Question 1

A demand-pull inflation initially is characterized by
A)increasing real output and a labor surplus.
B)increasing real output and a labor shortage.
C)no change in real output and a labor shortage.
D)decreasing real output and a labor surplus.
E)decreasing real output and a labor shortage.

Accepted Answer

Demand-pull inflation occurs when aggregate demand in an economy outpaces aggregate supply, leading to increased real output and often a labor shortage as businesses hire more workers to meet the higher demand.

Question 2

Reasons that the recession of 2008-2009 did not become a depression include i. The Fed bailed out troubled financial institutions
Ii. The government aggressively balanced its budget
Iii. The government increased its expenditures, which increased aggregate demand
A)iii only
B)i only
C)i and ii
D)ii only
E)i and iii

Accepted Answer

The Federal Reserve bailed out financial institutions to stabilize the financial system, and the government increased expenditures to boost aggregate demand, both of which helped prevent a depression.

Question 3

A combination of recession and inflation is called
A)stagflation.
B)an expansion.
C)depression.
D)a business cycle.
E)a recession.

Accepted Answer

Stagflation is the term used to describe a situation where an economy experiences stagnant growth, high unemployment, and high inflation simultaneously.

Question 4

The government passes a law which doubles the wages of all workers. aggregate supply will _{--------------------}, and real GDP will _{--------------------}, and the price level will_{--------------------} . A)increase; remain the same; increase. B)remain the same; increase; increase. C)increase; increase; remain the same. D)decrease; decrease; increase. E)decrease; increase; increase.

Accepted Answer

Doubling wages increases production costs, leading to a decrease in aggregate supply. This can decrease real GDP and increase the price level due to higher production costs being passed on to consumers.

Question 5

A crisis in the Middle East drastically raises the price of petroleum. If the aggregate demand curve does not shift, then aggregate supply will _{--------------------}, real GDP will_{--------------------} , and the price level will_{--------------------} . A)increase; increase; increase B)increase; remain the same; increase C)remain the same; increase; increase D)decrease; decrease; increase E)decrease; remain the same; decrease

Accepted Answer

A crisis in the Middle East that raises petroleum prices would increase production costs, causing the aggregate supply to decrease. This would lead to a decrease in real GDP and an increase in the price level.

Question 6

Moving along the aggregate supply curve,
A)only the price level changes.
B)the quantity of capital used increases.
C)the real wage rate is constant.
D)the stock of human capital increases.
E)technology advances.

Accepted Answer

When moving along the aggregate supply curve, the primary change is in the price level, while other factors like capital, human capital, and technology remain constant.

Question 7

Which of the following shifts the aggregate supply curve leftward?
A)a decrease in the price level
B)a fall in the real wage rate
C)a decrease in potential GDP
D)a fall in the money wage rate
E)an increase in potential GDP

Accepted Answer

A decrease in potential GDP reduces the economy's capacity to produce goods and services, shifting the aggregate supply curve to the left.

Question 8

During an inflationary gap,
A)the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP that exceeds potential GDP.
B)real GDP is less than potential GDP.
C)the aggregate demand curve and the aggregate supply curve intersect at potential GDP.
D)the aggregate demand curve and the aggregate supply curve do not intersect.
E)the price level will fall to restore the long-run equilibrium.

Accepted Answer

During an inflationary gap, the economy's actual output (real GDP) exceeds its potential output (potential GDP), indicating that the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP that is higher than potential GDP.

Question 9

Which of the following changes aggregate supply and shifts the AS curve?
I. a change in the price of a major resource
Ii. increases in the amount of capital
Iii. a change in the money income of consumers
A)i only
B)i and ii
C)iii only
D)ii only
E)i, ii, and iii

Accepted Answer

A change in the price of a major resource and increases in the amount of capital both affect aggregate supply. A change in the price of a major resource affects production costs, while increases in capital enhance production capacity. A change in the money income of consumers affects aggregate demand, not supply.

Question 10

When the price level rises there is a_{--------------------}the aggregate demand curve. A)movement down along B)rightward shift of C)leftward shift of D)rotation of E)movement up along

Accepted Answer

When the price level rises, there is a movement up along the aggregate demand curve, as higher prices lead to a decrease in the quantity of goods and services demanded.

Question 11

Changes in which of the following shifts the aggregate supply curve?
I. the price level.
Ii. the money wage rate. iii. potential GDP.
A)i only
B)ii and iii
C)ii only
D)i, ii, and iii
E)iii only

Accepted Answer

The aggregate supply curve is affected by changes in the money wage rate and potential GDP. A change in the price level results in a movement along the curve, not a shift.

Question 12

If oil prices increase, then in the short run, real GDP will _{--------------------}and the price level will_{--------------------} . A)increase; fall B)not change; rise C)decrease; rise D)decrease; fall E)increase; rise

Accepted Answer

An increase in oil prices raises production costs, leading to a decrease in aggregate supply. This results in a lower real GDP and a higher price level in the short run.

Question 13

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In the figure above, the shift in the aggregate demand curve from AD1 to AD3 could be the result of
A)a decrease in the foreign exchange rate.
B)a decrease in the real interest rate.
C)an increased expectation of a recession that lowers the expected rate of profit from investment.
D)an increase in the price level.
E)a decrease in the buying power of money.

Accepted Answer

An increased expectation of a recession that lowers the expected rate of profit from investment would decrease aggregate demand, shifting the curve from AD1 to AD3.

Question 14

A year over year _{--------------------} in the buying power of money means that definitely_{--------------------} from one year to the next. A)decrease; the price level increased B)increase; the price level increased C)decrease; inflation increased D)increase; inflation increased E)Both answers A and C are correct.

Accepted Answer

A decrease in the buying power of money means that the price level increased. This is because inflation causes the general price level of goods and services to increase, meaning that a certain amount of money can buy less than it could before.

Question 15

If investment spending increases by $1 million, then the aggregate demand curve shifts
A)leftward by more than $1 million.
B)rightward by $1 million.
C)rightward by more than $1 million.
D)leftward by less than $1 million.
E)rightward by less than $1 million.

Accepted Answer

An increase in investment spending leads to a multiplied increase in aggregate demand due to the multiplier effect, shifting the curve rightward by more than the initial increase.

Question 16

-
The aggregate demand curve in the figure above shifts rightward if
A)taxes are cut.
B)government expenditure decreases.
C)the money wage rate falls.
D)potential GDP increases.
E)the Federal Reserve raises the interest rate.

Accepted Answer

A cut in taxes increases consumers' disposable income, leading to higher consumption and thus shifting the aggregate demand curve to the right.

Question 17

_{--------------------}increases the quantity of real GDP supplied and is shown as a movement along the AS Curve. A)A decrease in the quantity of money B)A rise in the price level C)A decrease in consumption expenditure D)A fall in the expected rate of profit E)An increase in potential GDP

Accepted Answer

The answer of _{--------------------}increases the quantity of real GDP supplied...

Question 18

If people's expectations about future income improve so they think their future income will be higher than previously believed, then the AD curve
A)will shift rightward because people will increase spending now.
B)will not change until income actually rises.
C)and the AS curve will both shift leftward because people will increase their saving.
D)will shift leftward because people will spend less now.
E)will not shift but potential GDP will increase.

Accepted Answer

When people expect higher future income, they are likely to increase their current spending, leading to a rightward shift in the Aggregate Demand (AD) curve.

Question 19

The aggregate demand multiplier effect says that an initial increase in expenditure plans leads to an induced
A)increase in exports.
B)increase in consumption expenditure.
C)increase in government expenditures on goods and services.
D)increase in production expenditure.
E)decrease in the price level.

Accepted Answer

The aggregate demand multiplier effect suggests that an initial increase in spending leads to a chain reaction of increased consumption expenditure, as households and businesses spend more, further boosting demand.

Question 20

At the start of a cost-push inflation,
A)the price level rises and real GDP decreases.
B)the price level rises and real GDP does not change.
C)the price level remains constant and real GDP increases.
D)the price level and real GDP both increase.
E)the price level remains constant and real GDP decreases.

Accepted Answer

Cost-push inflation occurs when production costs increase, leading to a rise in prices and a decrease in real GDP due to reduced output.

Quiz 13: Aggregate Supply Ad Aggregate Demand

A demand-pull inflation initially is characterized by

Reasons that the recession of 2008-2009 did not become a depression include i. The Fed bailed out troubled financial institutions Ii. The government aggressively balanced its budget Iii. The government increased its expenditures, which increased aggregate demand

A combination of recession and inflation is called

The government passes a law which doubles the wages of all workers. aggregate supply will --------------------, and real GDP will --------------------, and the price level will-------------------- .

A crisis in the Middle East drastically raises the price of petroleum. If the aggregate demand curve does not shift, then aggregate supply will --------------------, real GDP will-------------------- , and the price level will-------------------- .

Moving along the aggregate supply curve,

Which of the following shifts the aggregate supply curve leftward?

During an inflationary gap,

Which of the following changes aggregate supply and shifts the AS curve? I. a change in the price of a major resource Ii. increases in the amount of capital Iii. a change in the money income of consumers

When the price level rises there is a--------------------the aggregate demand curve.

Changes in which of the following shifts the aggregate supply curve? I. the price level. Ii. the money wage rate. iii. potential GDP.

If oil prices increase, then in the short run, real GDP will --------------------and the price level will-------------------- .

- In the figure above, the shift in the aggregate demand curve from AD1 to AD3 could be the result of

A year over year -------------------- in the buying power of money means that definitely-------------------- from one year to the next.

If investment spending increases by $1 million, then the aggregate demand curve shifts

- The aggregate demand curve in the figure above shifts rightward if

--------------------increases the quantity of real GDP supplied and is shown as a movement along the AS Curve.

If people's expectations about future income improve so they think their future income will be higher than previously believed, then the AD curve

The aggregate demand multiplier effect says that an initial increase in expenditure plans leads to an induced

At the start of a cost-push inflation,

The government passes a law which doubles the wages of all workers. aggregate supply will _{--------------------}, and real GDP will _{--------------------}, and the price level will_{--------------------} .

A crisis in the Middle East drastically raises the price of petroleum. If the aggregate demand curve does not shift, then aggregate supply will _{--------------------}, real GDP will_{--------------------} , and the price level will_{--------------------} .

When the price level rises there is a_{--------------------}the aggregate demand curve.

If oil prices increase, then in the short run, real GDP will _{--------------------}and the price level will_{--------------------} .

A year over year _{--------------------} in the buying power of money means that definitely_{--------------------} from one year to the next.

_{--------------------}increases the quantity of real GDP supplied and is shown as a movement along the AS Curve.