Deck 13: Aggregate Supply Ad Aggregate Demand

Question 1

The aggregate supply curve shifts rightward when

A)the money wage rate falls.
B)the money wage rate rises.
C)potential GDP decreases.
D)government purchases increase.
E)income taxes increase.

Answer 1

A

Question 2

The aggregate demand curve shifts when any of the following factors change EXCEPT

A)the price level.
B)foreign income.
C)fiscal policy.
D)monetary policy.
E)expectations about the future.

Answer 2

the price level.

Question 3

Moving along the potential GDP line, when the price level changes, the
I. real wage rate stays at the full-employment equilibrium level.
Ii. money wage rate changes by the same percentage.
Iii. money prices of non-labor resources change by the same percentage.

A)iii only
B)i and ii
C)i only
D)i, ii, and iii
E)ii only

Answer 3

D

Question 4

Real GDP definitely increases if

A)potential GDP decreases so that real GDP exceeds potential GDP.
B)the AS curve shifts leftward and the AD curve does not shift.
C)both the AD curve and the AS curve shift rightward.
D)the AD curve shifts leftward and the AS curve shifts rightward.
E)both the AD curve and AS curve shift leftward.

Question 5

An increase in government expenditure on goods and services_{--------------------} aggregate demand, shifting the aggregate demand curve_{--------------------} and potentially bringing the _{--------------------} phase of the business cycle.

A)increases; leftward; recession
B)decreases; rightward; expansion
C)decreases; leftward; recession
D)increases; rightward; recession
E)increases; rightward; expansion

Question 6

Which of the following could result in a recession?

A)a tax cut
B)an increase in government expenditures on goods and services
C)a rise in the price of oil
D)an increase in investment
E)an increase in the quantity of money

Question 7

Changes in which of the following do NOT shift the AS curve?
I. the price level
Ii. potential GDP
Iii. the money wage rate

A)i and ii
B)ii only
C)iii only
D)i, ii, and iii
E)i only

Question 8

A decrease in foreign income_{--------------------} exports of U.S.-made goods, so aggregate demand and the aggregate demand curve shifts_{--------------------} .

A)decreases; decreases; leftward
B)decreases; increases; rightward
C)decreases; decreases; rightward
D)increases; increases; leftward
E)increases; increases; rightward

Question 9

Moving along the aggregate supply curve, when the price level rises, the

A)the quantity supplied decreases.
B)the quantity supplied increases.
C)the aggregate demand curve shifts rightward.
D)the aggregate demand curve shifts leftward.
E)quantity supplied does not change because the aggregate supply curve is a vertical line.

Question 10

At a price level of 100, John has savings equal to $20,000. If the price level increases to 130, the buying power of John's savings is approximately

A)$26,000.
B)$15,400.
C)$30,000.
D)$20,000.
E)$12,780.

Question 11

If demand pull inflation occurs when the economy is already at potential GDP, then following the
Initial increase in aggregate demand, the

A)potential GDP line shifts rightward.
B)AS curve shifts leftward.
C)potential GDP line shifts leftward.
D)AS curve shifts rightward.
E)None of the above are correct because demand-pull inflation shifts only the aggregate demand curve.

Question 12

The change reflected in the above figure might be a result of

A)an increase in the real wage rate.
B)a decrease in the real wage rate.
C)a decrease in the money wage rate.
D)a rise in the price level.
E)an increase in the money wage rate.

Question 13

The aggregate demand curve illustrates the relationship between

A)the price level and the potential quantity demanded of real GDP.
B)the price level and the quantity of goods supplied by firms.
C)the price level and the quantity of goods demanded by households, firms, government, and foreigners.
D)the price level and the potential demand for real GDP.
E)the real wage rate and the hours of labor demanded by firms.

Question 14

A rise in the price level_{--------------------}the buying power of money and_{--------------------}the quantity of real GDP demanded.

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

Question 15

A combination of declining real GDP and rising price level is referred to as

A)a depression.
B)stagflation.
C)a trough.
D)deflation.
E)an expansion.

Question 16

An increase in_{--------------------}increases potential GDP and_{--------------------} aggregate supply

A)technology; increases
B)the money wage rate; decreases
C)the money wage rate; increases
D)the money price of oil; decreases
E)technology; decreases

Question 17

If the quantity of real GDP demanded is less than the quantity of real GDP supplied, then

A)aggregate demand changes to restore the equilibrium.
B)the economy must be producing at potential GDP.
C)the price level falls and firms increase production.
D)the price level rises to restore the macroeconomic equilibrium
E)the price level falls and firms decrease production.

