Question 1

The short-run aggregate supply curve indicates
A)the relationship between the price level and real GDP demanded by consumers, investors, governments, and net exporters.
B)the relationship between the price level and the natural unemployment rate.
C)the relationship between the purchasing power of wages and the quantity of labour supplied by households.
D)the relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant.
E)the various quantities of real GDP producers supply at different income levels.

Accepted Answer

The short-run aggregate supply curve indicates the relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant. In other words, it shows the level of output that firms are willing to produce at different price levels in the short run, assuming that the prices of inputs do not change.

Question 2

The short-run aggregate supply curve is the relationship between the quantity of real GDP supplied and
A)the quantity of real GDP demanded.
B)real income.
C)the inflation rate.
D)the real interest rate.
E)the price level.

Accepted Answer

The short-run aggregate supply curve shows the relationship between the quantity of real GDP supplied and the price level. This means that as the price level increases, firms are willing to produce and supply more real GDP in the short run. However, this relationship may change in the long run with changes in technology, wages, and other factors.

Question 3

Everything else remaining the same, the short-run aggregate supply curve shifts rightward if
A)the money wage rate increases.
B)aggregate demand increases.
C)the full-employment quantity of labour increases.
D)factor prices increase.
E)the quantity of capital decreases.

Accepted Answer

An increase in the full-employment quantity of labor means that there are more workers available to produce goods and services in the short run, which leads to an increase in aggregate supply. None of the other options given would cause an increase in short-run aggregate supply.

Question 4

Figure 26.1.1
 
-Refer to Figure 26.1.1. Which graph illustrates what happens when factor prices decrease?
A)(a)
B)(b)
C)(c)
D)(d)
E)(a)and (b)

Accepted Answer

Graph (a) illustrates what happens when factor prices decrease. As the cost of inputs decreases, the production possibilities frontier (PPF) will shift outwards, allowing for a greater output of goods and services. This is shown by the movement from PPF1 to PPF2.

Question 5

Which one of the following newspaper quotations describes a shift of only the SAS curve?
A)"The decrease in consumer spending may lead to a recession."
B)"The increase in consumer spending is expected to lead to inflation, without any increase in real GDP."
C)"Recent higher wage settlements are expected to cause higher inflation this year."
D)"Growth has been unusually high the last few years due to more women entering the work force."
E)"The recent tornadoes destroyed many factories in Calgary and Edmonton."

Accepted Answer

The answer of Which one of the following newspaper quotations...

Question 6

The long-run aggregate supply curve is
A)vertical.
B)negatively sloped.
C)positively sloped but extremely steep.
D)almost flat.
E)positively sloped at low levels of real GDP and vertical at high levels of real GDP.

Accepted Answer

The long-run aggregate supply curve is vertical because in the long run, the economy will reach full employment and potential output, which are determined by factors such as technology, labor force, and capital stock. Therefore, changes in the price level will not have an impact on the level of output, and the long-run aggregate supply curve will be vertical at the potential output level.

Question 7

Which one, if any, of the following events shift the short-run aggregate supply curve but not the long-run aggregate supply curve?
A)a change in factor prices
B)a change in the quantity of capital
C)an advance in technology
D)an increase in the full-employment quantity of labour
E)none of the above

Accepted Answer

A change in factor prices, such as an increase in the price of oil or labor, will shift the short-run aggregate supply curve, as it affects production costs and profitability in the short run. However, in the long run, firms can adjust their production processes and input mix to minimize the impact of higher factor prices, resulting in a vertical long-run aggregate supply curve. The other options would shift both the short-run and long-run aggregate supply curves.

Question 8

Which one of the following newspaper quotations describes a leftward shift of the LAS curve?
A)"The decrease in consumer spending may lead to a recession."
B)"The increase in consumer spending is expected to lead to inflation, without any increase in real GDP."
C)"Recent higher wage settlements are expected to cause higher inflation this year."
D)"Growth has been unusually high the last few years due to more women entering the work force."
E)"The recent tornadoes destroyed many factories in Calgary and Edmonton."

Accepted Answer

The answer of Which one of the following newspaper quotations...

Question 9

Which one of the following newspaper quotations describes a rightward shift of the LAS curve?
A)"The decrease in consumer spending may lead to a recession."
B)"The increase in consumer spending is expected to lead to inflation, without any increase in real GDP."
C)"Recent higher wage settlements are expected to cause higher inflation this year."
D)"Growth has been unusually high the last few years due to more women entering the work force."
E)"The recent tornadoes destroyed many factories in Calgary and Edmonton."

Accepted Answer

The answer of Which one of the following newspaper quotations...

Question 10

Potential GDP is the level of real GDP at which
A)aggregate demand equals short-run aggregate supply.
B)there is full employment.
C)there is a recessionary gap.
D)there is over-full employment.
E)prices are sure to rise.

Accepted Answer

Potential GDP is the level of real GDP that an economy can produce at full employment, when all factors of production are utilized efficiently. Hence, choice B - "there is full employment" is the correct answer.

Question 11

An increase in oil prices to a country that is a net importer of oil shifts
A)both the short-run aggregate supply and long-run aggregate supply curves rightward.
B)both the short-run aggregate supply and long-run aggregate supply curves leftward.
C)the short-run aggregate supply curve leftward, but leaves the long-run aggregate supply curve unchanged.
D)the long-run aggregate supply curve rightward, but leaves the short-run aggregate supply curve unchanged.
E)the short-run aggregate supply curve leftward, but shifts the long-run aggregate supply curve rightward.

