Deck 10: Aggregate Supply and Aggregate Demand

Question 1

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

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

Answer 1

"Growth has been unusually high the last few years due to more women entering the work force."

Question 2

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

A)the full- employment quantity of labour increases.
B)the quantity of capital decreases.
C)factor prices increase.
D)the money wage rate increases.
E)aggregate demand increases.

Answer 2

the full- employment quantity of labour increases.

Question 3

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

A)and the LAS curves both shift rightward.
B)curve does not shift but the LAS curve shifts leftward.
C)curve does not shift but the LAS curve shifts rightward.
D)curve shifts rightward, but the LAS curve does not shift.
E)and the LAS curves both shift leftward.

Answer 3

and the LAS curves both shift rightward.

Question 4

The long- run aggregate supply curve is vertical because

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

Question 5

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 leftward.
B)both the short- run aggregate supply and long- run aggregate supply curves rightward.
C)the long- run aggregate supply curve rightward, but leaves the short- run aggregate supply curve unchanged.
D)the short- run aggregate supply curve leftward, but shifts the long- run aggregate supply curve rightward.
E)the short- run aggregate supply curve leftward, but leaves the long- run aggregate supply curve unchanged.

Question 6

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

A)the price level.
B)the real interest rate.
C)real income.
D)the inflation rate.
E)the quantity of real GDP demanded.

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 catastrophic event such as a tornado or hurricane
B)a change in the quantity of capital
C)an advance in technology
D)a change in factor prices
E)an increase in the full- employment quantity of labour

Question 8

The long- run aggregate supply curve is

A)vertical.
B)negatively sloped.
C)almost flat.
D)positively sloped at low levels of real GDP and vertical at high levels of real GDP.
E)positively sloped but extremely steep.

Question 9

A technological advance shifts the

A)SAS and LAS curves rightward.
B)LAS curve rightward but leaves the SAS curve unchanged.
C)SAS curve rightward but leaves the LAS curve unchanged.
D)SAS and AD curves rightward.
E)SAS and LAS curves leftward.

Question 10

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

A)"The recent tornadoes destroyed many factories in Calgary and Edmonton."
B)"The decrease in consumer spending may lead to a recession."
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 increase in consumer spending is expected to lead to inflation, without any increase in real GDP."

Question 11

Use the figure below to answer the following questions.
Figure 10.1.1
Refer to Figure 10.1.1.Which graph illustrates the effect of an increase in factor prices?

A)a
B)b
C)c
D)d
E)a and b

Question 12

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

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

Question 13

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

A)technological change
B)an increase in the quantity of capital
C)a change in the full- employment quantity of labour
D)a change in the money wage rate
E)a change in expected future profits

Question 14

Use the figure below to answer the following questions.
Figure 10.1.1
Refer to Figure 10.1.1.Which graph illustrates the effect of a decrease in factor prices?

A)a
B)b
C)c
D)d
E)a and b

Question 15

Long- run aggregate supply will increase for all of the following reasons except

A)a fall in the money wage rate.
B)an increase in the quantity of capital.
C)an increase in human capital.
D)the introduction of new technology.
E)an increase in the full- employment quantity of labour.

Question 16

A vertical long- run aggregate supply curve indicates that

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

Question 17

If the money wage rate falls, then

A)the SAS curve shifts rightward.
B)firms hire less labour.
C)the AD curve shifts rightward.
D)the LAS curve shifts rightward.
E)the LAS curve and the SAS curve shift rightward.

Question 18

Potential GDP is the level of real GDP at which

A)there is full employment.
B)there is a recessionary gap.
C)there is over- full employment.
D)prices are sure to rise.
E)aggregate demand equals short- run aggregate supply.

Question 19

The short- run aggregate supply curve indicates

A)the relationship between the price level and the natural unemployment rate.
B)the relationship between the purchasing power of wages and the quantity of labour supplied by households.
C)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.
D)the various quantities of real GDP producers supply at different income levels.
E)the relationship between the price level and real GDP demanded by consumers, investors, governments, and net exporters.