Question 18

Cost-push inflation can start with

A)an increase in oil prices.
B)an increase in government expenditure.
C)a decrease in the quantity of money.
D)a decrease in investment.
E)a decrease in government expenditure.

Question 19

Because there is a_{--------------------} relationship between the price level and the quantity of real GDP supplied, the aggregate supply curve is _{--------------------}curve.

A)negative; a downward-sloping
B)negative; an upward-sloping
C)positive; a downward-sloping
D)positive; an upward-sloping
E)positive; a vertical

Question 20

An increase in the quantity of money_{--------------------}aggregate demand and_{--------------------} .

A)decreases; shifts the aggregate demand curve leftward
B)increases; rotates the aggregate demand curve so it is steeper
C)increases; shifts the aggregate demand curve leftward
D)decreases; shifts the aggregate demand curve rightward
E)increases; shifts the aggregate demand curve rightward

Question 21

A fall in the real wage rate

A)does not change; no change
B)raises; an increase
C)raises; a decrease
D)lowers; an increase
E)lowers; a decrease

Question 22

A fall in the price level brings a_{--------------------} in the real wage rate that_{--------------------} profits which leads to_{--------------------}
.

A)rise; reduces; firms temporarily shutting down
B)rise; increases; firms restarting production
C)rise; reduces; firms restarting production
D)fall; increases; firms temporarily shutting down
E)rise; increases; firms temporarily shutting down

Question 23

If the money wage rate increases, then the

A)aggregate demand curve shifts leftward.
B)aggregate supply curve shifts rightward.
C)aggregate supply curve shifts leftward.
D)potential GDP decreases.
E)potential GDP increases.

Question 24

As the price level rises relative to costs and the real wage rate falls, profits _{--------------------}and the number of firms in business _{--------------------}.

A)decrease; decreases
B)decrease; increases
C)do not change; do not change
D)increase; increases
E)increase; decreases

Question 25

If real GDP is less than potential GDP, then the _{--------------------}and the price level _{--------------------}

A)aggregate supply curve shifts rightward; falls
B)aggregate demand curve shifts leftward; rises
C)aggregate demand curve shifts rightward; falls
D)amount of potential GDP increases; falls
E)aggregate supply curve shifts leftward; rises

Question 26

_{--------------------}decreases aggregate supply.

A)A rise in the price level
B)A fall in the money wage rate
C)A rise in the money wage rate
D)An increase the quantity of capital
E)An increase in potential GDP

Question 27

Aggregate demand_{--------------------}and shifts the AD curve_{--------------------} when _{--------------------}.

A)decreases; rightward; government expenditure increases
B)decreases; leftward; government expenditure increases
C)increases; rightward; taxes increase
D)increases; leftward; taxes decrease
E)decreases; leftward; foreign incomes decrease

Question 28

Stagflation is a combination of_{--------------------}real GDP and a _{--------------------}price level.

A)increasing; falling
B)decreasing; falling
C)no change in; rising
D)decreasing; rising
E)increasing; rising

Question 29

A fall in the price level produces a_{--------------------}the aggregate demand curve.

A)rightward shift of
B)movement upward along
C)movement downward along
D)change in the slope of
E)leftward shift of

Question 30

Increases in the quantity of money can start a _{--------------------}inflation and an increase in government expenditure can start a_{--------------------} inflation.

A)cost-push; demand-pull
B)demand-pull; demand-pull
C)demand-pull; cost-push
D)cost-push; cost-push
E)None of the above is correct because increases in the quantity of money are necessary to continue an inflation but cannot start an inflation.

Question 31

When cost-push inflation starts, real GDP_{--------------------}and the unemployment rate_{--------------------}

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

Question 32

A decrease in investment leads to_{--------------------}in aggregate demand and _{--------------------} in real GDP.

A)a decrease; an increase
B)a decrease; a decrease
C)an increase; a decrease
D)an increase; an increase
E)no change; a decrease

Question 33

Which of the following shifts the aggregate demand curve rightward?

A)a decrease in the quantity of money
B)a decrease in expected future income
C)a decrease in government expenditures on goods and services
D)a tax cut
E)a decrease in the price level

Question 34

Macroeconomic equilibrium occurs when

A)there is no inflation.
B)the economy is fully employed.
C)the price level equals the potential price level.
D)the aggregate quantity demanded is equal to the aggregate quantity supplied.
E)real GDP is equal to potential GDP.

Question 35

A demand-pull inflation consists of _{--------------------}shifts in the AD curve and_{--------------------} shifts in the AS curve.

