Question 1

In the long- run, the amount of output that the economy can produce will depend on:

Accepted Answer

The supply of labor and capital are two key factors in determining the amount of output an economy can produce in the long-run. Other factors like technology, natural resources, and institutional frameworks also play a role but the availability of labor and capital are fundamental. The price level, money supply and nominal interest rate can impact short-term economic activity but do not determine the long-run productive potential of the economy.

Question 2

_______ is a curve that shows the relationship between the price level and the quantity of real GDP demanded.

Accepted Answer

The aggregate demand curve shows the relationship between the price level and the quantity of real GDP demanded by all households, firms, and governments in an economy. The other choices either refer to a specific market or product demand, rather than the overall economy's demand.

Question 3

The relationship between the level of prices and the total quantity of goods and services that firms supply in the short- run is:

Accepted Answer

In the short run, there is a positive relationship between the level of prices and the total quantity of goods and services that firms supply, as higher prices can lead to increased production due to higher profit margins.

Question 4

If the marginal propensity to consume is 0.8, the value of the marginal propensity to save is:

Accepted Answer

The marginal propensity to consume (MPC) + the marginal propensity to save (MPS) must equal 1, as all income must either be consumed or saved. Therefore, MPS = 1 - MPC = 1 - 0.8 = 0.2.

Question 5

Which of the following will not cause the price level to increase in the long- run?

Accepted Answer

A decrease in the money supply will not cause the price level to increase in the long-run because there will be less money in circulation, which will decrease demand for goods and services, leading to lower prices.

Question 6

Recall Application 1, "Measuring Price Stickiness in Consumer Markets," to answer the following questions:
-According to the application, during periods of high inflation, catalog prices tend to show

Accepted Answer

During periods of high inflation, catalog prices tend to show less stickiness as firms are forced to update prices frequently to keep up with rising costs. This is supported by the findings in the application, which show that catalog prices were adjusted more frequently during periods of high inflation.

Question 7

If the economy is in equilibrium at full employment, a decrease in aggregate demand will:

Accepted Answer

In the long run, the economy tends to return to full employment output due to flexible prices and wages. A decrease in aggregate demand will lower the price level, but output will eventually return to its full employment level.

Question 8

The international effect explanation of the downward slope of the AD operates through which component of aggregate demand?

Accepted Answer

The international effect explanation of the downward slope of the AD curve operates through net exports, which represent the amount of goods and services that a country exports minus the amount that it imports. As the price level increases, foreign buyers find it more expensive to purchase goods and services from the country, leading to a decrease in net exports and a decrease in aggregate demand.

Question 9

When the economy is in a boom, the intersection between the:

Accepted Answer

During a boom, demand for goods and services increases, causing an increase in aggregate demand (AD). This leads to an increase in both prices and output in the short run, as firms increase production to meet the higher demand. However, in the long run, this increase in demand will lead to an increase in the prices of inputs, such as labor and materials, causing an increase in the cost of production. This, in turn, will cause the short run aggregate supply (AS) curve to shift upward and to the left. As a result, the intersection between the short run AS and AD will occur at an output level higher than potential output.

Question 10

Which of the following are the factors that affect the short- run aggregate supply curve?

Accepted Answer

All of the above factors can affect the short-run aggregate supply (SRAS) curve. Input prices refer to the prices of the inputs or resources used in production, such as wages, raw materials, and energy. An increase in input prices will result in higher production costs, causing the SRAS curve to shift to the left. Taxes and subsidies directly affect the costs of production for firms, with higher taxes reducing profitability and subsidies lowering costs. Changes in technology can lead to improvements in efficiency and lower production costs, causing the SRAS curve to shift to the right.

Question 11

Recall Application 2, "Two Approaches to Determining the Causes of Recessions," to answer the following questions:
-According to the application, a recession is likely to be caused by a decrease in aggregate supply if:

Accepted Answer

A recession caused by a decrease in aggregate supply is characterized by changes in both prices and output in the long run, as the supply shock affects the economy's production capacity and price levels.

Question 12

Recall Application 3, "How the U.S. Economy has Coped with Oil Price Fluctuations," to answer the following questions:
-According to the application, when the price of oil increases, the aggregate supply curve shifts up because:

Accepted Answer

When the price of oil increases, the aggregate supply curve shifts up because oil is an input to the production processes in the economy. As the cost of producing goods and services that require oil as an input increases, the producers will offer less quantity of those goods and services at any given price, leading to a decrease in aggregate supply.

Question 13

When the economy is in a recession, the intersection between the:

Accepted Answer

During a recession, there is slack in the economy and resources are underutilized. As a result, the short run AS curve shifts leftward, indicating that the economy can only produce at an output level lower than potential output. The intersection between the AD and the short run AS curve occurs at this lower output level, which is below potential output. Therefore, the correct choice is option D.

Question 14

Figure 9.5
-Refer to Figure 9.5. Suppose the economy is a point B. A large in the price of crude oil leads to a shift from _______ to _______.

Accepted Answer

A large increase in the price of crude oil will lead to an increase in the cost of production for many firms, which will shift the aggregate supply curve to the left, from AS⁰ to AS¹.

Question 15

Can the aggregate demand curve slope upwards?