Question 20

Potential GDP

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

Question 21

Everything else remaining the same, an increase in the quantity of money

A)shifts the aggregate supply curve leftward.
B)creates a movement down along the aggregate demand curve.
C)shifts the aggregate supply curve rightward.
D)shifts the aggregate demand curve leftward.
E)shifts the aggregate demand curve rightward.

Question 22

Aggregate demand

A)measures the amount of a nation's labour, capital, and technology that people are willing to buy.
B)increases when the price level falls.
C)is the relationship between the quantity of real GDP demanded and the price level.
D)measures the amount of a nation's goods and services that people are willing to buy.
E)increases when factor prices fall.

Question 23

Aggregate demand is the relationship between

A)the price level and nominal GDP.
B)real aggregate expenditure and real GDP.
C)the price level and the quantity of real GDP demanded.
D)real income and real GDP.
E)real prices and real GDP.

Question 24

Which one of the following factors will not shift the aggregate demand curve?

A)an increase in the interest rate
B)an increase in the price level
C)an increase in the expected inflation rate
D)an increase in expected future profits
E)an increase in the quantity of money

Question 25

Which of the following situations illustrates how fiscal policy can influence aggregate demand?

A)The government reduces the goods and services tax.As a result, consumption expenditure increases and aggregate demand increases.
B)The exchange rate value of the Canadian dollar rises.As a result, people living near the U.S.- Canada border increase their imports of goods and net exports decrease.
C)Investors, anticipating an erosion of financial wealth due to inflation, decide to save more.As a result, aggregate demand decreases.
D)The government increases its expenditures.The demand for loanable funds increases, which raises the real interest rate.Investment increases.
E)The Bank of Canada raises interest rates so people plan to buy fewer consumer durables.As a result, aggregate demand decreases.

Question 26

Toyota and Honda build additional plants in Canada.This event _______ short- run aggregate supply and _______ long- run aggregate supply.

A)does not change; does not change
B)increases; increases
C)does not change; increases
D)decreases; increases
E)increases; does not change

Question 27

Everything else remaining the same, an increase in the interest rate increases saving and

A)increases aggregate demand through the wealth effect.
B)decreases aggregate demand through the international substitution effect.
C)decreases aggregate demand through the intertemporal substitution effect.
D)increases aggregate demand through the international substitution effect.
E)increases aggregate demand through the intertemporal substitution effect.

Question 28

Disposable income is aggregate income

A)minus fixed expenses such as rent and utilities.
B)minus taxes.
C)minus taxes plus transfer payments.
D)plus transfer payments.
E)minus taxes and benefits.

Question 29

Which one of the following variables is not held constant along a given aggregate demand curve?

A)the price level
B)the exchange rate
C)monetary policy
D)fiscal policy
E)expectations about inflation

Question 30

An increase in the money wage rate shifts

A)both the SAS curve and the LAS curve rightward.
B)both the SAS curve and the LAS curve leftward.
C)the LAS curve rightward, but leaves the SAS curve unchanged.
D)the SAS curve rightward, but leaves the LAS curve unchanged.
E)the SAS curve leftward, but leaves the LAS curve unchanged.

Question 31

Autoworkers agree to a cut in the nominal wage rate.This event _______ short- run aggregate supply and _______ long- run aggregate supply.

A)increases; does not change;
B)does not change; does not change
C)decreases; does not change
D)increases; increases
E)decreases; does not change;

Question 32

Everything else remaining the same, an increase in foreign income

A)creates a movement downward along Canada's aggregate demand curve.
B)decreases Canada's aggregate demand.
C)increases Canada's aggregate demand.
D)decreases Canada's aggregate supply.
E)increases Canada's aggregate supply.

Question 33

The quantity of real GDP demanded does not depend on decisions made by

A)foreigners.
B)households.
C)suppliers.
D)firms.
E)governments.

Question 34

The Canadian price level rises.This event

A)increases short- run aggregate supply.
B)decreases short- run aggregate supply.
C)decreases the quantity of real GDP supplied.
D)increases the quantity of real GDP supplied.
E)increases long- run aggregate supply.