A)leftward; leftward
B)rightward; rightward
C)rightward; leftward
D)leftward; rightward
E)right; no

Question 36

When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from _{--------------------}, and the government policy to eliminate this gap will real GDP and to _{--------------------}the price level.

A)an inflationary gap; increase; decrease
B)a recessionary gap; decrease; decrease
C)an inflationary gap; decrease; decrease
D)a recessionary gap; increase; decrease
E)an inflationary gap; increase; increase

Question 37

A rise in the money wage rate shifts the

A)AD curve rightward.
B)AS curve leftward.
C)AD curve leftward.
D)potential GDP curve rightward.
E)AS curve rightward.

Question 38

$\begin{array} { c c c } \hline \begin{array} { c } \text { Price level } \\\text { (GDP deflator) }\end{array} & \begin{array} { c } \text { Real GDP demanded } \\\text { (trillions of 2005 } \\\text { dollars) }\end{array} & \begin{array} { c } \text { Real GDP supplied } \\\text { (trillions of 2005 } \\\text { dollars) }\end{array} \\\hline 80 & 10 & 2 \\90 & 9 & 4 \\100 & 8 & 6 \\110 & 7 & 7 \\120 & 6 & 8 \\130 & 4 & 9 \\\hline\end{array}$

-
The equilibrium price level is

A)130.
B)120.
C)100.
D)110.
E)90.

Question 39

-
If potential GDP increases, then in the figure above the potential GDP line_{--------------------} , and the aggregate supply curve_{--------------------} .

A)shifts rightward; does not shift
B)shifts rightward; shifts leftward
C)does not shift; does not shift
D)does not shift; shifts rightward
E)shifts rightward; shifts rightward

Question 40

When potential GDP increases,

A)there is neither a movement along nor a shift in the AS curve.
B)there is a movement down along the AS curve.
C)the AS curve shifts rightward.
D)the AS curve shifts leftward.
E)there is a movement up along the AS curve.

Question 41

During the late 1960s, U.S. defense spending increased as the United States fought in Vietnam. This
Increase in government expenditure on goods and services most likely created

A)an increase in potential GDP.
B)a decrease in aggregate supply.
C)a recessionary gap.
D)a decrease in aggregate demand because consumers' expenditures decreased.
E)an inflationary gap.

Question 42

-

Based on the figure above, the aggregate demand curve will shift from AD0 to AD2 when

A)potential GDP increases.
B)the price level falls.
C)taxes are lowered.
D)government expenditure decreases.
E)the price level rises.

Question 43

If real GDP is less than potential GDP, then the money wage rate_{------------------} , aggregate supply_{--------------------} so that the price level _{--------------------}.

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

Question 44

The aggregate supply curve slopes _{--------------------}because a_{--------------------} in the price level brings a _{--------------------}In the real wage rate.

A)downward; rise; rise
B)upward; fall; fall
C)downward; fall; rise
D)upward; rise; fall
E)upward; rise; rise

Question 45

The slope of the aggregate supply curve shows that the_{--------------------}the price level, the_{--------------------}

A)higher; smaller is the quantity of real GDP supplied
B)higher; is the quantity of potential GDP supplied
C)lower; is the quantity of potential GDP supplied
D)higher; greater is the quantity of real GDP supplied
E)lower; greater is the quantity of real GDP supplied

Question 46

As the money wage rate increases,

A)potential GDP decreases.
B)aggregate supply increases.
C)aggregate supply and potential GDP do not change.
D)aggregate supply decreases.
E)potential GDP increases.

Question 47

When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from _{--------------------}, and the government policy to eliminate this gap will _{--------------------}real GDP and to_{--------------------} the price level.

A)a recessionary gap; increase; increase
B)an inflationary gap; increase; decrease
C)a recessionary gap; decrease; increase
D)a recessionary gap; decrease; decrease
E)an inflationary gap; decrease; increase

Question 48

When investment increases, the _{--------------------}in aggregate demand is the change in_{--------------------} lnvestment.

A)increase; greater than
B)decrease; greater than
C)increase; smaller than
D)increase; the same as
E)decrease; the same as

Question 49

The money wage rate is constant when moving along

A)only the aggregate supply curve and the potential GDP line.
B)only the potential GDP line.
C)the aggregate supply curve, the potential GDP line, and the aggregate demand curve.
D)only the aggregate supply curve.
E)neither the aggregate supply curve nor the potential GDP line.

