Deck 8: Modelling Real Gdp and the Price Level in the Short Run

Question 1

What is measured on the vertical axis of the short-run aggregate supply curve?

A)real national income
B)nominal income
C)the price level
D)the interest rate

Answer 1

the price level

Question 2

Short run changes in the ________ can affect real output because some production costs are relatively fixed.

A)aggregate supply
B)level of government spending
C)price level
D)the labour force

Answer 2

price level

Question 3

The short-run aggregate supply curve represents the relationship between

A)the price level and the real output of goods and services in the economy without full adjustment or full information.
B)the price level and the real output of goods and services in the economy without full adjustment but with full information.
C)the price level and the nominal gross domestic product.
D)the decisions of producers and the decisions of consumers.

Answer 3

the price level and the real output of goods and services in the economy without full adjustment or full information.

Question 4

If the price level kept increasing,the short-run aggregate supply curve would get ________ because there are limits to how long workers can work long hours and capital can go without proper maintenance.

A)flatter
B)steeper
C)indefinite
D)vertical

Question 5

If the price level kept increasing,the ________ would get steeper because there are limits to how long workers can work long hours and capital can go without proper maintenance.

A)long-run aggregate supply curve
B)short-run aggregate supply curve
C)aggregate demand curve.
D)labour supply curve.

Question 6

Figure 8-1
According to Figure 8-1,an increase in aggregate demand between real GDP levels Q₀ and Q₁

A)would most likely result in some inflation.
B)would not increase output since the economy is already working at full capacity.
C)would have no effect on the price level.
D)would cause price levels to fall.

Question 7

Short run changes in the price level can affect real output because

A)supply curves of individual firms are upward sloping.
B)higher prices encourage technological change.
C)some production costs are relatively fixed.
D)the labour force increases as wages increase.

Question 8

Figure 8-1
According to Figure 8-1,________ in aggregate demand between real GDP levels Q₀ and Q₁ would most likely result in some inflation.

A)an increase
B)a decrease
C)a lateral movement
D)movement

Question 9

The ________ represents the relationship between the price level and the real output of goods and services in the economy without full adjustment or full information.

A)short-run aggregate supply curve
B)long-run aggregate supply curve
C)aggregate demand curve
D)labour supply curve

Question 10

If the price level kept decreasing,the short-run aggregate supply curve would get ________ because we could hire any and all resources at the going rate without increasing prices or the price of inputs.

A)steeper
B)flatter
C)indefinite
D)vertical

Question 11

In the short run,a decrease in the price level induces firms to contract production because

A)prices of inputs are held constant so the lower prices for their product implies that it is not profitable to contract production.
B)each firm must keep its production level at the level of its rivals,and some firms will contract production as the price level decreases.
C)the lower prices allow the firm to hire more inputs by offering higher prices to the inputs,which increases productivity and profits.
D)they can increase profits by increasing maintenance costs.

Question 12

If the price level kept increasing,the short-run aggregate supply curve would get steeper because

A)all the unemployed would eventually be hired.
B)there are limits to how long workers can work long hours and capital can go without proper maintenance.
C)the rate at which capacity can be expanded increases indefinitely.
D)the long-run aggregate supply curve is horizontal.

Question 13

In the short run,if the price level rises then the overall economy can temporarily produce beyond its nominal capacity.One reason for this is that

A)workers can be switched from counted to uncounted production.
B)existing capital equipment can be used more intensively.
C)wage rates rise almost simultaneously with the price level.
D)the unemployment rate usually rises dramatically along with the price level.

Question 14

Figure 8-1
According to Figure 8-1,an increase in aggregate demand beyond real GDP level Q₁ will result in

A)higher unemployment and excess productive capacity.
B)higher output,but not higher prices.
C)higher prices,but no change in output.
D)falling prices and increases in output.

