted to reach its potential output level, which occurs when real GDP equals potential GDP. This process can take several years, and is influenced by factors such as capital accumulation and productivity growth. Choice B and D are incorrect because the long run is typically measured in years or even decades, while choice C is incorrect since potential GDP represents the maximum sustainable output level of the economy, and therefore cannot be exceeded in the long run.

Question 11

In the long- run
A) real GDP is equal to potential GDP.
B) the aggregate supply curve is upward sloping.
C) aggregate supply depends on the price level.
D) All of the above answers are correct.

Accepted Answer

In the long-run, the economy reaches its potential output level and real GDP is equal to potential GDP. This is also known as the natural or full-employment level of output. The aggregate supply curve is vertical at this point, indicating that changes in the price level do not affect output.

Question 12

Which of the following variables does NOT directly influence the supply of real GDP?
A) the quantity of labor
B) the state of technology
C) the quantity demanded
D) the quantity of capital

Accepted Answer

The quantity demanded is a variable that affects the demand for real GDP, not the supply. The supply of real GDP is directly influenced by the quantity of labor, the state of technology, and the quantity of capital.

Question 13

The quantity of real GDP supplied at different price levels is reflected by the
A) aggregate supply curve.
B) total expenditure curve.
C) aggregate demand curve.
D) real wealth curve.

Accepted Answer

The aggregate supply curve reflects the quantity of real GDP supplied at different price levels, as it shows the relationship between the price level and the quantity of output produced by firms in the economy.

Question 14

We distinguish between the long- run aggregate supply curve and the short- run aggregate supply curve. In the long run
A) the aggregate supply curve is horizontal while in the short run it is upward sloping.
B) real GDP equals potential GDP.
C) the price level is constant but in the short run it fluctuates.
D) technology is fixed but not in the short run.

Accepted Answer

In the long run, the economy is expected to operate at its potential level of output, which means the economy is operating at full employment and real GDP equals potential GDP. This implies that the long-run aggregate supply curve is vertical at potential GDP.

Question 15

The quantity of real GDP supplied _ _ the amount of _.
A) decreases as; capital and labor input decreases
B) decreases as; capital input increases
C) increases as; labor input decreases
D) is unaffected by; technology

Accepted Answer

Real GDP supplied decreases as the amount of capital and labor input decreases. This is because the production process requires inputs such as labor and capital to produce goods and services. As the amount of input decreases, the production capacity decreases, leading to a decrease in real GDP supplied. The other options are incorrect as they do not reflect the relationship between real GDP supplied and input factors.

Question 16

Aggregate supply is
A) the relationship between the unemployment rate and real GDP.
B) the relationship between labor employment and the real (inflation adjusted) wage rate.
C) desired spending on output at different price levels.
D) the relationship between the quantity of real GDP and the price level.

Accepted Answer

Aggregate supply is the relationship between the quantity of real GDP and the price level. This relationship shows how much output firms are willing and able to supply at different price levels. As prices rise, firms are willing to supply more output because they are able to earn higher profits, which in turn means a larger quantity of goods and services will be produced. Conversely, as prices fall, firms are willing to supply less output because they will earn smaller profits, leading to a decrease in the quantity of goods and services produced.

Question 17

When the labor market is in equilibrium,
A) the price level equals potential prices.
B) real GDP equals potential GDP.
C) the SAS curve is horizontal.
D) the price level is stable.

Accepted Answer

In equilibrium, real GDP equals potential GDP, meaning that the economy is producing at its full potential level of output. The other choices do not necessarily apply to labor market equilibrium.

Question 18

In the macroeconomic long run,
A) output always is above potential GDP.
B) there is full employment and real GDP is equal to potential GDP.
C) there is full employment with no unemployment.
D) GDP always is below potential GDP.

Accepted Answer

In the macroeconomic long run, the economy tends towards full employment and potential GDP. This means that all resources (including labor) are utilized, and there is no cyclical unemployment. Real GDP is equal to potential GDP, which represents the maximum level of output an economy can produce with its existing resources and technology. Therefore, option B is the correct answer.

Question 19

An aggregate supply curve depicts the relationship between
A) household expenditures and household income.
B) the price level and the aggregate quantity demanded.
C) the price level and nominal GDP.
D) the price level and the aggregate quantity supplied.

Accepted Answer

An aggregate supply curve depicts the relationship between the price level and the aggregate quantity supplied. It shows the amount of goods and services that firms are willing to produce and sell at different price levels.

Question 20

In the macroeconomic short run,
A) actual real GDP may be less than or more than potential GDP.
B) actual real GDP always equals potential GDP.
C) the unemployment rate is zero.
D) the economy is always moving away from full employment.

Accepted Answer

In the short run, actual real GDP may be less than or more than potential GDP due to fluctuations in demand, supply shocks, and other economic factors. This can result in periods of inflation or recession, as the economy adjusts to these changes. The unemployment rate may also fluctuate during this period, but it is not always zero, as there may be frictional or structural unemployment that does not disappear even in the long run. However, the economy is not always moving away from full employment, as it may occasionally reach this level in the short run.

Quiz 10: Aggregate Supply and Aggregate Demand

Aggregate supply describes the behavior of

When talking about aggregate supply, it is necessary to

In the macroeconomic long run,

The supply of real GDP is a function of

The long- run aggregate supply (LAS) curve

The quantity of real GDP supplied depends on the

If the economy is at the natural unemployment rate,

At potential GDP

The aggregate supply/aggregate demand model is used to help understand all of the following EXCEPT

The macroeconomic long run is best defined as

In the long- run

Which of the following variables does NOT directly influence the supply of real GDP?

The quantity of real GDP supplied at different price levels is reflected by the

We distinguish between the long- run aggregate supply curve and the short- run aggregate supply curve. In the long run

The quantity of real GDP supplied _ _ the amount of _.

Aggregate supply is

When the labor market is in equilibrium,

In the macroeconomic long run,

An aggregate supply curve depicts the relationship between

In the macroeconomic short run,