Question 35

A change in wealth induced by a change in the price level is shown as a

A)movement along the aggregate demand curve.
B)movement along the aggregate demand curve due to substitution effects.
C)shift of the aggregate demand curve due to substitution effects.
D)shift of the aggregate demand curve due to the wealth effect.
E)movement along the aggregate supply curve.

Question 36

Which one of the following is a reason for the negative slope of the aggregate demand curve?

A)the nominal balance effect
B)the substitution effect
C)the expected inflation effect
D)the income effect
E)the real wage effect

Question 37

Which of the following situations illustrates how monetary policy can influence aggregate demand?

A)Investors, anticipating an erosion of financial wealth due to inflation, decide to save more.As a result, aggregate demand decreases.
B)The Bank of Canada raises interest rates so people plan to buy fewer consumer durables.As a result, aggregate demand decreases.
C)The government increases its expenditures.The demand for loanable funds increases, which raises the real interest rate.Investment increases.
D)The government reduces the goods and services tax.As a result, consumption expenditure increases and aggregate demand increases.
E)The exchange rate value of the Canadian dollar rises.As a result, people living near the U.S.- Canada border increase their imports of goods and net exports decrease.

Question 38

If the price level rises, then the wealth effect leads to

A)a decrease in real wealth, an increase in current consumption expenditure, and an increase in saving.
B)an increase in real wealth, an increase in current consumption expenditure, and an increase in saving.
C)an increase in real wealth, an increase in current consumption expenditure, and a decrease in saving.
D)a decrease in real wealth, a decrease in current consumption expenditure, and an increase in saving.
E)a decrease in real wealth, an increase in current consumption expenditure, and a decrease in saving.

Question 39

Everything else remaining the same, which one of the following increases aggregate demand?

A)a decrease in government spending
B)an increase in taxes
C)a decrease in the price level
D)a decrease in the quantity of money
E)an increase in transfer payments

Question 40

Which one of the following variables can change without creating a shift of the aggregate demand curve?

A)the tax rate
B)expectations about inflation
C)monetary policy
D)the interest rate
E)the price level

Question 41

An inflationary gap is the amount by which

A)real GDP exceeds potential GDP.
B)potential GDP exceeds real GDP.
C)the price level must adjust to achieve full employment.
D)aggregate demand must increase to achieve full employment at a given price level.
E)potential GDP must increase to achieve full employment at a given price level.

Question 42

Which of the following does not change aggregate demand?

A)a rise in the exchange rate
B)an increase in expected future income
C)a change in monetary policy
D)a change in fiscal policy
E)an advance in technology

Question 43

Everything else remaining the same, an increase in the expected inflation rate

A)shifts the aggregate demand curve leftward.
B)shifts the aggregate demand curve rightward.
C)creates a movement up along the aggregate demand curve.
D)shifts the short- run aggregate supply curve leftward.
E)shifts the long- run aggregate supply curve rightward.

Question 44

Canadian firms build new pipelines across the nation.What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of Canadian real GDP demanded or to Canadian aggregate demand.

Question 45

Use the figure below to answer the following questions.
Figure 10.2.1
Refer to Figure 10.2.1.Which graph illustrates the effect of a decrease in the quantity of money?

A)a only
B)b only
C)c only
D)d only
E)Both b and d

Question 46

When the actual unemployment rate is equal to the natural unemployment rate, then the

A)economy is operating at potential GDP.
B)inflation rate is zero.
C)the money wage rate will rise.
D)short- run aggregate supply curve is vertical.
E)long- run aggregate supply curve is upward sloping.

Question 47

Use the figure below to answer the following questions.
Figure 10.2.1
Refer to Figure 10.2.1.Which graph illustrates the effect of an increase in the quantity of money?

A)a only
B)b only
C)c only
D)d only
E)Both b and c

Question 48

Use the figure below to answer the following questions.
Figure 10.3.1
Refer to Figure 10.3.1.Short- run macroeconomic equilibrium real GDP is

A)$480 billion.
B)$520 billion.
C)$400 billion.
D)$360 billion.
E)$440 billion.