Question 15

If the price level kept decreasing,the short-run aggregate supply curve would get flatter because

A)all the unemployed would eventually be hired.
B)we could hire any and all resources at the going rate without increasing prices or the price of inputs..
C)the rate at which capacity can be expanded increases indefinitely.
D)the long-run aggregate supply curve is horizontal.

Question 16

Figure 8-1
According to Figure 8-1,________ in aggregate demand between real GDP levels Q₁ and Q₀ would most likely result in some inflation.

A)an increase
B)a decrease
C)a lateral movement
D)movement

Question 17

The short-run aggregate supply curve represents the relationship between the ________ and the real output of goods and services in the economy without full adjustment or full information.

A)price level
B)inflation rate
C)budget balance
D)exchange rate

Question 18

In the short run,an increase in the price level induces firms to expand production because

A)prices of inputs are held constant so the higher prices for their product implies that it is profitable to expand production.
B)each firm must keep its production level up to the level of its rivals,and some firms will expand production as the price level increases.
C)the higher prices allow the firm to hire more inputs by offering higher prices to the inputs,which increases productivity and profits.
D)they can increase profits by increasing maintenance costs.

Question 19

In the ________,an increase in the price level induces firms to expand production because prices of inputs are held constant so the higher prices for their product implies that it is profitable to expand production.

A)short run
B)long run
C)medium run
D)inflationary period

Question 20

Figure 8-1
According to Figure 8-1,a decrease in aggregate demand between real GDP levels Q₁ and Q₀

A)would most likely result in some inflation.
B)would not increase output since the economy is already working at full capacity.
C)would have no effect on the price level.
D)would cause price levels to fall.

Question 21

As the ________ increases,the short-run aggregate supply curve becomes increasingly steep.

A)price level
B)inflation rate
C)unemployment rate
D)labour force participation rate

Question 22

As the price level increases,the short-run aggregate supply curve

A)becomes increasingly steep.
B)begins to level out.
C)shifts inward.
D)does not change.

Question 23

With respect to slope,the short-run aggregate supply function is normally

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

Question 24

We distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve.In the long run

A)technology is fixed but not in the short run.
B)the price level is constant but in the short run it fluctuates.
C)the aggregate supply curve is horizontal while in the short run it is upward sloping.
D)all adjustments to changes in the price level have been made,but in the short run all changes in the price level cannot be made.

Question 25

The positive relationship between the short-run aggregate supply function and the price level suggests that,in the short run,

A)firms produce more output as the price level falls.
B)firms produce more output as the price levels rises.
C)wages increase along the aggregate supply function.
D)lower price levels are more profitable for the firm.

Question 26

As the price level decreases,the ________ begins to level out.

A)planned aggregate expenditure curve
B)short-run aggregate supply curve
C)long-run aggregate supply curve
D)planned aggregate expenditure curve.

Question 27

As the ________ decreases,the short-run aggregate supply curve begins to level out.

A)inflation rate
B)price level
C)unemployment rate
D)labour force participation rate

Question 28

The short-run aggregate supply function plots ________ against the price level.

A)planned expenditures
B)total employment
C)planned production
D)real GDP

Question 29

As the price level decreases,the short-run aggregate supply curve

A)becomes increasingly steep.
B)begins to level out.
C)shifts inward.
D)does not change.

Question 30

The short-run aggregate supply function plots planned production against ________.

A)planned expenditures
B)total employment
C)the price level
D)real GDP

Question 31

The positive relationship between the ________ function and the price level suggests that,in the short run,firms produce more output as the price levels rises.

A)long-run aggregate supply
B)short-run aggregate supply
C)aggregate demand
D)investment demand

Question 32

The price level is measured on the vertical axis of the ________

A)aggregate demand curve.
B)nominal income curve.
C)short-run aggregate supply curve.
D)long-run aggregate supply curve.

Question 33

As the price level ,the short-run aggregate supply curve becomes increasingly steep.

A)increases
B)begins to level out.
C)shifts inward.
D)does not change.

Question 34

The ________ function plots planned production against the price level.

