Question 1

Economic growth
A)is an increase in potential GDP as the long- run aggregate supply curve shifts rightward.
B)occurs when the long- run aggregate supply curve shifts upward.
C)requires a compensating decrease in aggregate demand to offset the increase in aggregate supply.
D)All of the above answers are correct.

Accepted Answer

Economic growth is an increase in potential GDP, which is represented by the rightward shift of the long-run aggregate supply curve. Option B is incorrect because the long-run aggregate supply curve shifts vertically upward when there is a change in factors such as technology, labor force, and capital stock that increase the economy's potential output. Option C is also incorrect because an increase in aggregate supply does not require a compensating decrease in aggregate demand. In fact, economic growth can be accompanied by an increase in aggregate demand, which can lead to inflationary pressures if not controlled through appropriate monetary and fiscal policies.

Question 2

-Based on the figure above, short- run equilibrium occurs at the price level of
A)140 and real GDP of $12 billion.
B)130 and real GDP of $12 billion.
C)120 and real GDP of $4 billion.
D)130 and real GDP of $8 billion.

Accepted Answer

Short-run equilibrium occurs where the aggregate demand and short-run aggregate supply curves intersect. Based on the given options, this intersection is at a price level of 130 and a real GDP of $8 billion.

Question 3

In a short- run macroeconomic equilibrium, potential GDP exceeds real GDP. If aggregate demand does not change, then the
A)long- run aggregate supply curve will shift leftward as the money wage rate falls.
B)short- run aggregate supply curve will shift rightward as the money wage rate falls.
C)long- run aggregate supply curve will shift leftward as the money wage rate rises.
D)short- run aggregate supply curve will shift leftward as the money wage rate rises.

Accepted Answer

When potential GDP exceeds real GDP, there is a recessionary gap, leading to downward pressure on wages. As the money wage rate falls, the short-run aggregate supply curve shifts rightward, moving the economy towards potential GDP.

Question 4

-In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help
A)move the economy to point C.
B)keep the economy at point B.
C)move the economy to point D.
D)move the economy to point A.

Accepted Answer

The answer of 
-In the above figure, the economy is...

Question 5

________ economists believe that the economy is self- regulating and will be at full employment as long as monetary policy is not erratic.
A)Classical
B)Keynesian
C)Monetarist
D)All

Accepted Answer

The answer of  ________ economists believe that the economy...

Question 6

-In the above figure, the economy is at point A. Then the money wage rate and the price level both fall by 10 per cent. Firms will be willing to supply output equal to
A)more than $13.0 billion.
B)$13.0 billion.
C)less than $13.0 billion.
D)Without more information, it is impossible to determine which of the above answers is correct.

Accepted Answer

If both the money wage rate and the price level fall by the same percentage, the real wage remains unchanged, so firms will supply the same level of output, which is $13.0 billion.

Question 7

In the short run, firms expand their production when the price level rises because
A)the money wage rate remains constant so the higher prices for their product makes it profitable for firms to expand production.
B)each firm must keep its production up to the level of its rivals, and some firms will expand production as the price level increases.
C)firms can increase their profits by increasing their maintenance.
D)the higher prices allow the firm to hire more workers by offering higher wages, thereby increasing productivity and profits.

Accepted Answer

In the short run, the money wage rate is typically sticky or constant, so when the price level rises, firms can sell their products at higher prices while their costs remain the same, making it profitable to expand production.

Question 8

Moving upward along the SAS results in a ________ in the price level and ________ in real GDP.
A)rise; an increase
B)fall; an increase
C)rise; a decrease
D)fall; a decrease

Accepted Answer

Moving upward along the SAS results in a rise in the price level and an increase in real GDP.

Question 9

-In Australia, during the past five decades, economic growth was most rapid during the ________.
A)1990s
B)2000s
C)1960s
D)1970s

Accepted Answer

The 1960s were a period of significant economic growth in Australia, characterized by industrial expansion and increased consumer spending.

Question 10

The short- run aggregate supply curve is upward- sloping because in the short run the
A)money wage rate changes but the price level does not.
B)neither the money wage rate nor the price level can change.
C)both the money wage rate and the price level change.
D)price level changes but the money wage rate does not.

Accepted Answer

In the short run, the price level can change while the money wage rate is often sticky or slow to adjust. This causes firms to increase production as prices rise, leading to an upward-sloping short-run aggregate supply curve.

Question 11

Technological progress will
A)shift the SAS curve rightward but will not shift the LAS curve.
B)shift both the LAS and SAS curves rightward.
C)shift the LAS curve rightward but will not shift the SAS curve.
D)not shift either the LAS or the SAS curve.

Accepted Answer

Technological progress increases the productive capacity of an economy, shifting both the Long-Run Aggregate Supply (LAS) and Short-Run Aggregate Supply (SAS) curves to the right.

Question 12

-In the above figure, the economy is at point A. Then the price level falls to 90 while the money wage rate does not change. Firms will be willing to supply output equal to
A)$13.0 billion.
B)more than $13.0 billion.
C)less than $13.0 billion.
D)Without more information, it is impossible to determine which of the above answers is correct.

Accepted Answer

When the price level falls and the money wage rate remains unchanged, the real wage rate increases. This makes labor more expensive for firms, leading them to reduce the quantity of output they are willing to supply, resulting in less than $13.0 billion.

Question 13

Which of the following helps determine the growth rate of potential GDP?
I. Capital accumulation
II. Technology advances
III. Growth in the quantity of money
A)I
B)I and II
C)I and III
D)I, II and III

Accepted Answer

Capital accumulation and technology advances are key factors in determining the growth rate of potential GDP, as they directly impact productivity and economic capacity. Growth in the quantity of money does not directly affect potential GDP growth.

Question 14

The AS/AD model studies the relationship between
A)the price level and real GDP.
B)the price level and unemployment.
C)nominal GDP and inflation.
D)unemployment and real GDP.

Accepted Answer

The Aggregate Supply/Aggregate Demand (AS/AD) model examines the relationship between the overall price level and the total output of goods and services in an economy, which is represented by real GDP.

Question 15

-In the above figure, point A represents
A)an inflationary gap.
B)an increase in aggregate demand.
C)a full- employment equilibrium.
D)a recessionary gap.

Accepted Answer

The answer of 
-In the above figure, point A represents
A)an...

Question 16

The short- run aggregate supply curve shifts when
I. the full- employment quantity of capital changes.
II. technology advances.
A)I only
B)II only
C)Neither I nor II
D)Both I and II

Accepted Answer

Both I and II are correct because the short-run aggregate supply curve shifts when the full-employment quantity of capital changes or when technology advances.

Question 17

Which of the following statements is FALSE?
A)Taxes and transfer payments affect aggregate demand by changing disposable income.
B)Fiscal policy is the attempt to influence the economy using taxes, transfer payments and government expenditures.
C)An increase in disposable income leads to a decrease in aggregate demand.
D)Government expenditure affects aggregate demand directly because government expenditure is a component of aggregate demand.

Accepted Answer

An increase in disposable income typically leads to an increase in aggregate demand, not a decrease, as consumers have more income to spend.

Question 18

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

Accepted Answer

The aggregate supply curve shows the relationship between the price level and the aggregate quantity supplied.

Question 19

Keynesian macroeconomists recommend
A)policies that actively offset the changes in long- run aggregate supply that result in negative economic growth.
B)policies that minimise the disincentive effects of taxes on employment, investment and technological change.
C)policies that actively offset the changes in aggregate demand that bring recession.
D)an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand.

Accepted Answer

Keynesian macroeconomists advocate for active government intervention to manage aggregate demand, particularly to counteract recessions and stimulate economic activity.

Question 20

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

Accepted Answer

The long-run aggregate supply (LAS) curve is vertical because, in the long run, the economy's output is determined by factors such as technology, resources, and institutions, which are not affected by changes in the price level.

Quiz 24: Aggregate Demand and Aggregate Supply

Economic growth

-Based on the figure above, short- run equilibrium occurs at the price level of

In a short- run macroeconomic equilibrium, potential GDP exceeds real GDP. If aggregate demand does not change, then the

-In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help

________ economists believe that the economy is self- regulating and will be at full employment as long as monetary policy is not erratic.

-In the above figure, the economy is at point A. Then the money wage rate and the price level both fall by 10 per cent. Firms will be willing to supply output equal to

In the short run, firms expand their production when the price level rises because

Moving upward along the SAS results in a in the price level and in real GDP.

-In Australia, during the past five decades, economic growth was most rapid during the ________.

The short- run aggregate supply curve is upward- sloping because in the short run the

Technological progress will

-In the above figure, the economy is at point A. Then the price level falls to 90 while the money wage rate does not change. Firms will be willing to supply output equal to

Which of the following helps determine the growth rate of potential GDP? I. Capital accumulation II. Technology advances III. Growth in the quantity of money

The AS/AD model studies the relationship between

-In the above figure, point A represents

The short- run aggregate supply curve shifts when I. the full- employment quantity of capital changes. II. technology advances.

Which of the following statements is FALSE?

An aggregate supply curve depicts the relationship between

Keynesian macroeconomists recommend

The long- run aggregate supply (LAS) curve