Question 1

An aggregate supply curve represents the relationship between the
A)price level and the buying of real domestic output.
B)price level and the production of real domestic output.
C)real domestic output bought and the real domestic output sold.
D)price level that producers are willing to accept and the price level buyers are willing to pay.

Accepted Answer

An aggregate supply curve represents the relationship between the price level and the production of real domestic output. In other words, it shows how much producers are willing to supply at different price levels.

Question 2

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of
A)the interest-rate effect.
B)the real-balances effect.
C)a change in the degree of excess capacity.
D)a change in the real value of consumer wealth.

Accepted Answer

A sharp rise in the real value of stock prices would increase the real value of consumer wealth, leading to increased spending and higher aggregate demand. This is an example of the real-balances effect, as it pertains to the purchasing power of consumers' wealth. The interest-rate effect involves changes in borrowing costs affecting investment and consumption, while a change in excess capacity would affect the level of output and prices.

Question 3

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.Which of the factors best explain the downward slope of aggregate demand curve?
A)2, 4, and 6
B)7, 9, and 10
C)1, 3, and 8
D)4, 6, and 7

Accepted Answer

The downward slope of the aggregate demand curve is best explained by the wealth effect (1), the interest rate effect (3), and the exchange rate effect (8). These factors describe how changes in the price level affect consumption, investment, and net exports, leading to a downward-sloping aggregate demand curve.

Question 4

When national income in other nations decreases, aggregate demand in our economy
A)increases because our exports will increase.
B)decreases because our exports will decrease.
C)increases because our imports will decrease.
D)decreases because our imports will increase.

Accepted Answer

When national income in other nations decreases, their ability to purchase goods from our economy will decrease, leading to a decrease in our exports and a reduction in aggregate demand in our economy. This is because our exports are a component of our aggregate demand. Therefore, option B is the correct answer.

Question 5

The upward slope of the short-run aggregate supply curve is based on the assumption that
A)wages and other resource prices do not respond to price level changes.
B)wages and other resource prices do respond to price level changes.
C)prices of outputs do not respond to price level changes.
D)prices of inputs are flexible, while prices of outputs are fixed.

Accepted Answer

The upward slope of the short-run aggregate supply curve assumes that wages and other resource prices are sticky and do not immediately respond to changes in the price level, allowing firms to increase output when prices rise.

Question 6

A fall in the prices of inputs will shift the aggregate
A)demand curve leftward.
B)demand curve rightward.
C)supply curve rightward.
D)supply curve leftwarD.

Accepted Answer

A fall in the prices of inputs reduces production costs, leading to an increase in supply, which shifts the aggregate supply curve rightward.

Question 7

The long-run aggregate supply analysis assumes that
A)input prices are fixed, while product prices are variable.
B)input prices are variable, while product prices are fixed.
C)both input and product prices are variable.
D)both input and product prices are fixed.

Accepted Answer

In the long-run aggregate supply analysis, both input and product prices are variable, allowing the economy to adjust to its full employment level of output.

Question 8

The short-run aggregate supply curve shows the
A)inverse relationship between the price level and real GDP purchased.
B)inverse relationship between the price level and real GDP produced.
C)direct relationship between the price level and real GDP produced.
D)direct relationship between the price level and real GDP purchased.

Accepted Answer

The short-run aggregate supply curve illustrates a direct relationship between the price level and the quantity of goods and services that firms are willing to produce. As prices increase, firms are typically willing to produce and supply more, reflecting an expansion in production due to the higher profitability of selling goods and services at higher prices.

Question 9

Changes in which of the following would not shift the aggregate demand curve?
A)productivity rates
B)foreign-exchange rates
C)real interest rates
D)income tax rates

Accepted Answer

Changes in productivity rates may affect the aggregate supply curve, but not the aggregate demand curve. The other options listed are factors that would shift the aggregate demand curve, as they directly affect consumer spending and investment.

Question 10

The short-run aggregate supply curve
A)becomes flatter at output levels above the full-employment output.
B)becomes steep at output levels above the full-employment output.
C)is upward-sloping with a constant slope.
D)is horizontal.

Accepted Answer

In the short run, as output exceeds full-employment levels, resources become scarce, leading to higher costs and prices, making the aggregate supply curve steeper.

Question 11

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.A change in net export spending would most likely be caused by changes in
A)2 and 3.
B)5 and 6.
C)7 and 8.
D)6 and 9.

Accepted Answer

The answer of Degree of Excess Capacity Answer the question...

