Question 1

The aggregate supply curve (short run)
A)graphs as a horizontal line.
B)is steeper above the full-employment output than below it.
C)slopes downward and to the right.
D)presumes that changes in wages and other resource prices match changes in the price level.

Accepted Answer

The short-run aggregate supply curve is upward sloping, but it is steeper above the full-employment output than below it. This is because as output increases beyond full employment, resources become scarcer and more expensive, leading to higher costs and less supply. Conversely, as output falls below full employment, there are more resources available, which reduces costs and increases supply.

Question 2

A rightward shift in the aggregate supply curve is best explained by an increase in
A)business taxes.
B)productivity.
C)nominal wages.
D)the price of imported resources.

Accepted Answer

An increase in productivity allows for a greater supply of goods and services at any given price level, leading to a rightward shift in the aggregate supply curve.

Question 3

The aggregate supply curve (short run)
A)slopes downward and to the right.
B)graphs as a vertical line.
C)slopes upward and to the right.
D)graphs as a horizontal line.

Accepted Answer

The short run aggregate supply curve slopes upward and to the right because, in the short term, as the price level increases, the quantity of goods and services supplied increases. This is because firms can increase production in the short run by utilizing additional capacity and increasing employment levels. As wages and other costs increase, however, the costs of production also increase, reducing the ability of firms to increase production in the long run.

Question 4

The immediate-short-run aggregate supply curve represents circumstances where
A)both input and output prices are fixed.
B)both input and output prices are flexible.
C)input prices are fixed, but output prices are flexible.
D)input prices are flexible, but output prices are fixed.

Accepted Answer

In the immediate-short-run, both input and output prices are fixed, meaning firms cannot change prices in response to changes in demand or supply conditions.

Question 5

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.The per-unit cost of production in the economy described is
A)$0.50.
B)$1.
C)$2.
D)$5.

Accepted Answer

The per-unit cost of production is calculated by dividing the total cost of inputs by the quantity of output. 
Total cost of inputs = price of each input x quantity of inputs
= $4 x 10
= $40
Per-unit cost of production = Total cost of inputs / Quantity of output
= $40 / 20
= $2

Question 6

Other things equal, an improvement in productivity will
A)shift the aggregate demand curve to the left.
B)shift the aggregate supply curve to the left.
C)shift the aggregate supply curve to the right.
D)increase the price level.

Accepted Answer

An improvement in productivity means that firms are able to produce more output at the same cost, which will shift the aggregate supply curve to the right. This will lead to lower prices and an increase in real GDP, without a corresponding increase in the price level. Therefore, choice C is the best answer.

Question 7

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?
A)a reduction in business taxes
B)production bottlenecks occurring when producers near full plant capacity
C)an increase in the price of imported resources
D)deregulation of industry

Accepted Answer

An increase in the price of imported resources would increase the cost of production for producers, leading to an increase in per-unit production cost and a leftward shift of the aggregate supply curve.

Question 8

The aggregate supply curve (short run) is upsloping because
A)wages and other resource prices match changes in the price level.
B)the price level is flexible upward but inflexible downward.
C)per-unit production costs rise as the economy moves toward and beyond its full-employment real output.
D)wages and other resource prices are flexible upward but inflexible downward.

Accepted Answer

In the short run, as the economy approaches full employment, resources become scarcer, leading to higher per-unit production costs, which causes the aggregate supply curve to slope upwards.

Question 9

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households.We would expect this to
A)affect neither aggregate supply nor aggregate demand.
B)increase aggregate demand.
C)reduce aggregate demand.
D)reduce aggregate supply.

Accepted Answer

Tax rebates increase disposable income, encouraging households to increase their consumption. This increase in consumption leads to an increase in aggregate demand.

Question 10

Which of the following would most likely shift the aggregate demand curve to the right?
A)an increase in stock prices that increases consumer wealth
B)increased fear that a recession will cause workers to lose their jobs
C)an increase in personal income tax rates
D)a reduction in household borrowing because of tighter lending practices

Accepted Answer

An increase in stock prices that increases consumer wealth would most likely shift the aggregate demand curve to the right as consumers would feel wealthier and therefore more likely to spend money on goods and services.

Question 11

What percentage of the average U.S.firm's costs is accounted for by wages and salaries?
A)40
B)60
C)75
D)85

Accepted Answer

The answer of What percentage of the average U.S.firm's costs...