A)planned expenditures
B)total employment
C)short-run aggregate supply
D)real GDP

Question 35

The positive relationship between the short-run aggregate supply function and the ________ suggests that,in the short run,firms produce more output as the price levels rises.

A)long-run aggregate supply
B)price level
C)demand for labour
D)inflation rate

Question 36

As the price level ________,the short-run aggregate supply curve begins to level out.

A)becomes increasingly steep.
B)decreases
C)shifts inward.
D)does not change.

Question 37

As the price level increases,the ________ becomes increasingly steep.

A)short-run aggregate supply curve
B)aggregate demand curve
C)long-run aggregate supply curve
D)planned aggregate expenditure curve

Question 38

The ________ between the short-run aggregate supply function and the price level suggests that,in the short run,firms produce more output as the price levels rises.

A)negative relationship
B)positive relationship
C)inverse relationship
D)demand relationship

Question 39

With respect to slope,________ function is normally positively sloped.

A)aggregate demand
B)the short-run aggregate supply
C)planned aggregate expenditure
D)planned investment

Question 40

The short-run aggregate supply function plots

A)planned expenditures against the price level.
B)total employment against the price level.
C)planned production against the price level.
D)real GDP against planned production.

Question 41

A short-run equilibrium occurs

A)at the intersection of the short-run aggregate supply curve and the long-run aggregate supply curve.
B)at the intersection of the short-run aggregate supply curve and the aggregate demand curve.
C)at the intersection of the short-run aggregate supply curve,the long-run aggregate supply curve,and the aggregate demand curve.
D)when the rate at which prices increase equals the rate at which input prices increase.

Question 42

A decrease in long-run aggregate supply could be caused by

A)fewer regulatory impediments to business.
B)the discovery of new oil reserves in another country.
C)decreased competition.
D)a decrease in taxes.

Question 43

An aggregate demand shock is generally referred to as

A)an unexpected event that causes the aggregate demand curve to shift inward or outward.
B)an expected event that causes the aggregate demand curve to shift inward or outward.
C)an unexpected event that causes the long-run aggregate supply curve to shift inward or outward.
D)an unexpected event that causes the short-run aggregate supply curve to shift inward or outward.

Question 44

The effect of a positive demand shock is to

A)decrease the level of aggregate demand.
B)cause prices to rise.
C)decrease the firm's cost of producing at every level of output.
D)decrease the level of employment.

Question 45

The long-run aggregate supply curve will shift to the right when

A)population increases.
B)the price level increases.
C)technology improves.
D)labour supply falls.

Question 46

Economic growth takes place

A)only when both aggregate demand and aggregate supply increase.
B)when aggregate supply increases.
C)when aggregate demand increases.
D)only if the price level is constant or rising.

Question 47

An increase in the labour force while holding population constant will

A)increase aggregate demand and real GDP,but have no effect on the price level.
B)increase aggregate demand and aggregate supply by the same amounts,causing real GDP to increase and the price level to remain constant.
C)increase aggregate supply and real GDP,but have no effect on the price level.
D)increase aggregate supply and real GDP and lower the price level.

Question 48

The relationship between the price level and the real output of goods and services in the economy without full adjustment or full information is represented by

A)the long-run aggregate supply curve.
B)the short-run aggregate supply curve.
C)the aggregate demand curve.
D)the distance between the long-run aggregate supply curve and the short-run aggregate supply curve.

Question 49

The main difference between an individual supply curve and the aggregate supply curve is that

A)an individual supply curve reflects the change in price of an individual commodity,while an aggregate supply curve shows the effects of changes in the price level for the entire economy.
B)a relative price change occurs along an individual supply curve while prices do not change along an aggregate supply curve.
C)input prices are held constant along an aggregate supply curve but not along an individual supply curve.
D)individual supply curves are upward sloping while aggregate supply curves are not.

