Question 1

Suppose the economy is producing at the natural rate of output.Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause ________ in the unemployment rate in the long run and ________ in inflation in the short run.
A)an increase; an increase
B)a decrease; a decrease
C)no change; a decrease
D)no change; no change

Accepted Answer

If the economy is producing at the natural rate of output, then there is no cyclical unemployment. With the development of new, more productive technology, the economy will shift to a higher natural rate of output in the long run, which means the natural rate of unemployment will decrease. However, in the short run, there may be some adjustment costs associated with the transition to the new technology, which could lead to a temporary decrease in the demand for labor and modestly lower inflation. Overall, there will be no change in the long-run inflation rate. Therefore, the correct answer is C: no change in unemployment and a decrease in inflation in the short run.

Question 2

The long-run rate of unemployment to which an economy always gravitates is the
A)normal rate of unemployment.
B)natural rate of unemployment.
C)neutral rate of unemployment.
D)inflationary rate of unemployment.

Accepted Answer

The natural rate of unemployment is the rate to which the economy gravitates in the long run, reflecting the effects of structural and frictional factors.

Question 3

The aggregate supply curve is the total quantity of
A)raw materials offered for sale at different inflation rates.
B)final goods and services offered for sale at the current inflation rate.
C)final goods and services offered for sale at different inflation rates.
D)intermediate and final goods and service offered for sale at different inflation rates.

Accepted Answer

The aggregate supply curve represents the total quantity of all final goods and services offered for sale at different price levels (which is equivalent to inflation rates). It includes both intermediate and final goods and services. Choice A is incorrect because it only considers raw materials, which are a subset of intermediate goods. Choice B is incorrect because it only considers final goods and services at the current inflation rate, while the aggregate supply curve shows the relationship between quantity and price level at all inflation rates.

Question 4

Assuming the economy is starting at the natural rate of output and everything else held constant,the effect of ________ in aggregate ________ is a rise in both inflation and output in the short-run,but in the long-run the only effect is a rise in inflation.
A)a decrease; supply
B)a decrease; demand
C)an increase; supply
D)an increase; demand

Accepted Answer

An increase in aggregate demand will lead to a rise in both output and inflation in the short-run, as firms increase production to meet the higher demand. However, in the long-run, the natural rate of output will not change, leading to a rise in prices without a corresponding rise in output. A decrease in aggregate demand (choice B) would lead to a decrease in both inflation and output, while a decrease in aggregate supply (choice A) would lead to a decrease in output and an increase in inflation in both the short and long-run. An increase in aggregate supply (choice C) would lead to a decrease in prices and an increase in output in both the short and long-run.

Question 5

The long-run aggregate supply curve shifts to the right when there is
A)a decrease in the total amount of capital in the economy.
B)a decrease in the total amount of labor supplied in the economy.
C)a decrease in the available technology.
D)a decline in the natural rate of unemployment.

Accepted Answer

When there is a decline in the natural rate of unemployment, it means that there are more workers available for work, which increases the potential output of the economy. This results in an increase in the long-run aggregate supply curve, shifting it to the right. The other options would lead to a decrease in potential output and shift the curve to the left.

Question 6

Everything else held constant,which of the following does not cause aggregate demand to increase?
A)An increase in net exports
B)An increase in government spending
C)An increase in taxes
D)An increase in consumer optimism

Accepted Answer

An increase in taxes reduces disposable income, which in turn decreases consumer spending, thus causing a decrease in aggregate demand. The other options increase aggregate demand.

Question 7

Suppose the economy is producing at the natural rate of output.Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run.
A)an increase; an increase
B)a decrease; a decrease
C)a decrease; an increase
D)no change; no change

Accepted Answer

The answer of Suppose the economy is producing at the...

Question 8

The long-run aggregate supply curve shifts to the right when there is
A)an increase in the total amount of capital in the economy.
B)an increase in the available technology.
C)a decrease in the natural rate of unemployment..
D)A and B.
E)A,B,and C.

Accepted Answer

The long-run aggregate supply curve shifts to the right with an increase in the total amount of capital in the economy, an increase in available technology, and a decrease in the natural rate of unemployment. All these factors enhance the economy's productive capacity.

Question 9

Which of the following increases aggregate supply in the short-run,everything else held constant?
A)An increase in the price of crude oil.
B)A successful wage push by workers.
C)Expectations of a higher inflation.
D)A technological improvement that increases worker productivity.

Accepted Answer

A technological improvement that increases worker productivity allows firms to produce more output with the same amount of resources, which increases aggregate supply in the short-run. Option A is incorrect because an increase in the price of crude oil would increase production costs and decrease aggregate supply. Option B is incorrect because a wage push by workers would increase production costs and decrease aggregate supply. Option C is incorrect because expectations of higher inflation would not directly impact aggregate supply in the short-run.

Question 10

The long-run aggregate supply curve is
A)a vertical line through the non-inflationary rate of output.
B)a vertical line through the current level of output.
C)a vertical line through the natural rate level of output.
D)a horizontal line through the current level of output.

Accepted Answer

The long-run aggregate supply curve is a vertical line through the natural rate level of output, which is the level of output consistent with the economy's potential and full employment of resources in the long run. This is because in the long run, all prices and wages adjust to their equilibrium levels, and the economy operates at its potential level of output. Choices A, B, and D are incorrect because they do not reflect the concept of the natural rate level of output.

Question 11

Everything else held constant,if workers expect an increase in inflation,________ aggregate supply ________.
A)long-run; increases
B)long-run; decreases
C)short-run; decreases
D)short-run; increases

Accepted Answer

When workers expect an increase in inflation, they also expect an increase in their wages to compensate for the rise in prices. This leads to an increase in production costs, which causes a leftward shift of the short-run aggregate supply curve. This reduces the quantity of output that firms are willing to supply at any given price level, leading to a decrease in short-run aggregate supply.

Question 12

________ flexible wages and prices imply that the short-run aggregate supply curve is ________.
A)More; flatter
B)Less; steeper
C)less; vertical
D)More; steeper

Accepted Answer

The answer of ________ flexible wages and prices imply that...

Question 13

Which of the followings does not shift the short-run aggregate supply curve?
A)supply shocks.
B)persistent positive output gap.
C)changes in expected inflation.
D)an increase in output gap.

Accepted Answer

The answer of Which of the followings does not shift...

Question 14

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate.Be sure to discuss two channels through which changes in inflation rates affect demand.

Accepted Answer

The answer of Explain through the component parts of aggregate...

Question 15

The short-run aggregate supply curve shifts to the right when
A)output gap is higher.
B)output gap is lower.
C)expected inflation is higher.
D)expected inflation is lower.

Accepted Answer

The short-run aggregate supply curve shows the relationship between the price level and the quantity of output produced in the short run. It is influenced by various factors such as input prices, productivity, and taxes. Expectations of future inflation can also affect the short-run aggregate supply curve. When businesses expect higher future inflation, they may increase their prices and wages, pushing up their production costs and reducing their willingness to supply output at the current price level. This results in a leftward shift of the short-run aggregate supply curve. On the other hand, when businesses expect lower future inflation, they may keep prices and wages relatively stable, making it more profitable for them to produce and supply output at the current price level. This results in a rightward shift of the short-run aggregate supply curve. Therefore, the best choice is D, expected inflation is lower, as it leads to a rightward shift of the short-run aggregate supply curve.

Question 16

The aggregate supply curve shows the relationship between
A)the level of inputs and aggregate output.
B)the inflation rate and the level of inputs.
C)the wage rate and the level of employment.
D)the inflation rate and the level of aggregate output supplied.

Accepted Answer

The aggregate supply curve shows the relationship between the inflation rate and the level of aggregate output supplied. This is because the level of output supplied is determined by the amount of inputs available and the level of technology, but the inflation rate can impact the cost of those inputs and therefore affect the level of output supplied. As the price level rises, the cost of inputs increases and firms are willing to supply more output at those higher prices.

