Question 1

The short run is a period of time

Accepted Answer

The short run is a period of time during which resource buyers and sellers cannot adjust fully to changes in the price level. This is because some contracts and agreements (such as labor contracts) may have a fixed duration or terms, making it difficult to adjust to sudden changes in prices. However, in the long run, resource buyers and sellers can adjust fully to changes in the price level.

Question 2

If the actual price level is higher than the expected price level, the economy will expand in the short run.

Accepted Answer

If the actual price level is higher than the expected price level, producers will increase production to take advantage of the higher price levels, leading to an expansion in output and employment in the short run. However, this expansion may not be sustainable in the long run as it could lead to inflation and a decrease in purchasing power.

Question 3

If the actual price level is less than the expected price level reflected in long-term contracts,

Accepted Answer

The answer of If the actual price level is less...

Question 4

If the actual price level exceeds the expected price level reflected in long-term contracts,

Accepted Answer

If the actual price level exceeds the expected price level reflected in long-term contracts, firms will find production more profitable than they had expected and will increase the quantity of output supplied. This is because they can sell their output at a higher price than they anticipated and make more profit, thereby increasing their incentive to produce more.

Question 5

In constructing a short-run aggregate supply curve, we assume that the goal of business is to

Accepted Answer

In the short run, businesses aim to maximize profits as they are unable to adjust all factors of production. Therefore, the short-run aggregate supply curve is upward sloping and reflects the profit-maximizing behavior of firms.

Question 6

If the actual price level is lower than the expected price level, the economy will contract in the short run.

Accepted Answer

The answer of If the actual price level is lower...

Question 7

A wage rate above what is necessary to attract a sufficient number of workers is known as a(n)

Accepted Answer

An efficiency wage is a wage rate above what is necessary to attract a sufficient number of workers. It is paid by firms to reduce shirking and turnover, and increase effort and productivity.

Question 8

Suppose that between 2004 and 2014, Jack's salary increased from $100,000 to $200,000 per year and the price index increased from 100 to 300 during the same period. Which of the following statements best describes Jack's situation?

Accepted Answer

Jack's money income increased from $100,000 to $200,000, but his real income decreased because the price index increased from 100 to 300, indicating that the purchasing power of his income has decreased.

Question 9

Real wages are nominal wages adjusted for price changes.

Accepted Answer

Real wages take inflation or price changes into account by adjusting for purchasing power, while nominal wages do not.

Question 10

In constructing the short-run aggregate supply curve, we define the short run as the period in which

Accepted Answer

The short-run aggregate supply curve is constructed based on the assumption that some resources costs are fixed in the short run, such as labor contracts or lease agreements. Therefore, option D is the correct answer. Option A is incorrect because the price level can change in the short run. Option B is incorrect because output can vary in the short run. Option C is incorrect because profit can also vary in the short run. Option E is unrelated to the construction of the short-run aggregate supply curve.

Question 11

If the price level turns out to be higher than expected,

Accepted Answer

The answer of If the price level turns out to...

Question 12

Fixed resource prices help explain why firms

Accepted Answer

The answer of Fixed resource prices help explain why firms
...

Question 13

If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year, which of the following is correct?

Accepted Answer

The answer of If nominal wage rates increase by 5...

Question 14

If the actual price level exceeds the expected price level reflected in long-term contracts,

Accepted Answer

The answer of If the actual price level exceeds the...

Question 15

A rising price level in the short run may create an incentive for firms to increase production because

Accepted Answer

When there is a rising price level in the short run, firms may increase their production as they can sell their output at a higher price, which will increase their profits. Therefore, option (C) is the correct answer. Option (A) is incorrect because rising costs of production would decrease profits, not increase production. Option (B) is incorrect because a decrease in total sales revenue would not provide an incentive for firms to increase production. Option (D) is incorrect because if costs increase faster than total revenue, it would decrease profits and not provide an incentive for firms to increase production. Option (E) is incorrect because it is not relevant to the situation described in the question.

Question 16

Among the reasons firms find it profitable to expand output in the short run when the price level is rising faster than expected is that

Accepted Answer

When the price level is rising faster than expected, prices for firms' output are also rising. This allows firms to increase their profits by expanding output in the short run, without necessarily incurring higher costs. Additionally, since prices are rising, consumers are willing to pay higher prices for goods, which can further increase firms' profits.

Question 17

If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, real wages will

Accepted Answer

Real wages are calculated by adjusting nominal wages for changes in the price level. In this case, if nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, the real wage will decrease by 3 percent per year (2% increase in nominal wage rates - 5% increase in price level = -3% decrease in real wage).

Question 18

If the inflation rate is 4 percent a year and everyone expected 2 percent a year, then the potential level of real GDP will increase.

Accepted Answer

The inflation rate refers to the rate at which the general level of prices for goods and services is increasing over time. It does not directly affect the potential level of real GDP, which refers to the maximum amount of output that an economy can produce with all its resources fully employed. Therefore, whether the inflation rate matches or exceeds expectations, it should not affect the potential level of real GDP.

Question 19

Because some resource prices are assumed to be constant in the short run,

Accepted Answer

The answer of Because some resource prices are assumed to...

Question 20

Given implicit or explicit resource price agreements, if the actual price level is below the expected price level, the

Accepted Answer

When the actual price level is below the expected price level, firms will reduce their production as they face lower profits at the given price level. This reduction in production will lead to a leftward shift in the short-run aggregate supply (SRAS) curve, indicating a decrease in the quantity of goods and services supplied at every possible price level. The leftward shift in SRAS will cause an increase in the price level and a decrease in the level of real GDP, moving the economy leftward along the SRAS curve.

Quiz 12: Aggregate Supply

The short run is a period of time

If the actual price level is higher than the expected price level, the economy will expand in the short run.

If the actual price level is less than the expected price level reflected in long-term contracts,

If the actual price level exceeds the expected price level reflected in long-term contracts,

In constructing a short-run aggregate supply curve, we assume that the goal of business is to

If the actual price level is lower than the expected price level, the economy will contract in the short run.

A wage rate above what is necessary to attract a sufficient number of workers is known as a(n)

Suppose that between 2004 and 2014, Jack's salary increased from $100,000 to $200,000 per year and the price index increased from 100 to 300 during the same period. Which of the following statements best describes Jack's situation?

Real wages are nominal wages adjusted for price changes.

In constructing the short-run aggregate supply curve, we define the short run as the period in which

If the price level turns out to be higher than expected,

Fixed resource prices help explain why firms

If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year, which of the following is correct?

If the actual price level exceeds the expected price level reflected in long-term contracts,

A rising price level in the short run may create an incentive for firms to increase production because

Among the reasons firms find it profitable to expand output in the short run when the price level is rising faster than expected is that

If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, real wages will

If the inflation rate is 4 percent a year and everyone expected 2 percent a year, then the potential level of real GDP will increase.

Because some resource prices are assumed to be constant in the short run,

Given implicit or explicit resource price agreements, if the actual price level is below the expected price level, the