Question 1

If the money wage and other resource prices do not change when the price level rises by 10 per cent, ________.
A)the long- run aggregate supply curve shifts rightward
B)the short- run aggregate supply curve shifts leftward
C)the long- run aggregate supply curve shifts leftward
D)there is a movement along the short- run aggregate supply curve

Accepted Answer

When the price level rises and money wages and other resource prices remain constant, there is a movement along the short-run aggregate supply curve, as firms respond to higher prices by increasing output.

Question 2

At long-run macroeconomic equilibrium, ________.
A)real GDP is less than potential GDP but is as close as it is possible to be
B)real GDP equals potential GDP
C)a recessionary gap exists
D)an inflationary gap exists

Accepted Answer

At long-run macroeconomic equilibrium, real GDP equals potential GDP. This means that the economy is operating at its full potential, with all resources being used efficiently, and there is no cyclical unemployment or inflationary pressure.

Question 3

When real GDP exceeds potential GDP, then the economy has
A)a recessionary gap.
B)a below full- employment equilibrium.
C)an inflationary gap.
D)None of the above answers is correct.

Accepted Answer

When real GDP exceeds potential GDP, it indicates that the economy is producing more than its sustainable capacity, leading to an inflationary gap.

Question 4

-The curve labelled A in the above figure is a
A)short- run aggregate supply curve.
B)long- run aggregate demand curve.
C)long- run aggregate supply curve.
D)short- run aggregate demand curve.

Accepted Answer

The long-run aggregate supply curve is typically represented as a vertical line, indicating that in the long run, the total output of an economy is determined by factors such as technology and resources, and is not affected by the price level.

Question 5

The aggregate demand curve shows that, if other factors are held constant, a
A)higher price level results in a decrease in the quantity of real GDP demanded.
B)lower price level results in inflationary conditions.
C)higher price level results in a lower interest rate.
D)higher price level results in an increase in the quantity of real GDP demanded.

Accepted Answer

The aggregate demand curve is downward sloping, indicating that as the price level rises, the quantity of real GDP demanded decreases, assuming other factors remain constant.

Question 6

If you have $5,000 in wealth and the price level decreases 20 per cent, then
A)the $5,000 will buy more goods and services.
B)the real value of the $5,000 decreases.
C)the real value of the $5,000 remains constant.
D)the $5,000 will buy fewer goods and services.

Accepted Answer

When the price level decreases, the purchasing power of money increases, meaning the $5,000 can buy more goods and services.

Question 7

Which of the following does NOT shift the aggregate demand curve?
A)An increase in investment
B)An increase in the price level
C)A decrease in taxes
D)A decrease in the quantity of money

Accepted Answer

An increase in the price level does not shift the aggregate demand curve. It only moves the economy along the existing aggregate demand curve.

Question 8

People expect that the El Nino effect will cause drought in Australia in coming years. If most Australian firms expect that their profits will fall during the next five years, Australia's ________ this year.
A)short- run aggregate supply will increase
B)long- run aggregate supply will increase
C)aggregate demand will increase
D)aggregate demand will decrease

Accepted Answer

If firms expect lower profits due to drought, they may reduce investment and spending, leading to a decrease in aggregate demand.

Question 9

The quantity of real GDP demanded equals $12.2 billion when the price level is 90. If the price level rises to 95, the quantity of real GDP demanded equals
A)more than $12.2 billion.
B)$12.2 billion.
C)less than $12.2 billion.
D)More information is needed to determine if the quantity of real GDP demanded increases, decreases or does not change.

Accepted Answer

When the price level rises, the quantity of real GDP demanded typically decreases due to the inverse relationship between price level and quantity demanded, known as the aggregate demand curve.

Question 10

A change in the money wage rate shifts
A)the SAS curve but not the LAS curve.
B)the LAS curve but not the SAS curve.
C)both the SAS and LAS curves.
D)neither the SAS nor the LAS curve.

