Question 1

If the full- employment quantity of labour increases, then the
A)SAS curve shifts rightward and the LAS curve does not shift.
B)SAS curve shifts rightward and the LAS curve does shifts leftward.
C)LAS curve shifts rightward and the SAS curve does not shift.
D)SAS curve shifts rightward and the LAS curve shifts rightward.

Accepted Answer

An increase in the full-employment quantity of labor will shift the SAS curve to the right, as more labor is available to produce goods and services. The LAS curve will also shift to the right, as more labor is available to supply.

Question 2

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

Accepted Answer

When real GDP exceeds potential GDP, the economy is producing above its sustainable capacity, leading to upward pressure on wages. As the money wage rate rises, the short-run aggregate supply curve shifts leftward, moving the economy back towards potential GDP.

Question 3

According to the intertemporal substitution effect, when the price level rises and other things remain the same
A)the interest rate falls.
B)the quantity of money increases.
C)government taxes rise.
D)the interest rate rises.

Accepted Answer

The intertemporal substitution effect suggests that when the price level rises, people expect higher future prices, leading to an increase in interest rates to encourage saving over spending.

Question 4

If the economy is in short- run equilibrium, then
A)real GDP can be greater than, less than or equal to potential GDP.
B)real GDP equals potential GDP.
C)real GDP cannot be equal to potential GDP.
D)nominal GDP equals potential GDP.

Accepted Answer

In short-run equilibrium, real GDP can be greater than, less than, or equal to potential GDP due to fluctuations in aggregate demand and supply.

Question 5

Over time in a growing economy, the long- run aggregate supply curve will
A)shift rightward.
B)become increasingly steep.
C)become horizontal at the long- run potential price level.
D)shift leftward.

Accepted Answer

In a growing economy, the long-run aggregate supply curve shifts rightward due to factors like technological advancements, increases in capital stock, and improvements in labor productivity, which enhance the economy's capacity to produce goods and services.

Question 6

-In the above figure, which point corresponds to an increase in technology?
A)Figure A
B)Figure B
C)Figure C
D)Figure D

Accepted Answer

The answer of 
-In the above figure, which point corresponds...

Question 7

As the price level falls and other things remain the same, real wealth ________ and ________.
A)increases; the quantity of real GDP demanded increases
B)increases; aggregate demand increases
C)decreases; the quantity of real GDP demanded decreases
D)decreases; short- run aggregate supply decreases

Accepted Answer

When the price level falls and other things remain the same, purchasing power increases. This means that individuals are able to purchase more goods and services for the same amount of money. As a result, real wealth increases. When real wealth increases, individuals may demand more goods and services, which leads to an increase in the quantity of real GDP demanded.

Question 8

Which of the following increases aggregate demand?
A)An increase in the exchange rate
B)A decrease in government expenditures
C)An increase in the quantity of money
D)An increase in taxes

Accepted Answer

An increase in the quantity of money typically lowers interest rates, encourages borrowing and spending, and thus increases aggregate demand.

Question 9

-In the above figure, which movement illustrates the impact of the price level and money wage rate falling at the same rate?
A)E to H
B)E to J
C)E to K
D)E to G

Accepted Answer

The answer of 
-In the above figure, which movement illustrates...

Question 10

-In the above figure, at the price level of 140 and real GDP of
A)$4 billion, consumers will not be able to buy all the goods and services they demand.
B)$4 billion, firms will not be able to sell all their output.
C)$12 billion, firms will not be able to sell all their output.
D)$12 billion, consumers will not be able to buy all the goods and services they demand.

Accepted Answer

The answer of 
-In the above figure, at the price...

Question 11

-In the above figure, the short- run aggregate supply curve is SAS₁. Suppose that the price level in the economy increases. As a result there is A)a downward movement along SAS₁. B)a shift to SAS₀. C)a shift to SAS₂. D)an upward movement along SAS₁.

Accepted Answer

An increase in the price level results in an upward movement along the existing short-run aggregate supply curve, SAS₁, rather than a shift of the curve itself.

Question 12

________ economists believe that the economy is self- regulating and always at full employment.
A)Keynesian
B)Classical
C)All
D)Monetarist

Accepted Answer

Classical economists believe that the economy is self-regulating and naturally tends towards full employment due to flexible prices and wages.

Question 13

For movements along the long- run aggregate supply curve,
A)the price level and the money wage rate change by the same percentage.
B)potential GDP is dependent on the price level.
C)the prices of goods and services change while the prices of productive resources hold steady.
D)All of the above are correct.

Accepted Answer

In the long-run aggregate supply curve, the price level and the money wage rate change by the same percentage, keeping real wages and potential GDP constant.

Question 14

-In the figure above, the economy is at point A when the price level falls to 100. Money wage rates and all other resource prices remain constant. Firms are willing to supply output equal to
A)$13.0 billion.
B)$12.5 billion.
C)$13.5 billion.
D)None of the above answers is correct.

Accepted Answer

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

Question 15

-In the above figure, which part corresponds to an increase in the money wage rate?
A)Figure A
B)Figure B
C)Figure C
D)Figure D

Accepted Answer

The answer of 
-In the above figure, which part corresponds...

Question 16

The AD curve slopes
A)upward due to the price and substitution effects.
B)downward due to the wealth and price effects.
C)upward due to the wealth and substitution effects.
D)downward due to the wealth and substitution effects.

Accepted Answer

The answer of The AD curve slopes
A)upward due to the...

Question 17

Your real wealth is measured as the
A)amount of assets you have in dollar terms.
B)amount of goods you have divided by the price level.
C)amount of goods and services your wealth will buy.
D)amount of money you have.

Accepted Answer

Real wealth is determined by the purchasing power of your wealth, meaning how many goods and services it can buy, rather than just the nominal amount of money or assets you possess.

Question 18

A change in________creates a movement along the aggregate demand curve but does not shift the aggregate demand curve.
A)the price level
B)fiscal policy
C)tax rates
D)None of the above because they all shift the aggregate demand curve.

Accepted Answer

A change in the price level results in a movement along the aggregate demand curve, not a shift. Changes in fiscal policy or tax rates would shift the curve.

Question 19

Suppose the economy was initially in a long-run equilibrium. Then the world economy expands so that foreign incomes rise. Australian aggregate demand ________ and eventually the money wage rate ________.
A)decreases; rises
B)decreases; falls
C)increases; rises
D)increases; falls

Accepted Answer

When foreign incomes rise, demand for Australian exports increases, leading to an increase in aggregate demand. In the long run, this increased demand can lead to higher prices and output, causing the money wage rate to rise as firms compete for labor.

Question 20

In the short run, real GDP can be greater than or less than potential GDP because in the short run the
A)quantity of capital is fixed.
B)money wage rate is fixed.
C)price level is fixed.
D)full- employment level of employment is fixed.

Accepted Answer

In the short run, the money wage rate is often fixed due to contracts and wage agreements, which can lead to real GDP deviating from potential GDP as firms adjust production based on demand and price changes.

Quiz 24: Aggregate Demand and Aggregate Supply

If the full- employment quantity of labour increases, then the

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

According to the intertemporal substitution effect, when the price level rises and other things remain the same

If the economy is in short- run equilibrium, then

Over time in a growing economy, the long- run aggregate supply curve will

-In the above figure, which point corresponds to an increase in technology?

As the price level falls and other things remain the same, real wealth and .

Which of the following increases aggregate demand?

-In the above figure, which movement illustrates the impact of the price level and money wage rate falling at the same rate?

-In the above figure, at the price level of 140 and real GDP of

-In the above figure, the short- run aggregate supply curve is SAS₁. Suppose that the price level in the economy increases. As a result there is

________ economists believe that the economy is self- regulating and always at full employment.

For movements along the long- run aggregate supply curve,

-In the figure above, the economy is at point A when the price level falls to 100. Money wage rates and all other resource prices remain constant. Firms are willing to supply output equal to

-In the above figure, which part corresponds to an increase in the money wage rate?

The AD curve slopes

Your real wealth is measured as the

A change in________creates a movement along the aggregate demand curve but does not shift the aggregate demand curve.

Suppose the economy was initially in a long-run equilibrium. Then the world economy expands so that foreign incomes rise. Australian aggregate demand and eventually the money wage rate .

In the short run, real GDP can be greater than or less than potential GDP because in the short run the