Question 12

Which combination of factors would most likely increase aggregate demand?
A)an increase in household indebtedness and a decrease in net exports
B)an increase in consumer wealth and a decrease in interest rates
C)an increase in personal taxes and a decrease in government spending
D)an increase in business taxes and a decrease in profit expectations

Accepted Answer

An increase in consumer wealth and a decrease in interest rates would likely increase aggregate demand, as consumers have more purchasing power and borrowing becomes cheaper, encouraging spending and investment.

Question 13

The slope of the immediate-short-run aggregate supply curve is based on the assumption that
A)both input and output prices are fixed.
B)neither input nor output prices are fixed.
C)input prices are flexible but output prices are fixed.
D)input prices are fixed but output prices are flexible.Difficulty: 01 Easy

Accepted Answer

In the immediate-short-run, both input and output prices are assumed to be fixed, leading to a horizontal aggregate supply curve.

Question 14

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.Changes in which two of the factors would most likely cause a shift in aggregate demand due to a change in consumer spending?
A)1 and 3
B)2 and 4
C)5 and 10
D)8 and 9

Accepted Answer

The answer of Degree of Excess Capacity Answer the question...

Question 15

The immediate-short-run aggregate supply curve is
A)vertical.
B)horizontal.
C)upward-sloping.
D)downward-sloping.

Accepted Answer

The immediate-short-run aggregate supply curve is horizontal because in the short run, firms can adjust their output levels without changing their input prices. Therefore, regardless of the level of aggregate demand, the level of output supplied remains the same.

Question 16

The short-run version of aggregate supply assumes that
A)product prices are fixed, while resource prices are flexible.
B)product prices are flexible, while resource prices are fixed.
C)both input and product prices are flexible.
D)both input and product prices are fixed.

Accepted Answer

In the short-run aggregate supply, product prices are flexible, allowing firms to adjust prices based on demand, while resource prices (like wages) are often fixed due to contracts and other rigidities.

Question 17

The long-run aggregate supply curve is
A)upward-sloping and becomes steeper at output levels above the full-employment output.
B)upward-sloping and becomes flatter at output levels above the full-employment output.
C)horizontal.
D)vertical.

Accepted Answer

The long-run aggregate supply curve is vertical because, in the long run, the economy's output is determined by factors such as technology and resources, not by the price level.

Question 18

The version of aggregate supply that allows for changes in both product prices and resource prices is the
A)immediate short run.
B)short run.
C)immediate long run.
D)long run.

Accepted Answer

In the long run, both product prices and resource prices are flexible, allowing for adjustments in response to changes in demand or supply. This contrasts with the short run, where some prices might be sticky or fixed.

Question 19

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.Investment spending would most likely be influenced by changes in
A)1 and 3.
B)4 and 6.
C)5 and 10.
D)8 and 9.

Accepted Answer

Investment spending is influenced by factors such as interest rates (5) and business expectations (10), as these affect the cost of borrowing and the anticipated return on investment.

Question 20

The labels for the axes of an aggregate supply curve should be
A)real domestic output for the vertical axis and price level for the horizontal axis.
B)real domestic output for the horizontal axis and price level for the vertical axis.
C)real employment for the vertical axis and price level for the horizontal axis.
D)aggregate demand for the vertical axis and real national output for the horizontal axis.

Accepted Answer

The vertical axis of the aggregate supply curve represents real domestic output, while the horizontal axis represents the price level. This is because the aggregate supply curve shows the level of output that firms are willing to produce at each given price level.

Quiz 32: Aggregate Demand and Aggregate Supply

An aggregate supply curve represents the relationship between the

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.Which of the factors best explain the downward slope of aggregate demand curve?

When national income in other nations decreases, aggregate demand in our economy

The upward slope of the short-run aggregate supply curve is based on the assumption that

A fall in the prices of inputs will shift the aggregate

The long-run aggregate supply analysis assumes that

The short-run aggregate supply curve shows the

Changes in which of the following would not shift the aggregate demand curve?

The short-run aggregate supply curve

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.A change in net export spending would most likely be caused by changes in

Which combination of factors would most likely increase aggregate demand?

The slope of the immediate-short-run aggregate supply curve is based on the assumption that

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.Changes in which two of the factors would most likely cause a shift in aggregate demand due to a change in consumer spending?

The immediate-short-run aggregate supply curve is

The short-run version of aggregate supply assumes that

The long-run aggregate supply curve is

The version of aggregate supply that allows for changes in both product prices and resource prices is the

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.Investment spending would most likely be influenced by changes in

The labels for the axes of an aggregate supply curve should be