Deck 10: Real GDP and the Price Level in the Long Run

Question 1

The total of all planned production for the entire economy is known as

A) aggregate expenditures.
B) aggregate demand.
C) aggregate supply.
D) aggregate inflation.

Answer 1

C

Question 2

All of the following would shift the LRAS curve to the right EXCEPT

A) an increase in the size of the labor force.
B) a net inflow of human capital.
C) an increase in the overall price level.
D) an improvement in technology.

Answer 2

C

Question 3

The long-run aggregate supply curve is

A) upward sloping.
B) downward sloping.
C) vertical.
D) horizontal.

Answer 3

C

Question 4

The long-run aggregate supply curve

A) shifts to the right when there is a tax increase.
B) indicates the level of output (GDP) that occurs when resources are fully employed.
C) indicates that an increase in the overall price level will cause an increase in production.
D) shifts to the right when the Federal Reserve increases the money supply.

Question 5

If a nation's production possibilities curve shifts outward, we should expect its long-run aggregate supply curve to

A) have an upward movement along the curve.
B) have a downward movement along the curve.
C) have a rightward shift.
D) have a leftward shift.

Question 6

The long-run aggregate supply curve is

A) horizontal at the full-employment level of real Gross Domestic Product (GDP).
B) vertical at the full-employment level of real Gross Domestic Product (GDP).
C) sloping upward due to the effects of price level changes on real Gross Domestic Product (GDP).
D) the same as the short run aggregate supply (SRAS) curve.

Question 7

Long-run aggregate supply is

A) the sum of planned expenditures by consumers and firms.
B) the level of output that occurs when the economy is operating on the production possibilities curve.
C) downward sloping.
D) upward sloping.

Question 8

The long-run aggregate supply curve is vertical because

A) the economy has yet to use all its available resources.
B) the economy has reached its potential real Gross Domestic Product (GDP) and is at full employment.
C) the economy has contracted.
D) the economy has large numbers of unemployed.

Question 9

The long run aggregate supply curve (LRAS) also represents

A) the full-information level of output.
B) the full-employment level of output.
C) the full-adjustment level of output.
D) all of the above.

Question 10

What is measured on the vertical axis of the aggregate demand/aggregate supply model?

A) real Gross Domestic Product (GDP)
B) nominal income
C) the price level
D) the interest rate

Question 11

The aggregate supply curve

A) shows what each producer is willing and able to produce at each income level.
B) relates planned aggregate production to price level.
C) is the sum of all supply curves of natural resources.
D) shows a negative relationship between the price level and real Gross Domestic Product (GDP).

Question 12

Which of the following statements is TRUE?

A) The long-run aggregate supply curve is upward sloping.
B) The long-run aggregate demand curve is upward sloping.
C) The short-run aggregate supply curve is vertical.
D) The long-run aggregate supply curve is vertical.

Question 13

Long-run aggregate supply reflects

A) total production in the economy at full employment.
B) total spending in the economy at full employment.
C) both production and spending in the economy.
D) only foreign production from U.S. subsidiaries.

Question 14

The full-employment and full-adjustment level of real Gross Domestic Product (GDP) in the economy is represented by

A) the LRAS curve.
B) the horizontal line at the price level.
C) the AD curve.
D) the distance between the LRAS curve and the AD curve.

Question 15

The long-run aggregate supply curve

A) shows that at higher prices, potential real Gross Domestic Product (GDP) increases.
B) slopes up and to the right.
C) shows that long-run aggregate supply equals potential real Gross Domestic Product (GDP).
D) is very sensitive to changes in the price level.

Question 16

The long-run aggregate supply curve of an economy corresponds to

A) a point inside the production possibilities curve.
B) a point outside the production possibilities curve.
C) a point on the production possibilities curve.
D) none of the above: there is no relationship between the long-run aggregate supply curve and the production possibilities curve.

Question 17

In the aggregate demand/aggregate supply model, the vertical axis shows the values of ________ and the horizontal axis shows the values of ________.

A) the unemployment rate; the inflation rate
B) real Gross Domestic Product (GDP); the price level
C) the price level; real Gross Domestic Product (GDP)
D) the inflation rate; the unemployment rate

Question 18

Which of the following will NOT cause a leftward shift in the long-run aggregate supply curve?