Accepted Answer

An increase in oil prices would increase the cost of production for businesses, which would shift the short-run aggregate supply curve leftward. However, in the long-run, businesses would have the opportunity to adjust their production processes and find alternative sources of energy, which would allow the long-run aggregate supply curve to remain unchanged. Therefore, the correct option is C: the short-run aggregate supply curve shifts leftward, but the long-run aggregate supply curve remains unchanged.

Question 12

Which one of the following newspaper quotations describes a movement along an LAS curve?
A)"The decrease in consumer spending may lead to a recession."
B)"The increase in consumer spending is expected to lead to inflation, without any increase in real GDP."
C)"Recent higher wage settlements are expected to cause higher inflation this year."
D)"Growth has been unusually high the last few years due to more women entering the labour force."
E)"The recent tornadoes destroyed many factories in Calgary and Edmonton."

Accepted Answer

An LAS curve (short-run aggregate supply curve) shows the relationship between the price level and real GDP in the short run. An increase in consumer spending causing inflation without an increase in real GDP suggests a movement along the LAS curve. The other options do not refer to movements along the LAS curve. Option A describes a potential shift in the aggregate demand curve, option C describes a potential shift in the expectations-augmented Phillips curve, option D describes a shift in the long-run aggregate supply, and option E describes a potential shift in the short-run aggregate supply.

Question 13

A vertical long-run aggregate supply curve indicates that
A)an increase in the price level will not expand an economy's output in the long run.
B)output rates greater than the long-run output rate are unattainable.
C)an increase in the price level will permit the economy to achieve a higher level of output.
D)an increase in the price level will increase technological change and economic growth.
E)the long-run aggregate supply curve never shifts.

Accepted Answer

A vertical long-run aggregate supply curve indicates that an increase in the price level will not expand an economy's output in the long run. This is because the economy has reached its full potential output in the long run and any increase in prices will not lead to an increase in output.

Question 14

Which of the following does not change short-run aggregate supply?
A)a change in the money wage rate
B)technological change
C)a change in the full-employment quantity of labour
D)an increase in the quantity of capital
E)a change in expected future profits

Accepted Answer

The answer of Which of the following does not change...

Question 15

A technological advance shifts
A)both SAS and AD rightward.
B)both SAS and LAS leftward.
C)SAS rightward but leaves LAS unchanged.
D)LAS rightward but leaves SAS unchanged.
E)both SAS and LAS rightward.

Accepted Answer

The answer of A technological advance shifts
A)both SAS and AD...

Question 16

Potential GDP
A)increases as the price level rises.
B)is the level of real GDP when unemployment is zero.
C)increases as the quantity of money in the economy increases.
D)does not vary with the price level.
E)never changes.

Accepted Answer

Potential GDP is the level of real GDP that an economy can produce at full employment, which does not depend on the price level.

Question 17

Figure 26.1.1
 
-Refer to Figure 26.1.1. Which graph illustrates what happens when factor prices rise?
A)(a)
B)(b)
C)(c)
D)(d)
E)(a)and (b)

Accepted Answer

Graph (b) shows a leftward shift in the supply curve (S1 to S2) in response to an increase in factor prices, resulting in a higher equilibrium price and lower equilibrium quantity of the product. The other graphs do not depict this scenario.

Question 18

Suppose there is an increase in the quantity of capital. As a result, the SAS
A)and the LAS curves both shift leftward.
B)and the LAS curves both shift rightward.
C)curve does not shift but the LAS curve shifts rightward.
D)curve does not shift but the LAS curve shifts leftward.
E)curve shifts rightward, but the LAS curve does not shift.

Accepted Answer

The answer of Suppose there is an increase in the...

Question 19

The long-run aggregate supply curve is vertical because
A)potential GDP is independent of the price level.
B)actual output can never exceed, even temporarily, the output rate implied by the economy's long-run aggregate supply curve.
C)a vertical long-run aggregate supply curve indicates the maximum output rate that an economy can ever reach.
D)a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real GDP, but not a larger nominal GDP.
E)potential GDP never changes.

Accepted Answer

The long-run aggregate supply curve is vertical because potential GDP is independent of the price level. This means that changes in the price level do not affect the amount of goods and services able to be produced in the long run.

Question 20

If the money wage rate falls, then
A)the AD curve shifts rightward.
B)firms hire less labour.
C)the LAS curve shifts rightward.
D)the SAS curve shifts rightward.
E)the LAS curve and the SAS curve shift rightward.

Accepted Answer

The answer of If the money wage rate falls, then
A)the...

Quiz 26: Aggregate Supply and Aggregate Demand

The short-run aggregate supply curve indicates

The short-run aggregate supply curve is the relationship between the quantity of real GDP supplied and

Everything else remaining the same, the short-run aggregate supply curve shifts rightward if

Figure 26.1.1 -Refer to Figure 26.1.1. Which graph illustrates what happens when factor prices decrease?

Which one of the following newspaper quotations describes a shift of only the SAS curve?

The long-run aggregate supply curve is

Which one, if any, of the following events shift the short-run aggregate supply curve but not the long-run aggregate supply curve?

Which one of the following newspaper quotations describes a leftward shift of the LAS curve?

Which one of the following newspaper quotations describes a rightward shift of the LAS curve?

Potential GDP is the level of real GDP at which

An increase in oil prices to a country that is a net importer of oil shifts

Which one of the following newspaper quotations describes a movement along an LAS curve?

A vertical long-run aggregate supply curve indicates that

Which of the following does not change short-run aggregate supply?

A technological advance shifts

Potential GDP

Figure 26.1.1 -Refer to Figure 26.1.1. Which graph illustrates what happens when factor prices rise?

Suppose there is an increase in the quantity of capital. As a result, the SAS

The long-run aggregate supply curve is vertical because

If the money wage rate falls, then