Question 50

If the price of oil rises, the

A)AD curve and the AS curve shift rightward, the price level rises, and real GDP decreases.
B)AS curve shifts leftward, the price level rises, and real GDP decreases.
C)AS curve shifts leftward, the price level rises, and real GDP increases.
D)AD curve and the AS curve shift leftward, real GDP decreases, and the price level rises.
E)AD curve shifts rightward, real GDP increases, and the price level rises.

Question 51

The AS curve shifts leftward if

A)the money wage rate increases.
B)good weather increases agricultural harvests.
C)OPEC reduces world oil prices.
D)government expenditure increases.
E)tax cuts stimulate labor supply.

Question 52

In the short run, a rise in the price level brings a_{--------------------} in the real interest rate that_{--------------------} Investment, bringing_{--------------------} in the quantity of real GDP demanded.

A)rise; decreases; a decrease
B)fall; decreases ; a decrease
C)rise; increases ; an increase
D)rise; decreases; an increase
E)fall; increases ; an increase

Question 53

$\begin{array} { c c c c } \hline \begin{array} { c } \text { Price level } \\\text { (GDP deflator) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (billions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Real GDP supplied } \\\text { (billions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Real GDP demanded } \\\text { (billions of 2005 dollars) }\end{array} \\\hline 150 & 25 & 34 & 16 \\140 & 25 & 31 & 19 \\130 & 25 & 28 & 22 \\120 & 25 & 25 & 25 \\110 & 25 & 23 & 28 \\\hline\end{array}$
The table above gives data for the nation of Pearl, a small island in the South Pacific.

- The economy is at full employment when real GDP is

A)$28 billion.
B)$25 billion.
C)$34 billion.
D)$31 billion.
E)$22 billion.

Question 54

In the short-run, an increase in the price of raw materials will _{--------------------}the price level and _{--------------------}Real GDP.

A)raise; not change
B)raise; decrease
C)lower; increase
D)raise; increase
E)lower; decrease

Question 55

According to the AS-AD model,

A)the AS curve is always equal to potential GDP.
B)the aggregate quantity demanded is typically greater than the aggregate quantity supplied, thereby leading to inflation.
C)the equilibrium is where the AS curve crosses the AD curve but the amount of real GDP at this point is not always equal to potential GDP.
D)changes in the amount of potential GDP is the only factor that shifts both the aggregate supply curve and the aggregate demand curve.
E)the aggregate quantity supplied is typically greater than the aggregate quantity demanded, thereby leading to unemployment.

Question 56

If the economy is at macroeconomic equilibrium, then real GDP

A)might be equal to, greater than, or less than potential GDP
B)must be less than potential GDP.
C)must equal potential GDP.
D)must be great than potential GDP.
E)cannot be compared to potential GDP.

Question 57

The aggregate supply curve shows the relationship between

A)potential GDP and real GDP.
B)potential GDP and the price level.
C)potential GDP and the aggregate demand curve.
D)the quantity of real GDP supplied and the price level.
E)the quantity of real GDP supplied and the interest rate.

Question 58

If the equilibrium price level is 135 but the actual price level is 120, then

A)firms decrease their production because they cannot sell the output they produce.
B)the quantity of real GDP demanded is greater than the quantity of real GDP supplied.
C)aggregate demand will increase to restore equilibrium.
D)the quantity of real GDP demanded is less than the quantity of real GDP supplied.
E)aggregate demand will decrease to restore equilibrium.

Question 59

If the price level increases, there is _{--------------------}the AD curve and the quantity of real GDP demanded_{--------------------}
.

A)a movement upward along; decreases
B)no change in; does not change
C)a leftward shift in; decreases
D)a movement upward along; increases
E)a movement downward along; increases

Question 60

-
Based on the figure above, the aggregate supply curve shifts rightward and the potential GDP line does not change when

A)the price level rises.
B)the money wage rate falls.
C)the price level falls.
D)the money wage rate rises.
E)both the price level and money wage rate rise by the same proportion.

Question 61

A demand-pull inflation initially is characterized by

A)increasing real output and a labor surplus.
B)increasing real output and a labor shortage.
C)no change in real output and a labor shortage.
D)decreasing real output and a labor surplus.
E)decreasing real output and a labor shortage.

Question 62

Reasons that the recession of 2008-2009 did not become a depression include i. The Fed bailed out troubled financial institutions
Ii. The government aggressively balanced its budget
Iii. The government increased its expenditures, which increased aggregate demand

A)iii only
B)i only
C)i and ii
D)ii only
E)i and iii

Question 63

A combination of recession and inflation is called

A)stagflation.
B)an expansion.
C)depression.
D)a business cycle.
E)a recession.