A) a net outflow of human capital
B) an increase in the costs of obtaining energy resources
C) a reduction in the amount of capital
D) a reduction in government spending

Question 19

What is measured on the horizontal axis of the aggregate demand/aggregate supply model?

A) real Gross Domestic Product (GDP)
B) nominal income
C) the price level
D) the interest rate

Question 20

A human resource such as ingenuity can be thought of as

A) a positive for imports.
B) part of a country's endowment.
C) part of government spending programs.
D) a causal factor for aggregate supply shifting left.

Question 21

The real output of the economy under conditions of full employment

A) is long-run aggregate supply.
B) is long-run aggregate demand.
C) happens only when there is no inflation.
D) is determined by the real-balance effect.

Question 22

As the capital stock reduces , we would expect the long-run aggregate supply curve to

A) shift left.
B) shift right.
C) remain the same.
D) first shift right, then shift left.

Question 23

The full-employment level of GDP is

A) endowments.
B) long-run aggregate demand.
C) long-run aggregate supply.
D) economic growth.

Question 24

Which of the following will cause the long-run aggregate supply curve to shift? I. Changes in the amount of capital
II) Changes in the price level
III) Changes in the money supply

A) I only
B) II only
C) I, II, and III
D) only I and II

Question 25

A country's long-run aggregate supply curve will shift to the left when there is (are)

A) fewer regulatory impediments to business.
B) a discovery of new oil reserves in that country.
C) a reduction in the labor force.
D) a reduction in the money supply.

Question 26

The total of all planned production for the economy is

A) aggregate supply.
B) aggregate demand.
C) endowments.
D) real-balance effect.

Question 27

Economic growth can be depicted as

A) a shift of the LRAS curve to the left.
B) an inward shift of the production possibilities curve.
C) a shift of the LRAS curve to the right.
D) a movement along the production possibilities curve.

Question 28

The long-run aggregate supply curve occurs at the level of real GDP consistent with

A) individuals' tastes and preferences.
B) the natural rate of unemployment.
C) no inflation.
D) low levels of inflation.

Question 29

The position of the long-run aggregate supply curve is determined by

A) the long-run aggregate demand curve.
B) the production possibilities curve.
C) the open economy effect.
D) the interest rate effect.

Question 30

An assumption on the LRAS curve is

A) technology remains unchanged.
B) an increase in the average price level occurs.
C) the economy is operating to the right of the production possibilities curve.
D) labor productivity is increasing.

Question 31

The total of all planned production for the economy is

A) determined only by individuals and firms.
B) determined only by the government.
C) aggregate demand.
D) aggregate supply.

Question 32

The long-run aggregate supply curve is

A) horizontal.
B) vertical.
C) upward sloping.
D) downward sloping.

Question 33

The long run aggregate supply curve is vertical because

A) the production possibilities curve is vertical.
B) the aggregate demand curve is downward sloping.
C) technology increases at a constant rate.
D) a change in the level of prices will have no effect on real output in the long-run.

Question 34

Which of the following does NOT affect the long-run aggregate supply curve?

A) technology
B) production possibilities curve
C) endowments of resources
D) price level

Question 35

Aggregate supply is

A) the summation of all product supply curves.
B) the horizontal summation of all supply curves for services.
C) the stock of all goods in the economy.
D) the sum of all planned production in the economy.

Question 36

The long-run aggregate supply when resources are fully employed

A) has no relationship with the production possibilities curve.
B) will always be associated with a point outside the production possibilities curve.
C) will always be associated with a point on the production possibilities curve.
D) is determined by demand.

Question 37

When talking about aggregate supply, it is necessary to

A) focus on the short run.
B) focus on the long run.
C) distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve.
D) distinguish between the long-run aggregate supply curve and the long run aggregate demand curve when all adjustments to price level changes have been made.

Question 38

The long-run aggregate supply will increase when

A) labor supply decreases.
B) international trade barriers are removed.
C) the price level increases.
D) tax rates increase.