Question 12

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.All else being equal, if the price of each input increased from $4 to $6, productivity would
A)fall from 2 to 3.
B)fall from 0.50 to 0.33.
C)rise from 1 to 2.
D)remain unchanged.

Accepted Answer

Productivity is calculated as output per unit of input. Since the output and quantity of inputs remain the same, productivity remains unchanged despite the increase in input prices.

Question 13

Other things equal, if the U.S.dollar were to depreciate, the
A)aggregate demand curve would remain fixed in place.
B)aggregate supply curve would shift to the left.
C)aggregate supply curve would shift to the right.
D)aggregate demand curve would shift to the left.

Accepted Answer

The answer of Other things equal, if the U.S.dollar were...

Question 14

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?
A)a reduced amount of excess capacity
B)increased government spending on military equipment
C)an appreciation of the U.S.dollar
D)increased consumer optimism regarding future economic conditions

Accepted Answer

An appreciation of the U.S. dollar would make U.S. goods more expensive for foreign buyers, reducing exports and decreasing aggregate demand.

Question 15

The aggregate supply curve
A)is explained by the interest rate, real-balances, and foreign purchases effects.
B)gets steeper as the economy moves from the top of the curve to the bottom of the curve.
C)shows the various amounts of real output that businesses will produce at each price level.
D)is downsloping because real purchasing power increases as the price level falls.

Accepted Answer

The aggregate supply curve shows the various amounts of real output that businesses will produce at each price level. It is not affected by the interest rate, real-balances, and foreign purchases effects. The slope of the aggregate supply curve is not necessarily steeper at the bottom, as it depends on the specific factors affecting production in the economy. The aggregate demand curve is downsloping because real purchasing power increases as the price level falls.

Question 16

The immediate-short-run aggregate supply curve is
A)downsloping.
B)upsloping.
C)vertical.
D)horizontal.

Accepted Answer

In the immediate-short run, the prices of resources and the prices of final goods and services are fixed. As a result, the immediate-short run aggregate supply curve is horizontal. This means that changes in aggregate demand will only affect the price level, not the real output.

Question 17

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.The level of productivity is
A)20.
B)10.
C)5.
D)2.

Accepted Answer

The answer of Suppose that real domestic output in an...

Question 18

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.Given an increase in input price from $4 to $6, we would expect the aggregate
A)supply curve to shift to the left.
B)supply curve to shift to the right.
C)demand curve to shift to the left.
D)supply and demand curves to both remain unchanged.

Accepted Answer

An increase in input prices raises production costs, causing the aggregate supply curve to shift to the left as producers supply less at each price level.

Question 19

Suppose that technological advancements stimulate $20 billion in additional investment spending.If the MPC = 0.6, how much will the change in investment increase aggregate demand?
A)$12 billion
B)$20 billion
C)$33.3 billion
D)$50 billion

Accepted Answer

The answer of Suppose that technological advancements stimulate $20 billion...

Question 20

The shape of the immediate-short-run aggregate supply curve implies that
A)total output depends on the volume of spending.
B)increases in aggregate demand are inflationary.
C)output prices are flexible, but input prices are not.
D)government cannot bring an economy out of a recession by increasing spending.

Accepted Answer

In the immediate-short-run, prices are sticky, meaning that total output is determined by the level of spending, as prices do not adjust quickly to changes in demand.

Quiz 32: Aggregate Demand and Aggregate Supply

The aggregate supply curve (short run)

A rightward shift in the aggregate supply curve is best explained by an increase in

The aggregate supply curve (short run)

The immediate-short-run aggregate supply curve represents circumstances where

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.The per-unit cost of production in the economy described is

Other things equal, an improvement in productivity will

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

The aggregate supply curve (short run) is upsloping because

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households.We would expect this to

Which of the following would most likely shift the aggregate demand curve to the right?

What percentage of the average U.S.firm's costs is accounted for by wages and salaries?

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.All else being equal, if the price of each input increased from $4 to $6, productivity would

Other things equal, if the U.S.dollar were to depreciate, the

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left) ?

The aggregate supply curve

The immediate-short-run aggregate supply curve is

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.The level of productivity is

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.Given an increase in input price from $4 to $6, we would expect the aggregate

Suppose that technological advancements stimulate $20 billion in additional investment spending.If the MPC = 0.6, how much will the change in investment increase aggregate demand?

The shape of the immediate-short-run aggregate supply curve implies that