Deck 23: Aggregate Supply and Demand and the Growth Diamond

Question 1

If output is above the natural rate, the labor market is tight and AS would be expected to shift left due to a decrease in wages.

Answer 1

False

Question 2

If input prices and output prices were perfectly flexible in the short run, AS would be the same in the short and long runs.

Answer 2

True

Question 3

According to the AS-AD model with output starting at the natural rate, an increase in government spending leads to an increase in the equilibrium price level and no change in the equilibrium level of output in the long run.

Answer 3

True

Question 4

An improvement in productivity can increase the natural rate of output.

Question 5

If there is high unemployment, AS would shift to the right.

Question 6

The IS-LM model and the quantity theory of money have the same implications for the slope of AD.

Question 7

An increase in government spending implies an increase in velocity.

Question 8

The AS-AD model shows long-run money neutrality.

Question 9

According to the AS-AD model starting at the natural rate, if the central bank lowers the money supply, then equilibrium output and the equilibrium price level fall in the short run.

Question 10

If a government spending program increases the natural rate of output, then the equilibrium price level does not necessarily rise in the AS-AD model.

Question 11

If unions are unable to negotiate a large wage increase, then AS would shift to the left in the short run.

Question 12

An increase in consumption causes AS to shift to the left.

Question 13

Wars induce long-term growth.

Question 14

People who believe the adjustment of AS happens quickly in the short run are less likely to be in favor of activist policies.

Question 15

An increase in the interest rate shifts AD to the left.

Question 16

The invention of the internet was a negative supply shock.

Question 17

According to the AS-AD model, if oil prices fall, then equilibrium output and the equilibrium prices rise in the short run.

Question 18

An increase in autonomous consumption shifts aggregate demand to the left.

Question 19

According to the quantity theory of money, an increase in the supply of money would shift AD to the right.

Question 20

An increase in investment shifts aggregate demand to the right, which also implies an increase in velocity.

Question 21

A change in which of the following would not shift long-run AS?

A) capital stock
B) inflation expectations
C) productivity
D) all of the above

Question 22

According to the AS-AD model, money is neutral in the

A) short run.
B) long run.
C) both of the above.
D) neither of the above.

Question 23

The AD curve shifts to the right if _____ decrease(s).

A) consumption
B) money supply
C) taxes
D) all of the above

Question 24

An increase in velocity would be associated with an increase in

A) taxes.
B) net exports.
C) productivity.
D) all of the above.

Question 25

Some types of government spending can raise the natural rate of output.

Question 26

If inflation is expected to decrease, the AS curve move to the right.

Question 27

If output is below the natural rate, output will increase due to a _____ in wages, which leads _____ to shift to the right.

A) rise, AD
B) fall, AD
C) rise, AS
D) fall, AS

Question 28

The first step on the growth diamond is for a country to have a non-predatory government.

Question 29

A decrease in government spending shifts _____ to the

A) AD, right.
B) AD, left.
C) AS, right.
D) AS, left.

Question 30

An increase in investment will lead to ____ equilibrium output and a _____ equilibrium price level in the short run.

A) lower, lower
B) lower, higher
C) higher, lower
D) higher, higher

Question 31

In the long run, the aggregate supply curve is

A) positively sloped.
B) negatively sloped.
C) vertical.
D) horizontal.

Question 32

An increase in which of the following would lead to decrease in equilibrium output and an increase in equilibrium prices?

A) positive demand shock
B) negative demand shock
C) positive supply shock
D) negative supply shock

Question 33

The United States developed a modern financial system before Canada.

Question 34

An increase in velocity shifts _____ to the

A) AD, right.
B) AD, left.
C) AS, right.
D) AS, left.

Question 35

Which of the following would lead to an increase in equilibrium output and a decrease in the equilibrium price level in the short run?

A) decrease in oil prices
B) increase in exports
C) increase in wages
D) decrease in taxes

Question 36

A decrease in oil prices will lead to ____ equilibrium output and a _____ equilibrium price level in the short run.

A) lower, lower
B) lower, higher
C) higher, lower
D) higher, higher

Question 37

Those who believe adjustment to long-run outcomes can take a very long time tend to be in favor of active government intervention.

Question 38

According to the AS-AD model, if workers demand higher wages, then equilibrium output and the equilibrium price level will fall in the short run.

Question 39

According to the AS-AD model, an increase in taxes does not change output in the

A) short run.
B) long run.
C) both of the above.
D) neither of the above.

Question 40

An increase in expected inflation shifts _____ to the

A) AD, right.
B) AD, left.
C) AS, right.
D) AS, left.

Question 41

According to the quantity theory of money, how would a decrease in velocity affect AD?

Question 42

A negative supply shock

A) increases production.
B) decreases production.
C) has no impact on production.
D) none of the above.

Question 43

The 1990s saw high growth with low inflation. Give a possible explanation that would result in higher equilibrium output with a lower equilibrium price level on an AS-AD graph.

Question 44

Changes in what could affect the natural rate of output?

Question 45

Farms of white farmers in Zimbabwe were recently confiscated. What does this suggest about Zimbabwe progress along the growth diamond?

Question 46

Why is the theory of aggregate demand and supply attractive? This theory is attractive because it can be used to examine both the short and the long run; (2) it takes a form similar to the microeconomic price theory model of supply and demand, so it is familiar; and (3) it gives policymakers some grounds for implementing activist economic policies.

Question 47

Which of the following is a step on the growth diamond?

A) modern financial system
B) effective management
C) non-predatory government
D) all of the above

Question 48

Show the short-run effect of a currency depreciation on an AS-AD graph.

Question 49

Show (and explain) the short- and long-run effects of a decrease in the money supply, on a graph of AS and AD, starting at the natural rate of output. Is money neutral?

Question 50

A loose labor market occurs when output is _____ the natural rate.

A) above
B) below
C) equal to
D) none of the above

Question 51

If output is below the natural rate, explain why it would automatically fall through changes in the labor market.

Question 52

An increase in net exports would involve a short-run shift in ____ and a long-run shift in

A) AD, AD.
B) AD, AS.
C) AS, AD.
D) AS, AS.

Question 53

Which of the following is NOT a step on the growth diamond?

A) public education
B) open access entrepreneurship
C) modern financial system
D) They are all steps on the growth diamond.

Question 54

An increase in inflation expectations would involve a short-run shift in ____ and a long-run shift in

A) AD, AD.
B) AD, AS.
C) AS, AD.
D) AS, AS.

Question 55

When taxes go up, AD

A) moves to the left.
B) moves to the right.
C) achieves equilibrium.
D) none of the above.

Question 56

An activist response to a recession would involve a shift in

A) AD.
B) short-run AS.
C) long-run AS.
D) none of the above.

Question 57

If unemployment is exceptionally low, wages would be expected to _____, shifting AS to the

A) rise, right.
B) rise, left.
C) fall, right.
D) fall, left.

Question 58

What are the four major steps on the growth diamond?

Question 59

A permanent improvement in productivity would mean a shift in

A) AD.
B) AS.
C) ASL.
D) all of the above.