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."

Accepted Answer

A rightward shift of the Long-Run Aggregate Supply (LAS) curve indicates an increase in the potential output of an economy. Choice B, which mentions growth due to more women entering the workforce, describes an increase in the labor force, thereby increasing the economy's potential output.

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.

Accepted Answer

An increase in the full-employment quantity of labour will shift the short-run aggregate supply curve rightward because there will be more labour available for production, leading to an increase in output. The other options (B, C, D, and E) would shift the curve leftward or have no effect on the curve.

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.

Accepted Answer

An increase in the quantity of capital increases the economy's productive capacity, leading to a rightward shift in both the Short-Run Aggregate Supply (SAS) and Long-Run Aggregate Supply (LAS) curves.

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.

Accepted Answer

The long-run aggregate supply curve is vertical because it represents the point where an economy is producing at its maximum sustainable capacity, which is determined by factors like technology, resources, and labor. These factors, and thus the potential GDP, are independent of the price level, meaning changes in the price level do not affect the quantity of goods and services the economy is capable of producing in the long run.

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.

Accepted Answer

An increase in oil prices for a country that is a net importer of oil would increase production costs, leading to a decrease in the quantity of goods and services supplied at any given price level in the short run, shifting the short-run aggregate supply (SRAS) curve leftward. However, the long-run aggregate supply (LRAS) curve remains unchanged because it is determined by factors like technology, capital, and labor, which are not directly affected by oil prices in the long run.

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.

Accepted Answer

The short-run aggregate supply curve shows the relationship between the quantity of real GDP supplied by firms and the price level in the economy. As the price level increases, firms are willing to supply more output in the short run due to higher profits. Conversely, a decrease in the price level leads to less real GDP supplied. Therefore, the correct answer is A) the price level.

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

Accepted Answer

A change in factor prices, such as wages or the cost of raw materials, affects the short-run aggregate supply curve by altering production costs, but it does not affect the long-run aggregate supply curve, which is determined by factors like technology and resources.

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.

Accepted Answer

The long-run aggregate supply curve is vertical because it represents the potential output of an economy that is operating at full employment and with all of its resources being used efficiently. In the long run, changes in input prices do not affect the overall level of output, so the long-run aggregate supply curve is perfectly elastic.

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.

Accepted Answer

A technological advance increases the productive capacity of an economy, shifting both the Short-Run Aggregate Supply (SAS) and Long-Run Aggregate Supply (LAS) curves to the right.

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."

Accepted Answer

This quotation specifically references a shift in the SAS curve, as wage settlements are a factor that can cause a shift in the short-run aggregate supply. The other quotations may reference shifts in aggregate demand or long-run aggregate supply.

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

Accepted Answer

The answer of Use the figure below to answer the...

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."

Accepted Answer

A leftward shift of the Long-Run Aggregate Supply (LAS) curve indicates a decrease in the potential output of the economy, often due to a reduction in the productive capacity. The destruction of factories, as mentioned in option D, directly reduces the economy's ability to produce goods and services, thus representing a leftward shift of the LAS curve.

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

Accepted Answer

The answer of Which of the following does not change...

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

Accepted Answer

The answer of Use the figure below to answer the...

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.

Accepted Answer

A fall in the money wage rate would cause a movement along the existing long-run aggregate supply curve, not a shift of the curve itself. Therefore, it would not cause an increase in long-run aggregate supply. The other options listed would increase the economy's capacity to produce goods and services in the long run, and therefore cause a shift of the long-run aggregate supply curve to the right.

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.

Accepted Answer

A vertical long-run aggregate supply curve indicates that the economy has reached its potential output, which cannot be expanded in the long run by increasing the price level. Therefore, 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.

Accepted Answer

When the money wage rate falls, the cost of production for firms decreases. This makes it cheaper for firms to produce goods and services, leading to an increase in the supply of goods and services at every price level. As a result, the Short-Run Aggregate Supply (SAS) curve shifts rightward, indicating an increase in the total production of the economy in the short run.

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.

Accepted Answer

Potential GDP is the level of real GDP that can be produced when there is full employment of all available resources, including labor. It represents the economy's maximum sustainable output level.

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.

Accepted Answer

The short-run aggregate supply curve shows 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. This is because in the short run, firms are often locked into contracts for input prices such as wages, so they cannot easily adjust their costs in response to changes in the price level. As a result, a higher price level will lead firms to supply more output since they can sell it at a higher price without facing higher costs. However, in the long run, input prices and potential GDP can adjust, and the economy returns to the natural rate of unemployment.

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.

Accepted Answer

Potential GDP is the maximum level of real GDP that an economy can produce with its existing resources, technology, and institutions. It is not affected by changes in the price level.

Quiz 10: Aggregate Supply and Aggregate Demand

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

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

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

The long- run aggregate supply curve is vertical because

An increase in oil prices to a country that is a net importer of oil shifts

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

Which one, if any, of the following events shift the short- run aggregate supply curve but not the long- run aggregate supply curve?

The long- run aggregate supply curve is

A technological advance shifts the

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

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?

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

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

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?

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

A vertical long- run aggregate supply curve indicates that

If the money wage rate falls, then

Potential GDP is the level of real GDP at which

The short- run aggregate supply curve indicates

Potential GDP