Question 17

The long-run aggregate supply curve is a vertical line passing through
A)the natural rate of output.
B)the natural-rate price level.
C)the actual rate of unemployment.
D)the expected rate of inflation.

Accepted Answer

The long-run aggregate supply curve (LRAS) represents the economy's potential output when all resources are fully utilized, and technological advancements have been made. Since these factors are assumed to remain constant in the long run, the LRAS curve is a vertical line. The point where it intersects the horizontal axis represents the natural rate of output, which is the level of output consistent with the economy's potential growth rate. Therefore, the correct answer is A, "the natural rate of output."

Question 18

The fact that an economy always returns to the natural rate level of output is known as
A)the excess demand hypothesis.
B)the price-adjustment mechanism.
C)the self-correcting mechanism.
D)the natural rate of unemployment.

Accepted Answer

The self-correcting mechanism refers to the idea that over time, an economy will naturally return to its natural rate level of output, regardless of any short-term fluctuations or imbalances. This theory is based on the idea that market forces will eventually correct any mismatches between supply and demand, leading to a restoration of equilibrium. Some economists debate the validity of this theory, but it remains a widely accepted concept in macroeconomic theory.

Question 19

Everything else held constant,when actual output exceeds the natural rate of output ________ aggregate supply ________.
A)short-run; decreases
B)short-run; increases
C)long-run; increases
D)long-run; decreases

Accepted Answer

When actual output exceeds the natural rate of output in the short-run, firms may increase production in response to the higher demand, which can lead to higher costs of production, including higher wages and increased use of resources. As a result, aggregate supply decreases. In the long-run, however, the natural rate of output is not affected by changes in actual output, and so aggregate supply would remain unchanged.

Question 20

Everything else held constant,a change in workers' expectations about inflation will cause ________ to change.
A)aggregate demand
B)short-run aggregate supply
C)the production function
D)long-run aggregate supply

Accepted Answer

Workers' expectations about inflation are a factor that influences the costs of production. When workers expect higher inflation, they will demand higher wages to compensate for the expected price increases. Higher wages increase firms' costs of production, which leads to a decrease in short-run aggregate supply. Conversely, if workers expect lower inflation, they may be willing to accept lower wages, which reduces firms' costs of production and increases short-run aggregate supply. Therefore, expectations about inflation can affect short-run aggregate supply.

Quiz 22: Aggregate Demand and Supply Analysis

Suppose the economy is producing at the natural rate of output.Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause in the unemployment rate in the long run and in inflation in the short run.

The long-run rate of unemployment to which an economy always gravitates is the

The aggregate supply curve is the total quantity of

Assuming the economy is starting at the natural rate of output and everything else held constant,the effect of in aggregate is a rise in both inflation and output in the short-run,but in the long-run the only effect is a rise in inflation.

The long-run aggregate supply curve shifts to the right when there is

Everything else held constant,which of the following does not cause aggregate demand to increase?

Suppose the economy is producing at the natural rate of output.Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause in the unemployment rate in the short run and in inflation in the short run.

The long-run aggregate supply curve shifts to the right when there is

Which of the following increases aggregate supply in the short-run,everything else held constant?

The long-run aggregate supply curve is

Everything else held constant,if workers expect an increase in inflation, aggregate supply .

flexible wages and prices imply that the short-run aggregate supply curve is .

Which of the followings does not shift the short-run aggregate supply curve?

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate.Be sure to discuss two channels through which changes in inflation rates affect demand.

The short-run aggregate supply curve shifts to the right when

The aggregate supply curve shows the relationship between

The long-run aggregate supply curve is a vertical line passing through

The fact that an economy always returns to the natural rate level of output is known as

Everything else held constant,when actual output exceeds the natural rate of output aggregate supply .

Everything else held constant,a change in workers' expectations about inflation will cause ________ to change.