Question 1

An expansionary gap is equal to

Accepted Answer

An expansionary gap occurs when actual short-run output exceeds potential output. This can occur due to factors such as increased consumer spending or government spending, which drives up demand for goods and services beyond what the economy can produce at full capacity. Therefore, the correct answer is C.

Question 2

The short-run aggregate supply curve slopes upward because quantity supplied

Accepted Answer

The short-run aggregate supply curve shows the relationship between the price level and the quantity of goods and services that firms are willing and able to supply in the short run. As the price level increases, firms can earn higher profits, and they are willing to increase their output to meet the higher demand for their goods and services. As a result, the quantity supplied increases along the short-run aggregate supply curve.

Question 3

The expected price level is assumed to be constant along a given short-run aggregate supply curve.

Accepted Answer

In the short-run, the expected price level is assumed to be constant along a given aggregate supply curve, meaning changes in the overall price level will result in movements along the curve rather than shifts.

Question 4

For the purpose of aggregate supply analysis,the long run is the period of time during which

Accepted Answer

In the long run, all resource prices can be varied, allowing the economy to adjust to changes in demand and supply. This means that unlike the short run, there are no fixed factors of production, and firms can adjust their production levels to meet demand without any constraints. As a result, the economy can achieve equilibrium between aggregate demand and supply.

Question 5

The steepness of the short-run aggregate supply curve depends primarily on

Accepted Answer

The steepness of the short-run aggregate supply curve primarily depends on how quickly production costs increase as output expands. If production costs increase slowly as output expands, the curve will be flatter, but if they increase quickly, the curve will be steeper. This is because firms will be less willing to increase production if it leads to significantly higher costs. Factors such as the length of time for which resource prices or output prices are fixed can also impact the position and shape of the curve, but they are not the primary determinants of its steepness.

Question 6

Suppose that the actual and expected price levels are initially equal,and that the expected price level falls.Which of the following will occur over the long run? (Hint: Recall the actual price level is on the vertical axis.)

Accepted Answer

When the expected price level falls, workers and firms adjust their expectations, leading to lower wage demands and production costs. This causes the short-run aggregate supply curve to shift to the right in the long run.

Question 7

Increases in the costs of production will shift the short-run aggregate supply curve to the left.

Accepted Answer

An increase in the costs of production, such as a rise in wages, raw material prices, or energy costs, will reduce the profitability of businesses, leading to a decline in output and employment in the short run. This will cause a shift in the short-run aggregate supply (SRAS) curve to the left, indicating a lower potential output at any given price level. The leftward shift of the SRAS curve will result in higher price levels and lower real GDP, creating cost-push inflation.

Question 8

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

Accepted Answer

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

Question 9

In the short run,there is a positive relationship between

Accepted Answer

In the short run, the actual price level and aggregate quantity supplied have a positive relationship. As the price level increases, producers are willing to supply more goods and services.

Question 10

If the expected price level falls below the actual price level,

Accepted Answer

When the expected price level falls below the actual price level, the inflation rate must be negative, but it also makes production more attractive to firms as they can produce goods at a lower cost than expected. This is because the prices of inputs used in production will also have fallen. Therefore, the best choice is D, which states that production becomes more attractive to firms.

Question 11

The aggregate supply curve reflects the relationship between the

Accepted Answer

The aggregate supply curve reflects the relationship between the overall price level in the economy and the quantity of all goods and services supplied in the economy. It is not specific to a particular good or firm, but rather represents the aggregate output of all firms and industries. Option A refers to a specific market, while option B is similar to option C but does not represent the entire economy. Option D refers to quantity purchased rather than quantity supplied, and option E refers to investment spending rather than the quantity supplied of all goods.

Question 12

Increases in the costs of producing each level of output will cause a rightward shift of the short-run aggregate supply curve.

Accepted Answer

Increases in the costs of production will lead to a decrease in the level of output supplied at any given price level. As a result, there will be a leftward shift in the short-run aggregate supply curve.

Question 13

Wage agreements may cause costs to be __________ flexible than prices so that __________ in the price level cause __________ in aggregate quantity supplied.

Accepted Answer

The answer of Wage agreements may cause costs to be...

Question 14

The situation in which actual output exceeds potential output

Accepted Answer

When actual output exceeds potential output, it indicates that the economy is operating beyond its capacity. This creates pressure for inflation as demand for goods and services exceed the economy's ability to supply them. This situation is referred to as an overheated economy.

Question 15

When the expected price level falls below the actual price level,firms

Accepted Answer

When the expected price level falls below the actual price level, firms see higher-than-expected prices for their goods, which can lead to increased production in the short run to capitalize on higher profits.

Question 16

As actual output rises above the potential level,which of the following must be true?

Accepted Answer

Actual output rising above potential level indicates an increase in the economy's productive capacity, leading to a rise in real GDP. Option A is incorrect because more output requires more resources, not less. Option B is incorrect because higher output generally leads to higher prices due to increased demand for goods and services, although it may not always be the case in the short run. Option D is incorrect because nominal GDP includes the effects of inflation, which is likely to increase with higher output. Option E is incorrect because actual output rising above potential level means an increase in production.

Question 17

The actual price level is assumed to be constant along a given short-run aggregate supply curve.

Accepted Answer

The answer of The actual price level is assumed to...

Question 18

In the short run,but not in the long run,

Accepted Answer

In the short run, some resource prices, like wages, are often fixed due to contracts, while in the long run, all prices can adjust.

Question 19

In the short run,the price level is determined solely by aggregate supply.

Accepted Answer

In the short run, the price level is determined by both aggregate supply and aggregate demand. The intersection of the aggregate supply and aggregate demand curves determines the equilibrium price level.

Question 20

Which of the following is not assumed to be constant along a short-run aggregate supply curve?

Accepted Answer

In the short-run aggregate supply curve, the actual price level can change, while factors like technology, labor force, expected price level, and capital stock are assumed constant.

Quiz 11: Aggregate Supply