Question 50

Figure 8-2
In Figure 8-2,assume that B is the current long-run aggregate supply curve and that E is the current short-run aggregate supply curve.If there were a discovery of large oil fields in Manitoba,where no one thought oil fields existed,then we could expect the long-run aggregate supply curve and the short-run aggregate supply curve to

A)remain B and E.
B)move to A and D.
C)move to C and F.
D)move to A and F.

Question 51

The effect of an adverse demand shock is to

A)increase the level of aggregate demand.
B)cause prices to fall.
C)increase the firm's cost of producing at every level of output.
D)increase the level of employment.

Question 52

Figure 8-2
In Figure 8-2,assume that A is the current long-run aggregate supply curve and that E is the current short-run aggregate supply curve.If there were a discovery of large oil fields in Manitoba,where no one thought oil fields existed,then we could expect the long-run aggregate supply curve and the short-run aggregate supply curve to

A)remain B and E.
B)move to A and D.
C)move to B and F.
D)move to A and F.

Question 53

An unexpected event that causes the aggregate demand curve to shift inward or outward is an

A)aggregate demand shock.
B)aggregate supply shock.
C)aggregate supply increase.
D)aggregate supply decrease.

Question 54

An increase in long- run aggregate supply could be caused by

A)greater regulatory impediments to business.
B)oil embargo in another country.
C)increased competition.
D)an increase in taxes.

Question 55

An increase in productivity

A)would cause the short-run aggregate supply curve to shift to the left.
B)would cause the long-run aggregate supply curve to shift to the left.
C)would cause the short-run aggregate supply curve to shift to the right.
D)would cause the long-run aggregate supply curve to shift to the right.

Question 56

An increase in ________ would cause the long-run aggregate supply curve to shift to the right.

A)the demand for labour
B)the unemployment rate
C)inflation
D)productivity

Question 57

The long-run aggregate supply curve will shift to the left when

A)population decreases.
B)the price level increases.
C)technology improves.
D)new sources of oil are discovered.

Question 58

________ takes place when aggregate supply increases.

A)Investment
B)Economic growth
C)Importing
D)Inflation

Question 59

Which of the following would cause the long-run aggregate supply curve to shift to the right?

A)An increase in wages
B)An increase in demand
C)An increase in productivity
D)An increase in taxes on profits

Question 60

Figure 8-2
In Figure 8-2,again assume that B is the current long-run aggregate supply curve (LRAS)and E is the current short-run aggregate supply curve (SRAS).If a 90 day embargo of oil from the Middle East to Canada were announced,and if after that 90 day period oil prices were expected to return to normal pre-embargo prices,then you would expect

A)the LRAS and the SRAS to remain at B and E,respectively.
B)the LRAS to remain at B,but the SRAS to shift to D.
C)the LRAS to remain at B,but the SRAS to shift to F.
D)the LRAS to shift to C,and the SRAS to shift to F.

Question 61

Figure 8-4
In Figure 8-4,the economy would most likely move from A D₁ to A D₂ because of

A)a supply shock.
B)an increase in government expenditures
C)a decrease in planned investment.
D)an increase in taxes

Question 62

A short run equilibrium occurs at the intersection of the ________ and the aggregate demand curve.

A)long-run aggregate supply curve
B)short-run aggregate supply curve
C)planned aggregate expenditure curve
D)investment demand curve

Question 63

The difference between the equilibrium level of real GDP and how much the economy could be producing if it were operating at full employment on its long-run aggregate supply curve is known as the

A)demand shock.
B)supply shock.
C)recessionary gap.
D)expansion gap.

Question 64

Figure 8-3
Which point or points on Figure 8-3 illustrate an eventual long-run equilibrium?

A)Point A
B)Point B
C)Point C
D)Points A and C

Question 65

A short run equilibrium occurs at the intersection of the short-run aggregate supply curve and the

A)long-run aggregate supply curve.
B)aggregate demand curve.
C)planned aggregate expenditure curve.
D)investment demand curve

Question 66

OPEC's oil embargo of Canada in the 1970s was an example of

A)a demand shock that increased price levels.
B)a demand shock that decreased price levels.
C)a supply shock that increased price levels.
D)a supply shock that decreased price levels.