Accepted Answer

The aggregate demand curve typically slopes downwards due to the wealth effect, interest rate effect, and exchange rate effect. It does not slope upwards.

Question 16

A large reduction in oil prices will cause:

Accepted Answer

A reduction in oil prices will reduce the costs of production for firms, which will lead to an increase in output and lower prices. This will result in a rightward shift in the aggregate supply curve.

Question 17

Figure 9.1
-Refer to Figure 9.1. A reduction in government spending causes:

Accepted Answer

A reduction in government spending would decrease government expenditures, leading to a decrease in aggregate demand, resulting in a leftward shift of the aggregate demand curve from AD₁ to AD₀. This shift would lead to a decrease in both real GDP and the price level, moving the economy from Point A to Point B on the AD-AS diagram. Therefore, choice C is correct.

Question 18

Custom prices are also known as:

Accepted Answer

The answer of Custom prices are also known as:
...

Question 19

The aggregate demand curve shows a(n) _______ relationship between the _______.

Accepted Answer

The aggregate demand curve shows a negative relationship between the price level and real GDP, meaning that as the price level decreases, real GDP demanded increases, and vice versa.

Question 20

Recall Application 1, "Measuring Price Stickiness in Consumer Markets," to answer the following questions:
-According to the application, which of the following goods showed considerable price stickiness?

Accepted Answer

According to the application, all three goods – fishing rod and fly, shoes, and binoculars – showed considerable price stickiness.

Quiz 9: Aggregate Demand and Aggregate Supply

In the long- run, the amount of output that the economy can produce will depend on:

_______ is a curve that shows the relationship between the price level and the quantity of real GDP demanded.

The relationship between the level of prices and the total quantity of goods and services that firms supply in the short- run is:

If the marginal propensity to consume is 0.8, the value of the marginal propensity to save is:

Which of the following will not cause the price level to increase in the long- run?

Recall Application 1, "Measuring Price Stickiness in Consumer Markets," to answer the following questions: -According to the application, during periods of high inflation, catalog prices tend to show

If the economy is in equilibrium at full employment, a decrease in aggregate demand will:

The international effect explanation of the downward slope of the AD operates through which component of aggregate demand?

When the economy is in a boom, the intersection between the:

Which of the following are the factors that affect the short- run aggregate supply curve?

Recall Application 2, "Two Approaches to Determining the Causes of Recessions," to answer the following questions: -According to the application, a recession is likely to be caused by a decrease in aggregate supply if:

Recall Application 3, "How the U.S. Economy has Coped with Oil Price Fluctuations," to answer the following questions: -According to the application, when the price of oil increases, the aggregate supply curve shifts up because:

When the economy is in a recession, the intersection between the:

Figure 9.5 -Refer to Figure 9.5. Suppose the economy is a point B. A large in the price of crude oil leads to a shift from _ to _.

Can the aggregate demand curve slope upwards?

A large reduction in oil prices will cause:

Figure 9.1 -Refer to Figure 9.1. A reduction in government spending causes:

Custom prices are also known as:

The aggregate demand curve shows a(n) _ relationship between the _.

Recall Application 1, "Measuring Price Stickiness in Consumer Markets," to answer the following questions: -According to the application, which of the following goods showed considerable price stickiness?

Quiz 9: Aggregate Demand and Aggregate Supply

In the long- run, the amount of output that the economy can produce will depend on:

_______ is a curve that shows the relationship between the price level and the quantity of real GDP demanded.

The relationship between the level of prices and the total quantity of goods and services that firms supply in the short- run is:

If the marginal propensity to consume is 0.8, the value of the marginal propensity to save is:

Which of the following will not cause the price level to increase in the long- run?

Recall Application 1, "Measuring Price Stickiness in Consumer Markets," to answer the following questions: -According to the application, during periods of high inflation, catalog prices tend to show

If the economy is in equilibrium at full employment, a decrease in aggregate demand will:

The international effect explanation of the downward slope of the AD operates through which component of aggregate demand?

When the economy is in a boom, the intersection between the:

Which of the following are the factors that affect the short- run aggregate supply curve?

Recall Application 2, "Two Approaches to Determining the Causes of Recessions," to answer the following questions: -According to the application, a recession is likely to be caused by a decrease in aggregate supply if:

Recall Application 3, "How the U.S. Economy has Coped with Oil Price Fluctuations," to answer the following questions: -According to the application, when the price of oil increases, the aggregate supply curve shifts up because:

When the economy is in a recession, the intersection between the:

Figure 9.5 -Refer to Figure 9.5. Suppose the economy is a point B. A large in the price of crude oil leads to a shift from _______ to _______.

Can the aggregate demand curve slope upwards?

A large reduction in oil prices will cause:

Figure 9.1 -Refer to Figure 9.1. A reduction in government spending causes:

Custom prices are also known as:

The aggregate demand curve shows a(n) _______ relationship between the _______.

Recall Application 1, "Measuring Price Stickiness in Consumer Markets," to answer the following questions: -According to the application, which of the following goods showed considerable price stickiness?

Figure 9.5 -Refer to Figure 9.5. Suppose the economy is a point B. A large in the price of crude oil leads to a shift from _ to _.

The aggregate demand curve shows a(n) _ relationship between the _.