Question 49

A recessionary gap is the amount by which

A)the price level must adjust to achieve full employment.
B)potential GDP exceeds real GDP.
C)real GDP exceeds potential GDP.
D)potential GDP must increase to achieve full employment at a given price level.
E)aggregate demand will increase to achieve full employment at a given price level.

Question 50

Use the figure below to answer the following questions.
Figure 10.2.1
Refer to Figure 10.2.1.Which graph illustrates the effect of an increase in expected future income?

A)a only
B)b only
C)c only
D)d only
E)Both a and c

Question 51

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

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

Question 52

The Canadian price level rises.What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of Canadian real GDP demanded or to Canadian aggregate demand.

Question 53

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

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

Question 54

Full- employment equilibrium occurs when

A)all who are willing and able to work are working, and the wage level is set so that the GDP deflator equals 110.
B)real GDP equals potential GDP.
C)aggregate demand equals short- run aggregate supply.
D)real GDP equals potential GDP and the wage level is set so that the GDP deflator equals 110.
E)all who are willing and able to work, are working.

Question 55

Use the figure below to answer the following questions.
Figure 10.2.1
Refer to Figure 10.2.1.Which graph illustrates the effect of an increase in government expenditure?

A)a only
B)b only
C)c only
D)d only
E)Both a and c

Question 56

Use the figure below to answer the following questions.
Figure 10.2.1
Refer to Figure 10.2.1.Which graph illustrates the effect of a decrease in government expenditure?

A)a only
B)b only
C)c only
D)d only
E)Both a and d

Question 57

When an economy is operating on its long- run aggregate supply curve,

A)the actual unemployment rate equals the natural unemployment rate.
B)real GDP demanded exceeds real GDP supplied.
C)the actual inflation rate is greater than the expected inflation rate.
D)the unemployment rate is less than the natural unemployment rate.
E)inflation must be positive.

Question 58

Canada's exports to the European Union boom.What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of Canadian real GDP demanded or to Canadian aggregate demand.

Question 59

Foreign exchange dealers expect the Canadian dollar next year to appreciate against all currencies.What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of Canadian real GDP demanded or to Canadian aggregate demand.

Question 60

Which one of the following shifts the aggregate demand curve leftward?

A)an increase in the money wage rate
B)a decrease in the interest rate
C)an increase in expected inflation
D)an increase in taxes
E)an increase in the price level

Question 61

Use the figure below to answer the following questions.
Figure 10.3.2
Refer to Figure 10.3.2.Currently in the economy

A)the actual unemployment rate is equal to the natural unemployment rate.
B)potential GDP is greater than equilibrium GDP.
C)the actual unemployment rate is less than the natural unemployment rate.
D)there is a recessionary gap.
E)there is a below full- employment equilibrium.

Question 62

Use the figure below to answer the following questions.
Figure 10.3.3
Refer to Figure 10.3.3.In which of the graphs would we predict that eventually the price level will fall and real GDP will increase, everything else remaining the same?

A)a only
B)b only
C)c only
D)d only
E)c and d

Question 63

Use the figure below to answer the following questions.
Figure 10.3.2
Refer to Figure 10.3.2.There is a difference between the _______ equilibrium real GDP and potential GDP of _______ billion.

A)below full- employment; $25
B)full employment; 0
C)above full- employment; $50
D)below full- employment; $50
E)above full- employment; $25

Question 64

Use the figure below to answer the following questions.
Figure 10.3.3
Refer to Figure 10.3.3.Which of the graphs illustrates an above full- employment equilibrium?

A)a only
B)b only
C)c only
D) donly
E)both c and d

Question 65

The actual unemployment rate equals the natural unemployment rate.

A)1)is true; 2)is false.
B)2)is true; 1)is false.
C)1)and 2)are false.
D)1)and 2)are true.
E)1)is true; 2)is true if the natural unemployment rate is too high.

Question 66

Use the figure below to answer the following questions.
Figure 10.3.2
Refer to Figure 10.3.2.When the economy is in short- run macroeconomic equilibrium, the price level is

A)80.
B)75.
C)95.
D)70.
E)65.

Question 67

Use the figure below to answer the following questions.
Figure 10.3.3
Refer to Figure 10.3.3.In which of the graphs would we predict that eventually the price level will fall and real GDP will decrease, everything else remaining the same?