Question 39

Over time in a growing economy, the long run aggregate supply curve will

A) move so as to match the short run aggregate supply (SRAS) curve.
B) shift outward to the right.
C) shift inward to the left.
D) become increasingly steep.

Question 40

An increase in the level of prices of goods and services will do what to the long-run aggregate supply curve?

A) shift it to the right
B) shift it to the left
C) a movement along the curve
D) make the curve flat

Question 41

The level of real GDP identified by the long-run aggregate supply curve is

A) the full-employment level of real GDP.
B) the level of GDP at which each business firm is experiencing growth in sales.
C) the level of GDP at which each industry is experiencing growth in sales.
D) the level of GDP at which no one is below the poverty line.

Question 42

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

A) there is economic growth.
B) the price level decreases.
C) government spending increases.
D) the amount of labor decreases.

Question 43

The aggregate supply curve cannot tell us

A) anything about the quantity demanded of all commodities and the price level.
B) what the effect of changes in interest rates will be on real GDP.
C) how the total dollar values of spending will ultimately be divided between output and prices.
D) how changes in the price level affect quantity demanded of all commodities.

Question 44

The long-run aggregate supply curve is determined by all of the following EXCEPT

A) aggregate demand.
B) human capital.
C) technology.
D) the amount of resources that exist in the economy.

Question 45

Economic growth can be thought of as

A) an increase in the price level.
B) a decrease in the price level.
C) an increase in long-run aggregate supply.
D) an increase in aggregate demand.

Question 46

The natural rate of unemployment will help determine

A) the open economy effect.
B) the position of the long-run aggregate supply curve.
C) the level of economic growth in the economy.
D) the slope of the long-run aggregate supply curve.

Question 47

Aggregate supply

A) is the total amount of raw materials available in an economy.
B) is the overall wealth within an economy.
C) is the total amount of money circulating in an economy.
D) is the total amount of planned production in an economy.

Question 48

Real GDP will increase over the long run if

A) prices continually go up.
B) the long-run aggregate supply curve shifts continually to the right.
C) the long-run aggregate supply curve shifts continually to the left.
D) the long-run aggregate demand curve shifts continually to the left.

Question 49

The above figure shows a

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

Question 50

The aggregate supply curve shows

A) the total amount of planned production for an economy.
B) the various quantities of goods consumers will purchase.
C) that real GDP can only increase when the price level increases.
D) what an economy can produce if resource prices are constant.

Question 51

Refer to the above figures. Which panel(s) represent economic growth?

A) Panel A only
B) Panels A and C only
C) Panel D only
D) Panels B and D only

Question 52

Refer to the above figures. Which panel(s) represent the effect of a decrease in labor productivity?

A) Panel A only
B) Panels A and C only
C) Panel D only
D) Panels B and D only

Question 53

We draw the long-run aggregate supply curve as a vertical line to reflect the fact that

A) the productive capacity of the economy never changes after full adjustment has occurred.
B) changes in the price level do not alter the level of long-run real GDP after full adjustment has occurred.
C) technology and resource endowments do not affect long-run real GDP after full adjustment has occurred.
D) an accurate depiction of the production possibilities curve is vertical after full adjustment has occurred.

Question 54

The curve in the above figure will shift to the right when

A) the price level falls.
B) labor productivity increases.
C) population falls.
D) the proportion of the population that is elderly increases.

Question 55

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

A) an increase in wages
B) a decrease in aggregate demand
C) a decrease in labor productivity
D) a decrease in taxes on profits

Question 56

Which of the following will NOT lead to a rightward shift of the long-run aggregate supply curve?

A) increase in labor productivity
B) increase in aggregate spending
C) increase in capital
D) increase in labor

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 natural resources are discovered.

Question 58

The long-run aggregate supply curve can be thought of as the

A) level of output that the nation is currently producing.
B) full-employment level of real GDP.
C) level of real GDP associated with a constant price level.
D) level of output for which real GDP equals nominal GDP.

Question 59

If our economy is growing at a constant rate of 2 percent per year, then over a period of 20 years we would expect to see which of the following?

A) nice, steady flat-line growth
B) an upward sloping growth path
C) a downward sloping growth path
D) It is impossible to say what kind of growth path we would see.