Question 64

The government passes a law which doubles the wages of all workers. aggregate supply will _{--------------------}, and real GDP will _{--------------------}, and the price level will_{--------------------} .

A)increase; remain the same; increase.
B)remain the same; increase; increase.
C)increase; increase; remain the same.
D)decrease; decrease; increase.
E)decrease; increase; increase.

Question 65

A crisis in the Middle East drastically raises the price of petroleum. If the aggregate demand curve does not shift, then aggregate supply will _{--------------------}, real GDP will_{--------------------} , and the price level will_{--------------------}
.

A)increase; increase; increase
B)increase; remain the same; increase
C)remain the same; increase; increase
D)decrease; decrease; increase
E)decrease; remain the same; decrease

Question 66

Moving along the aggregate supply curve,

A)only the price level changes.
B)the quantity of capital used increases.
C)the real wage rate is constant.
D)the stock of human capital increases.
E)technology advances.

Question 67

Which of the following shifts the aggregate supply curve leftward?

A)a decrease in the price level
B)a fall in the real wage rate
C)a decrease in potential GDP
D)a fall in the money wage rate
E)an increase in potential GDP

Question 68

During an inflationary gap,

A)the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP that exceeds potential GDP.
B)real GDP is less than potential GDP.
C)the aggregate demand curve and the aggregate supply curve intersect at potential GDP.
D)the aggregate demand curve and the aggregate supply curve do not intersect.
E)the price level will fall to restore the long-run equilibrium.

Question 69

Which of the following changes aggregate supply and shifts the AS curve?
I. a change in the price of a major resource
Ii. increases in the amount of capital
Iii. a change in the money income of consumers

A)i only
B)i and ii
C)iii only
D)ii only
E)i, ii, and iii

Question 70

When the price level rises there is a_{--------------------}the aggregate demand curve.

A)movement down along
B)rightward shift of
C)leftward shift of
D)rotation of
E)movement up along

Question 71

Changes in which of the following shifts the aggregate supply curve?
I. the price level.
Ii. the money wage rate. iii. potential GDP.

A)i only
B)ii and iii
C)ii only
D)i, ii, and iii
E)iii only

Question 72

If oil prices increase, then in the short run, real GDP will _{--------------------}and the price level will_{--------------------}
.

A)increase; fall
B)not change; rise
C)decrease; rise
D)decrease; fall
E)increase; rise

Question 73

-
In the figure above, the shift in the aggregate demand curve from AD1 to AD3 could be the result of

A)a decrease in the foreign exchange rate.
B)a decrease in the real interest rate.
C)an increased expectation of a recession that lowers the expected rate of profit from investment.
D)an increase in the price level.
E)a decrease in the buying power of money.

Question 74

A year over year _{--------------------} in the buying power of money means that definitely_{--------------------} from one year to the next.

A)decrease; the price level increased
B)increase; the price level increased
C)decrease; inflation increased
D)increase; inflation increased
E)Both answers A and C are correct.

Question 75

If investment spending increases by $1 million, then the aggregate demand curve shifts

A)leftward by more than $1 million.
B)rightward by $1 million.
C)rightward by more than $1 million.
D)leftward by less than $1 million.
E)rightward by less than $1 million.

Question 76

-
The aggregate demand curve in the figure above shifts rightward if

A)taxes are cut.
B)government expenditure decreases.
C)the money wage rate falls.
D)potential GDP increases.
E)the Federal Reserve raises the interest rate.

Question 77

_{--------------------}increases the quantity of real GDP supplied and is shown as a movement along the AS
Curve.

A)A decrease in the quantity of money
B)A rise in the price level
C)A decrease in consumption expenditure
D)A fall in the expected rate of profit
E)An increase in potential GDP

Question 78

If people's expectations about future income improve so they think their future income will be higher than previously believed, then the AD curve

A)will shift rightward because people will increase spending now.
B)will not change until income actually rises.
C)and the AS curve will both shift leftward because people will increase their saving.
D)will shift leftward because people will spend less now.
E)will not shift but potential GDP will increase.

Question 79

The aggregate demand multiplier effect says that an initial increase in expenditure plans leads to an induced

A)increase in exports.
B)increase in consumption expenditure.
C)increase in government expenditures on goods and services.
D)increase in production expenditure.
E)decrease in the price level.

Question 80

At the start of a cost-push inflation,

A)the price level rises and real GDP decreases.
B)the price level rises and real GDP does not change.
C)the price level remains constant and real GDP increases.
D)the price level and real GDP both increase.
E)the price level remains constant and real GDP decreases.