Question 1

The figure below shows the short-run aggregate demand and supply curves of an economy. If the economy is currently producing at Y₂, long-run equilibrium will most likely be established by a(n):

Accepted Answer

The answer of The figure below shows the short-run aggregate...

Question 2

For the aggregate demand and aggregate supply listed in schedule #2 of the table given below, the equilibrium output level and price level are:

Accepted Answer

The answer of For the aggregate demand and aggregate supply...

Question 3

Which of the following explains the shape of the short-run aggregate supply curve?

Accepted Answer

The short-run aggregate supply curve is upward sloping, indicating a direct relationship between the quantity of goods and services supplied and the price level. As prices increase, producers are willing to supply more, hence the direct relationship.

Question 4

In the aggregate demand-aggregate supply model, which of these changes is most likely when the cost of production increases in the long run?

Accepted Answer

An increase in the cost of production leads to a lower level of output in the short run, causing a leftward shift in the short-run aggregate supply curve. This results in a decrease in real GDP and an increase in the price level in the short run. However, in the long run, wages and prices adjust, and the economy returns to potential output. Therefore, in the long run, the horizontal aggregate supply curve intersects the upward sloping aggregate demand curve at the potential output level, with no change in the price level. Thus, the correct answer is A.

Question 5

The figure below shows the short-run aggregate supply curve of an economy. In this figure, a recessionary gap would be represented by the distance between:

Accepted Answer

The answer of The figure below shows the short-run aggregate...

Question 6

The figure below shows the short-run aggregate supply of an economy. Which of the following is likely to be true if the actual price level in this figure exceeds the expected price level?

Accepted Answer

The answer of The figure below shows the short-run aggregate...

Question 7

The long run is the period of time during which:

Accepted Answer

In the long run, all resource prices, including wages, can be adjusted. This allows for all inputs to production to be varied, unlike in the short run where some prices or resources are fixed.

Question 8

The figure below shows the short-run aggregate supply curve of an economy. If P₃ is the price level prevailing in the economy, _____.

Accepted Answer

The answer of The figure below shows the short-run aggregate...

Question 9

The figure below shows the short-run aggregate supply curve of an economy. In this figure, an expansionary gap would be represented by the distance between:

Accepted Answer

An expansionary gap represents a situation where the actual output (Y) is greater than the potential output (YS). In the given figure, YS represents the potential output level and Y represents the actual output level. The distance between Y₃ and Y₁ represents the expansionary gap - the difference between actual output and potential output. Therefore, option B is the correct choice.

Question 10

An expansionary gap in the short-run results in:

Accepted Answer

An expansionary gap occurs when actual output exceeds potential output in the short-run. This may cause an increase in aggregate demand which can lead to cost-push inflation, due to firms passing on the increased costs of production onto consumers in the long-run. Therefore, option D is the best choice as it correctly identifies the outcome of an expansionary gap in the long-run.

Question 11

When actual output increases the potential output, _____.

Accepted Answer

When actual output increases the potential output, there is a higher demand for resources which may lead to an increase in their prices. This, in turn, can lead to a general increase in prices, also known as inflation.

Question 12

For the aggregate demand and aggregate supply listed in schedule #3 of the table given below, the equilibrium output level and price level are:

Accepted Answer

The answer of For the aggregate demand and aggregate supply...

Question 13

The figure below shows the short-run aggregate supply curve of an economy. If the actual price level exceeds the expected price level, then:

Accepted Answer

The answer of The figure below shows the short-run aggregate...

Question 14

An expansionary gap is equal to:

Accepted Answer

An expansionary gap is the amount by which actual short-run output exceeds potential output, which is the maximum amount of goods and services that an economy can produce in the long run. This can also be expressed as the difference between actual GDP and potential GDP. Choice A and B are incorrect because they involve nominal GDP, which is not relevant to measuring the size of an expansionary gap. Choice D is incorrect because it refers to a comparison between actual and expected prices, which is not the same as measuring the size of an expansionary gap. Choice E is incorrect because it refers to a comparison between long-run and short-run variables that are not relevant to measuring the size of an expansionary gap.

Question 15

In the short run, there is a positive relationship between:

Accepted Answer

The answer of In the short run, there is a...

Question 16

The more the short-run output exceeds an economy's potential, _____.

Accepted Answer

When the short-run output exceeds an economy's potential, it means there is a positive output gap. This results in an increase in demand for goods and services, leading to upward pressure on the price level due to shortages in supply. This is why B is the correct choice, as there is a greater upward pressure on the price level.

Question 17

Consider schedule #1 in the aggregate demand and aggregate supply table given below. The equilibrium output and price level for the economy described on this schedule are:

Accepted Answer

The answer of Consider schedule #1 in the aggregate demand...

Question 18

Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level falls eventually due to a change in economic conditions. Which of the following will occur over the long run?