Question 60

Refer to the above figures. Which panel(s) represent the effect of an increase in the price level?

A) Panel A only
B) Panels A and C only
C) Panel D only
D) none of the panels

Question 61

Long-run aggregate supply and a country's production possibility curve (PPC)

A) are closely related.
B) are inversely related.
C) have no relationship.
D) are examples of microeconomic models.

Question 62

Long-run aggregate supply curve corresponds to

A) real GDP when the economy is above full employment.
B) real GDP when the economy is at full employment.
C) the economy outside its production possibilities curve.
D) the economy inside its production possibilities curve.

Question 63

What is measured on the vertical axis when we draw a graph of long-run aggregate supply?

A) production of capital goods
B) spending on goods and services in an economy
C) the price level
D) real GDP

Question 64

What causes the long-run aggregate supply curve to shift right?

A) economic growth
B) inflation
C) unemployment
D) scarcity

Question 65

The values on the axes of the long-run aggregate supply diagram are

A) real GDP per year and the price level.
B) nominal GDP and the price level.
C) real GDP and interest rates.
D) real GDP and nominal GDP.

Question 66

When the production possibilities curve shifts outward,

A) the long-run aggregate supply curve shifts to the left.
B) the long-run aggregate supply curve is unchanged.
C) the price level rises in the long run.
D) the long-run aggregate supply curve shifts to the right.

Question 67

Economic growth is demonstrated by the LRAS as it

A) shifts to the right.
B) shifts to the left.
C) becomes more horizontal.
D) becomes more vertical.

Question 68

The slope of the long-run aggregate supply curve is

A) positive.
B) negative.
C) zero.
D) undefined.

Question 69

The long-run aggregate supply curve assumes that

A) the unemployment rate is more than 9 percent.
B) all factors of production are fully employed.
C) only laborers are fully employed.
D) there is no government purchasing of goods and services.

Question 70

Long-run aggregate supply is

A) the possible combinations of real GDP and inputs after full adjustments have been made.
B) the extraction of natural resources.
C) the real production of goods and services after full adjustments have been made.
D) all of the physical and human resources in the economy.

Question 71

What is measured on the horizontal axis when we draw a graph of the long-run aggregate supply curve?

A) production of capital goods
B) production of consumer goods
C) the price level
D) real GDP

Question 72

Economic growth is represented on the aggregate supply model by a

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

Question 73

A long-run aggregate supply curve may graphically be represented as a

A) vertical line.
B) horizontal line.
C) an upward sloping line.
D) a downward sloping line.

Question 74

What is the shape of the long-run aggregate supply curve? Why?

Question 75

A rightward shift of the long-run aggregate supply curve is caused by

A) an increase in the minimum wage.
B) an increase in the average duration of unemployment.
C) improvements in technology.
D) an increase in the GDP deflator.

Question 76

The long-run aggregate supply curve shifts right at the same time as

A) wages increase.
B) the production possibilities curve shifts outward.
C) the production possibilities curve shifts inward.
D) the inflation rate increases.

Question 77

Economic growth causes the

A) production possibilities curve to shift rightward and the long-run aggregate supply curve to shift rightward.
B) production possibilities curve to shift leftward and the long-run aggregate supply curve to shift rightward.
C) production possibilities curve to shift rightward and the long-run aggregate supply curve to shift leftward.
D) production possibilities curve to shift leftward and the long-run aggregate supply curve to shift leftward.

Question 78

Why is the long-run aggregate supply curve a vertical line?

A) At that level of real GDP, the unemployment rate is 0 percent.
B) At that level of real GDP, the inflation rate is 0 percent.
C) At that level of real GDP, the production costs are at their lowest level.
D) At that level of real GDP, production costs have fully adjusted to price changes.

Question 79

Economic growth can be shown by

A) a leftward shift in the aggregate supply curve.
B) no change in the aggregate supply curve.
C) a rightward shift in the aggregate supply curve.
D) a leftward shift in the production possibilities curve.

Question 80

The long-run aggregate supply curve is

A) U-shaped.
B) horizontal.
C) upward sloping.
D) vertical.