Question 67

A ________ occurs at the intersection of the short-run aggregate supply curve and the aggregate demand curve.

A)long run equilibrium
B)short run equilibrium
C)adverse equilibrium
D)price adjustment

Question 68

Figure 8-3
According to Figure 8-3,what will the price level be in the new long-run equilibrium?

A)115
B)110
C)100
D)Less than 100

Question 69

Economic growth will be associated with a constant price level when

A)the increase in aggregate demand exactly equals the increase in long-run aggregate supply.
B)the increase in aggregate demand is more than the increase in long-run aggregate supply.
C)the increase in aggregate demand is less than the increase in long-run aggregate supply.
D)the increase in aggregate demand is accompanied by a reduction in short-run aggregate supply.

Question 70

A long run equilibrium occurs at the intersection of the short-run aggregate supply curve and the

A)long-run aggregate supply curve.
B)Phillips curve.
C)planned aggregate expenditure curve.
D)investment demand curve

Question 71

One possible result of a fall in aggregate demand coupled with a stable aggregate supply is

A)a recession.
B)an increase in employment levels.
C)an economic expansion.
D)a rise in the stock market.

Question 72

Figure 8-3
In Figure 8-3,the three curves are:

A)(1)is long-run aggregate supply, (2)is short-run aggregate supply,and (3)is aggregate demand.
B)(1)is aggregate demand, (2)is short-run aggregate supply,and (3)is long-run aggregate supply.
C)(1)is short-run aggregate supply, (2)is long-run aggregate supply,and (3)is aggregate demand.
D)(1)is long-run aggregate supply, (2)is aggregate demand,and (3)is short-run aggregate supply.

Question 73

A long run equilibrium occurs at the intersection of the short-run aggregate supply curve and the

A)long-run aggregate investment curve.
B)aggregate demand curve.
C)planned aggregate expenditure curve.
D)investment demand curve

Question 74

Figure 8-4
The reason that it is possible for the economy in Figure 8-4 to be at E₂ rather than at E₁ is that

A)in the long run there is always less than full employment.
B)in the short run the economy can produce more than it can in a long-run full-adjustment situation.
C)AD always shifts outward and never shifts inward.
D)the economy must be in a recession.

Question 75

Figure 8-4
In Figure 8-4,the expansionary gap can correctly be identified as

A)the difference between 125 and 120.
B)the difference between 7 billion and 7.2 billion.
C)LRAS minus SRAS.
D)A D₁

Question 76

________ will be associated with a constant price level when the increase in aggregate demand exactly equals the increase in long-run aggregate supply.

A)Economic growth
B)Economic stagnation
C)Economic inflation
D)Economic recession

Question 77

Figure 8-3
According to Figure 8-3,the price level in the short run will be

A)115
B)110
C)100
D)Less than 100

Question 78

The long-run aggregate supply curve is vertical at $5 billion but the short-run aggregate supply curve intersects the aggregate demand curve at $6 billion.From this,we know that

A)the economy is operating below full capacity in the short run,and will have to adjust by hiring more workers,thus reducing unemployment.
B)the price level is too high.The only way long-run equilibrium can be restored is to lower the price level.
C)adjustments will have to occur so that the long-run aggregate supply equals $6 billion.
D)adjustments will have to occur so that the short-run aggregate supply intersects the aggregate demand curve at $5 billion.

Question 79

Figure 8-4
In Figure 8-4,the economy would most likely move from A D₁ to A D₂ because of

A)a supply shock.
B)a demand shock.
C)a recession.
D)a depression.

Question 80

Figure 8-3
Which point or points on Figure 8-3 illustrate a short-run equilibrium?

A)Point A
B)Point B
C)Point C
D)Points A and C