A)a
B)b
C)c
D)d
E)none of the graphs

Question 68

Use the figure below to answer the following questions.
Figure 10.3.1
Refer to Figure 10.3.1.The economy is at its short- run macroeconomic equilibrium.There is a difference between _______ equilibrium real GDP and potential GDP of $_______ billion.

A)below full- employment; 20
B)actual; 0
C)below full- employment; 40
D)above full- employment; 40
E)above full- employment; 20

Question 69

Use the figure below to answer the following questions.
Figure 10.3.3
Refer to Figure 10.3.3b.You might expect the government to

A)do nothing except maintain the current equilibrium.
B)pursue trade policies that reduce exports.
C)increase government expenditure.
D)raise taxes.
E)cut government expenditure.

Question 70

Use the figure below to answer the following questions.
Figure 10.3.1
Refer to Figure 10.3.1.The economy automatically adjusts to a long- run equilibrium.At the long- run macroeconomic equilibrium,

A)the price level is 70.
B)real GDP is $440 billion.
C)actual unemployment exceeds the natural unemployment rate.
D)potential GDP is greater than in the short run.
E)Both A and B

Question 71

Use the figure below to answer the following questions.
Figure 10.3.3
Refer to Figure 10.3.3.In which of the graphs would we predict that eventually the price level will rise and real GDP will fall, everything else remaining the same?

A)a only
B)b only
C)c only
D)d only
E)both c and d

Question 72

Use the figure below to answer the following questions.
Figure 10.3.1
Refer to Figure 10.3.1.As the economy automatically adjusts to long- run equilibrium, the

A)LAS curve shifts leftward.
B)AD curve shifts rightward.
C)SAS curve shifts leftward.
D)AD curve shifts leftward.
E)SAS curve shifts rightward.

Question 73

Use the figure below to answer the following questions.
Figure 10.3.3
Refer to Figure 10.3.3.Which of the graphs illustrates a below full- employment equilibrium?

A)a only
B)b only
C)c only
D)d only
E)both c and d

Question 74

Short- run macroeconomic equilibrium always occurs when the

A)quantity of real GDP demanded equals the quantity of real GDP supplied.
B)economy is below full employment.
C)economy is above full employment.
D)economy is at full employment.
E)AD curve intersects the LAS curve.

Question 75

Use the figure below to answer the following questions.
Figure 10.3.2
Refer to Figure 10.3.2.Short- run macroeconomic equilibrium real GDP is _______ billion.

A)$500
B)$550
C)$650
D)$600
E)$475

Question 76

Use the figure below to answer the following questions.
Figure 10.3.2
Refer to Figure 10.3.2.As the economy automatically adjusts to long- run equilibrium, the

A)SAS curve shifts rightward.
B)AD curve shifts leftward.
C)SAS curve shifts leftward.
D)LAS curve shifts rightward.
E)AD curve shifts rightward.

Question 77

Use the figure below to answer the following questions.
Figure 10.3.3
Refer to Figure 10.3.3.Which of the graphs illustrates a full- employment equilibrium?

A)a only
B)b only
C)c only
D)d only
E)c and d

Question 78

Use the figure below to answer the following questions.
Figure 10.3.2
Refer to Figure 10.3.2.If the economy automatically adjusts to long- run equilibrium, then

A)the actual unemployment rate exceeds the natural unemployment rate.
B)real GDP is $600 billion.
C)the SAS curve shifts rightward.
D)the price level rises to 90.
E)potential GDP decreases.

Question 79

Use the figure below to answer the following questions.
Figure 10.3.3
Refer to Figure 10.3.3a.You might expect the government to

A)cut government expenditure.
B)increase government expenditure.
C)raise taxes.
D)do nothing except maintain the current equilibrium.
E)pursue trade policies that reduce exports.

Question 80

Use the figure below to answer the following questions.
Figure 10.3.1
Refer to Figure 10.3.1.When this economy is in short- run macroeconomic equilibrium, the price level is

A)70.
B)85.
C)90.
D)100.
E)75.