Accepted Answer

A fall in actual price level indicates that the economy is experiencing a recessionary gap, where actual output is below potential output. This will lead to a decrease in the quantity of goods and services supplied in the short run, causing the short-run aggregate supply curve to shift to the left. Over the long run, this decrease in output may lead to adjustments in the economy that result in an increase in potential output, causing the long-run aggregate supply curve to shift to the right. However, the question only asks about the short run, so the answer is D.

Question 19

Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level becomes higher due to some change in economic conditions. Which of the following will occur eventually?

Accepted Answer

The answer of Suppose the actual and expected price levels...

Question 20

The figure below shows the short-run aggregate supply curve of an economy. In this figure, if P₁ is the price level prevailing in the economy, it implies that:

Accepted Answer

At the price level P₁, the short-run aggregate supply curve intersects with the long-run aggregate supply curve at the natural level of output. This means that the economy is producing at its potential output level, and the actual unemployment rate is equal to the natural unemployment rate. Therefore, choice C is the best answer.

Quiz 10: Aggregate Supply

The figure below shows the short-run aggregate demand and supply curves of an economy. If the economy is currently producing at Y₂, long-run equilibrium will most likely be established by a(n) :

For the aggregate demand and aggregate supply listed in schedule #2 of the table given below, the equilibrium output level and price level are:

Which of the following explains the shape of the short-run aggregate supply curve?

In the aggregate demand-aggregate supply model, which of these changes is most likely when the cost of production increases in the long run?

The figure below shows the short-run aggregate supply curve of an economy. In this figure, a recessionary gap would be represented by the distance between:

The figure below shows the short-run aggregate supply of an economy. Which of the following is likely to be true if the actual price level in this figure exceeds the expected price level?

The long run is the period of time during which:

The figure below shows the short-run aggregate supply curve of an economy. If P₃ is the price level prevailing in the economy, _____.

The figure below shows the short-run aggregate supply curve of an economy. In this figure, an expansionary gap would be represented by the distance between:

An expansionary gap in the short-run results in:

When actual output increases the potential output, _____.

For the aggregate demand and aggregate supply listed in schedule #3 of the table given below, the equilibrium output level and price level are:

The figure below shows the short-run aggregate supply curve of an economy. If the actual price level exceeds the expected price level, then:

An expansionary gap is equal to:

In the short run, there is a positive relationship between:

The more the short-run output exceeds an economy's potential, _____.

Consider schedule #1 in the aggregate demand and aggregate supply table given below. The equilibrium output and price level for the economy described on this schedule are:

Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level falls eventually due to a change in economic conditions. Which of the following will occur over the long run?

Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level becomes higher due to some change in economic conditions. Which of the following will occur eventually?

The figure below shows the short-run aggregate supply curve of an economy. In this figure, if P₁ is the price level prevailing in the economy, it implies that:

Quiz 10: Aggregate Supply

The figure below shows the short-run aggregate demand and supply curves of an economy. If the economy is currently producing at Y2, long-run equilibrium will most likely be established by a(n) :

For the aggregate demand and aggregate supply listed in schedule #2 of the table given below, the equilibrium output level and price level are:

Which of the following explains the shape of the short-run aggregate supply curve?

In the aggregate demand-aggregate supply model, which of these changes is most likely when the cost of production increases in the long run?

The figure below shows the short-run aggregate supply curve of an economy. In this figure, a recessionary gap would be represented by the distance between:

The figure below shows the short-run aggregate supply of an economy. Which of the following is likely to be true if the actual price level in this figure exceeds the expected price level?

The long run is the period of time during which:

The figure below shows the short-run aggregate supply curve of an economy. If P3 is the price level prevailing in the economy, _____.

The figure below shows the short-run aggregate supply curve of an economy. In this figure, an expansionary gap would be represented by the distance between:

An expansionary gap in the short-run results in:

When actual output increases the potential output, _____.

For the aggregate demand and aggregate supply listed in schedule #3 of the table given below, the equilibrium output level and price level are:

The figure below shows the short-run aggregate supply curve of an economy. If the actual price level exceeds the expected price level, then:

An expansionary gap is equal to:

In the short run, there is a positive relationship between:

The more the short-run output exceeds an economy's potential, _____.

Consider schedule #1 in the aggregate demand and aggregate supply table given below. The equilibrium output and price level for the economy described on this schedule are:

Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level falls eventually due to a change in economic conditions. Which of the following will occur over the long run?

Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level becomes higher due to some change in economic conditions. Which of the following will occur eventually?

The figure below shows the short-run aggregate supply curve of an economy. In this figure, if P1 is the price level prevailing in the economy, it implies that:

The figure below shows the short-run aggregate demand and supply curves of an economy. If the economy is currently producing at Y₂, long-run equilibrium will most likely be established by a(n) :

The figure below shows the short-run aggregate supply curve of an economy. If P₃ is the price level prevailing in the economy, _____.

The figure below shows the short-run aggregate supply curve of an economy. In this figure, if P₁ is the price level prevailing in the economy, it implies that: