Question 1

If workers begin to expect more inflation in the future, then we would expect that the:
A)short-run aggregate supply curve will shift up (to the left).
B)short-run aggregate supply curve will shift down (to the right).
C)short-run aggregate supply curve will not shift.
D)aggregate demand curve will shift left.

Accepted Answer

When workers expect more inflation in the future, they will likely demand higher wages to compensate for the anticipated increase in prices. This increase in production costs for businesses can lead to a decrease in the quantity of goods and services supplied at any given price level, effectively shifting the short-run aggregate supply curve to the left (or up).

Question 2

With an upward-sloping short-run aggregate supply curve, firms respond to a change in aggregate demand by adjusting:
A)both prices and quantities in the short run.
B)prices but not quantities in the short run.
C)quantities but not prices in the short run.
D)neither prices nor quantities in the short run.

Accepted Answer

In the short run, firms adjust both prices and quantities in response to changes in aggregate demand. This is because in the short run, some prices (like wages) are sticky or slow to adjust, leading firms to respond to increased demand by raising prices and increasing production to meet the demand, hence adjusting both prices and quantities.

Question 3

During the Vietnam War, Congress increased government expenditures while raising taxes. As a result we know that:
A)the AD curve shifted to the left.
B)the AD curve shifted to the right.
C)the AD curve remained unchanged.
D)What happened to the AD curve is unclear.

Accepted Answer

The answer of During the Vietnam War, Congress increased government...

Question 4

If the depreciation of a country's currency increases its aggregate expenditures by 20, the AD curve will:
A)shift right by more than 20.
B)shift right by less than 20.
C)shift right by exactly 20.
D)not shift at all.

Accepted Answer

When a country's currency depreciates, it makes its goods cheaper and more competitive internationally, increasing exports and decreasing imports. This leads to an increase in aggregate expenditures, which in turn increases aggregate demand more than the initial change in expenditures due to multiplier effects in the economy.

Question 5

If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will:
A)shift left by more than 20.
B)shift left by less than 20.
C)shift left by exactly 20.
D)not shift at all.

Accepted Answer

A decrease in foreign income leads to a decrease in domestic aggregate expenditures, which in turn causes the aggregate demand (AD) curve to shift to the left. The shift is typically more than the initial decrease in expenditures due to the multiplier effect, where an initial change in spending leads to further decreases in income and spending.

Question 6

If productivity increases by 2 percent but wages increase by 3 percent, then it is most likely that the:
A)short-run aggregate supply curve will shift up (to the left).
B)short-run aggregate supply curve will shift down (to the right).
C)short-run aggregate supply curve will not shift.
D)aggregate demand curve will shift left.

Accepted Answer

When wages increase faster than productivity, production costs rise, leading to a decrease in short-run aggregate supply, causing the curve to shift up (to the left).

Question 7

What of the following would be the best example of a posted-price market?
A)Auctions on eBay.com
B)Computers at Apple.com
C)Stock prices at Schwab.com
D)Grain on the Mercantile Exchange

Accepted Answer

Computers at Apple.com represent a posted-price market because the seller (Apple) sets the prices for its products, and consumers decide whether to buy at those prices without negotiation.

Question 8

During the late 1990s in the United States, aggregate demand rose sharply but the price level increased much more slowly. This might be because during this period, firms:
A)were reluctant to increase their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be steeper.
B)increased their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be steeper.
C)increased their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be flatter.
D)were reluctant to increase their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be flatter.

Accepted Answer

During the late 1990s, the phenomenon of aggregate demand rising sharply while the price level increased slowly can be attributed to firms being reluctant to increase their markups despite higher demand. This reluctance would cause the short-run aggregate supply curve to be flatter, allowing for an increase in output with a relatively smaller increase in the price level.

Question 9

The axes for the short-run aggregate supply curve are:
A)real output and the price level.
B)real output and unemployment.
C)inflation and real output.
D)unemployment and inflation.

Accepted Answer

The short-run aggregate supply curve is plotted with real output (GDP) on the horizontal axis and the price level on the vertical axis. This reflects the relationship between the price level and the quantity of goods and services that firms are willing to produce and sell in the short run.

Question 10

If the multiplier is 4, a $15 billion increase in government expenditures will shift the AD curve to the:
A)right by $15 billion.
B)left by $15 billion.
C)right by $60 billion.
D)left by $60 billion.

Accepted Answer

The multiplier effect indicates that an initial increase in spending will lead to a larger increase in the overall economic activity. With a multiplier of 4, a $15 billion increase in government expenditures will result in a total increase in aggregate demand of $15 billion x 4 = $60 billion, shifting the AD curve to the right by $60 billion.

Question 11

A sharp increase in oil prices along with a decline in labor productivity decline will likely shift the:
A)short-run aggregate supply curve up (to the left).
B)short-run aggregate supply curve down (to the right).
C)aggregate demand curve to the right.
D)aggregate demand curve to the left.

Accepted Answer

A sharp increase in oil prices would increase production costs for many businesses, leading to a decrease in the quantity of goods and services supplied at any given price level, which is represented by a leftward shift (up) of the short-run aggregate supply curve. A decline in labor productivity would further decrease the quantity of goods and services produced, reinforcing the leftward shift of the short-run aggregate supply curve.

Question 12

According to the short-run aggregate supply curve, firms are most likely to respond to an increase in aggregate demand by raising:
A)prices.
B)production.
C)both production and prices.
D)neither production nor prices.

Accepted Answer

In the short run, firms typically respond to an increase in aggregate demand by increasing both production (to meet the higher demand) and prices (due to increased demand and potentially higher costs of production).

Question 13

An increase in production costs is most likely to shift the:
A)short-run aggregate supply curve up (to the left).
B)short-run aggregate supply curve down (to the right).
C)aggregate demand curve to the left.
D)aggregate demand curve to the right.

Accepted Answer

An increase in production costs, such as higher wages or raw material prices, makes production more expensive at all levels of output. This typically results in a decrease in the quantity of goods and services supplied at any given price level, shifting the short-run aggregate supply curve to the left (or up), not affecting the aggregate demand directly.

Question 14

The short-run aggregate supply curve is upward sloping for all of the following reasons except:
A)some firms adjust their markup in response to an increase in demand.
B)some firms adjust their production in response to an increase in demand.
C)some markets are posted-price markets.
D)all inputs are fully utilized in the short run.

Accepted Answer

The short-run aggregate supply curve is upward sloping because not all inputs are fully utilized in the short run, allowing firms to increase production in response to increased demand. This contrasts with choice D, which incorrectly suggests that all inputs are fully utilized in the short run.

Question 15

Federal Reserve policy makers argue about whether productivity is increasing faster than it has in the past. If productivity is growing faster than anticipated, they would expect the:
A)aggregate demand curve to be shifting to the right.
B)aggregate demand curve to be shifting to the left.
C)short-run aggregate supply curve to be shifting down (to the right).
D)short-run aggregate supply curve to be shifting up (to the left).

Accepted Answer

An increase in productivity means that the economy can produce more goods and services with the same amount of resources, which effectively lowers the cost of production. This scenario is represented by the short-run aggregate supply curve shifting down (to the right), indicating an increase in supply without an increase in the price level.

Question 16

If a fall in the price level made people feel richer and initially increased aggregate expenditures by 20, the AD curve would:
A)shift by more than 20.
B)shift by less than 20.
C)shift by exactly 20.
D)not shift at all.

Accepted Answer

The answer of If a fall in the price level...

Question 17

If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level will:
A)rise by 3 percent.
B)fall by 3 percent.
C)rise by 7 percent.
D)fall by 7 percent.

Accepted Answer

When productivity increases by a larger percentage than wages, it generally means that more goods can be produced at a lower cost per unit. This often leads to lower prices, hence the price level is likely to fall. The difference in the percentages gives an indication of the potential change in price level, suggesting a decrease.

Question 18

If the dollar appreciates while foreign income rises:
A)the U.S. AD curve would likely shift to the left.
B)the U.S. AD curve would likely shift to the right.
C)the U.S. AD curve would likely remain unchanged.
D)what happens to the U.S. AD curve is unclear.

Accepted Answer

The appreciation of the dollar makes U.S. exports more expensive, potentially reducing demand for them, which could shift the AD curve left. However, rising foreign income could increase demand for U.S. exports, shifting the AD curve right. The net effect is unclear without more information.

Question 19

In early 2000s, oil prices were rising because of concern about the Iraqi invasion Kuwait and other situations, along with rapid growth in demand in the Far East. Prices eventually reached over $100 a barrel. How would most economists predict these high prices should affect the U.S. economy in terms of the AD/AS model?
A)They would have no effect because oil prices are a microeconomic phenomenon.
B)They do not change anything, but are evidence of a shift in the aggregated demand curve to the right.
C)Because oil is an important input in many production processes, the higher prices should shift the short-run aggregate supply curve up (to the left).
D)Because oil is an important input in many production processes, the higher prices should shift the short-run aggregate supply curve down (to the right).

Accepted Answer

Higher oil prices increase the cost of production for many goods and services, leading to a decrease in the quantity supplied at any given price level. This is represented in the AD/AS model by a leftward shift of the short-run aggregate supply curve.

Question 20

Refer to the following graph.  The upward sloping relationship in the diagram represents the:
A)aggregate demand curve.
B)short-run aggregate supply curve.
C)long-run aggregate supply curve.
D)quantity adjustment curve.

Accepted Answer

The answer of Refer to the following graph.  The...

Quiz 26: The Keynesian Short-Run Policy Model: Demand-Side Policies

If workers begin to expect more inflation in the future, then we would expect that the:

With an upward-sloping short-run aggregate supply curve, firms respond to a change in aggregate demand by adjusting:

During the Vietnam War, Congress increased government expenditures while raising taxes. As a result we know that:

If the depreciation of a country's currency increases its aggregate expenditures by 20, the AD curve will:

If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will:

If productivity increases by 2 percent but wages increase by 3 percent, then it is most likely that the:

What of the following would be the best example of a posted-price market?

During the late 1990s in the United States, aggregate demand rose sharply but the price level increased much more slowly. This might be because during this period, firms:

The axes for the short-run aggregate supply curve are:

If the multiplier is 4, a $15 billion increase in government expenditures will shift the AD curve to the:

A sharp increase in oil prices along with a decline in labor productivity decline will likely shift the:

According to the short-run aggregate supply curve, firms are most likely to respond to an increase in aggregate demand by raising:

An increase in production costs is most likely to shift the:

The short-run aggregate supply curve is upward sloping for all of the following reasons except:

Federal Reserve policy makers argue about whether productivity is increasing faster than it has in the past. If productivity is growing faster than anticipated, they would expect the:

If a fall in the price level made people feel richer and initially increased aggregate expenditures by 20, the AD curve would:

If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level will:

If the dollar appreciates while foreign income rises:

Refer to the following graph. The upward sloping relationship in the diagram represents the: