Question 1

In the early 2000s the European Central Bank warned that higher oil prices were a threat to economic growth.The Bank President called the higher prices "a sizeable adverse shock" to the economy.In terms of the AS/AD framework, this shock would be represented as a shift:
A)up (to the left) of the AS curve.
B)down (to the right) of the AS curve.
C)left of the AD curve.
D)right of the AD curve.

Accepted Answer

Higher oil prices would increase production costs for firms, causing a decrease in aggregate supply (AS) as firms would produce less at every given price level. This shift would be represented as a shift up (to the left) of the AS curve. As a result, the price level would increase and real GDP would decrease, causing a shift leftward of the aggregate demand (AD) curve.

Question 2

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 will lead to an increase in production costs for businesses, causing them to increase the prices of their goods and services, resulting in a decrease in supply. This will shift the short-run aggregate supply curve up (to the left). Additionally, a decline in labor productivity will also cause a decrease in supply, further shifting the SRAS curve up. Therefore, the correct answer is A.

Question 3

Refer to the graph shown.A movement from A to B is most likely to be caused by: 
A)an increase in input prices.
B)a decrease in input prices.
C)an increase in aggregate demand.
D)a decrease in aggregate demand.

Accepted Answer

The answer of Refer to the graph shown.A movement from...

Question 4

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

If firms were reluctant to increase their markups in the face of higher aggregate demand, they may have chosen to maintain their current price levels rather than increase them, in order to remain competitive. This would result in a flatter short-run aggregate supply curve, as firms are willing to supply a greater quantity of output at the same price level. This scenario could result in an increase in output without a corresponding increase in prices, which seems to match the situation described in the question.

Question 5

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

If workers expect more inflation in the future, they will demand higher wages to compensate for the future inflation. This increase in wages will drive up the costs of production, causing the short-run aggregate supply (SRAS) curve to shift up (to the left). The SRAS curve shows the relationship between the price level and the quantity of real GDP supplied in the short run, so a shift up means that less real GDP can be produced at any given price level.

Question 6

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 7

If productivity increases by 3 percent but wages increase by 4 percent, then it is most likely that the price level will:
A)rise by 1 percent.
B)fall by 1 percent.
C)rise by 7 percent.
D)fall by 7 percent.

Accepted Answer

When productivity increases, the cost of production decreases, which can lead to lower prices. However, if wages increase more than productivity, the cost of production increases, which can lead to higher prices. In this case, wages have increased by 4 percent while productivity has increased by only 3 percent. This means that the cost of production has increased, and therefore the price level is likely to rise by 1 percent.

Question 8

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 9

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

Accepted Answer

The multiplier effect amplifies the initial increase in government expenditures. With a multiplier of 4, a $15 billion increase 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 10

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 than20.
B)shift by less than20.
C)shift by exactly20.
D)not shift at all.

Accepted Answer

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

Question 11

The short-run aggregate supply curve is most likely to shift down (to the right) if:
A)productivity falls.
B)wages rise.
C)sales taxes increase.
D)input prices fall.

Accepted Answer

A decrease in input prices will lower the cost of production for firms, leading to an increase in short-run aggregate supply. A fall in productivity (A) or a rise in wages (B) would increase costs and decrease aggregate supply. An increase in sales taxes (C) would also increase costs and decrease aggregate supply.

Question 12

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 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 will increase the cost of producing goods and services, leading to a decrease in the quantity of output supplied at any given price level. This shift is represented by a movement up (to the left) along the short-run aggregate supply curve.

Question 14

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...

Question 15

In early 2000s, oil prices were rising because of concern about the Iraqi 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 production costs, leading to a decrease in short-run aggregate supply, shifting the curve to the left.

Question 16

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 upward slope of the short-run aggregate supply curve is due to a combination of factors, such as the sticky wages, sticky prices, and incomplete price adjustment. However, the statement that all inputs are fully utilized in the short run is not a reason for the upward sloping character of the SRAS curve. In fact, some inputs may not be fully utilized due to capacity constraints, bottlenecks, or other factors that limit the ability of firms to increase output in response to higher demand. Therefore, choice D is the exception that does not support the premise of an upward-sloping SRAS curve.

Question 17

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

The answer of If productivity increases by 2 percent but...

Question 18

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 19

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 shows the relationship between the price level and the quantity of real output supplied by firms in the short run. Therefore, the axes for the short-run aggregate supply curve are the price level and real output.

Question 20

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)Pirline tickets on priceline.com

Accepted Answer

A posted-price market is where goods are sold at a fixed price, like computers on Apple.com.

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

In the early 2000s the European Central Bank warned that higher oil prices were a threat to economic growth.The Bank President called the higher prices "a sizeable adverse shock" to the economy.In terms of the AS/AD framework, this shock would be represented as a shift:

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

Refer to the graph shown.A movement from A to B is most likely to be caused by:

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:

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

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

If productivity increases by 3 percent but wages increase by 4 percent, then it is most likely that the price level will:

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

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

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

The short-run aggregate supply curve is most likely to shift down (to the right) if:

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:

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

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

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

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

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

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

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