Accepted Answer

A change in the money wage rate affects the short-run aggregate supply (SAS) curve because it alters production costs, but it does not affect the long-run aggregate supply (LAS) curve, which is determined by factors like technology and resources.

Question 11

-In the above figure, which part corresponds to a destruction of part of the nation's capital stock?
A)Figure A
B)Figure B
C)Figure C
D)Figure D

Accepted Answer

The answer of 
-In the above figure, which part corresponds...

Question 12

When the price level rises, the long-run aggregate supply curve ________.
A)slopes upward
B)does not shift
C)shifts rightward
D)shifts leftward

Accepted Answer

The answer of When the price level rises, the long-run...

Question 13

Which of the following shifts the aggregate demand curve rightward?
A)An increase in investment
B)A decrease in government expenditure on goods and services
C)A decrease in consumption
D)A decrease in net exports

Accepted Answer

An increase in investment boosts overall spending in the economy, leading to a rightward shift in the aggregate demand curve.

Question 14

-In the above figure, curve A is the ________ curve, curve B is the ________ curve, and curve C is the________ curve.
A)short- run aggregate supply; long- run aggregate supply; aggregate demand
B)long- run aggregate supply; aggregate demand; short- run aggregate supply
C)long- run aggregate supply; short- run aggregate supply; aggregate demand
D)aggregate demand; short- run aggregate supply; long- run aggregate supply

Accepted Answer

In typical economic models, the long-run aggregate supply curve is vertical, the short-run aggregate supply curve is upward sloping, and the aggregate demand curve is downward sloping.

Question 15

The SAS curve and the LAS curve
A)intersect at potential GDP.
B)are perpendicular to one another at potential GDP.
C)are parallel at potential GDP.
D)None of the above answers is correct.

Accepted Answer

The Short-Run Aggregate Supply (SAS) curve and the Long-Run Aggregate Supply (LAS) curve intersect at potential GDP, which represents the level of output an economy can produce at full employment.

Question 16

-In the above figure, the short- run aggregate supply curve is SAS₁. If the prices of resources fall, there is A)a shift to SAS₀. B)a shift to SAS₂. C)an upward movement along SAS₁. D)a downward movement along SAS₁.

Accepted Answer

A fall in resource prices reduces production costs, leading to an increase in aggregate supply, which shifts the short-run aggregate supply curve to the right, from SAS₁ to SAS₂.

Question 17

Which of the following events will increase long- run aggregate supply?
A)An advance in technology
B)An increase in resource prices
C)A decrease in expected profit
D)An increase in the interest rate

Accepted Answer

An advance in technology improves productivity and efficiency, leading to an increase in long-run aggregate supply.

Question 18

The long-run aggregate supply curve is ________ because along it, as prices rise, the money wage rate ________.
A)vertical; falls
B)upward- sloping; falls
C)vertical; rises
D)upward- sloping; stays constant

Accepted Answer

The long-run aggregate supply curve is vertical because it represents the economy's maximum sustainable output, which is not affected by changes in the price level. As prices rise, the money wage rate also rises to maintain real wages, keeping output constant.

Question 19

The long- run aggregate supply curve is vertical because
A)at full employment prices are stable.
B)there is no cyclical inflation.
C)the money wage rate increases faster than the price level.
D)potential GDP is independent of the price level.

Accepted Answer

The long-run aggregate supply curve is vertical because potential GDP is determined by factors such as technology and resources, which are not affected by changes in the price level.

Question 20

When the prices of Australian- produced goods rise and the prices of foreign- produced goods do not change, the result is
A)a decrease in imports.
B)an increase in exports.
C)a decrease in exports.
D)no change in imports or exports.

Accepted Answer

When the prices of Australian-produced goods rise, they become more expensive for foreign buyers, leading to a decrease in exports as demand falls.

Quiz 24: Aggregate Demand and Aggregate Supply

If the money wage and other resource prices do not change when the price level rises by 10 per cent, ________.

At long-run macroeconomic equilibrium, ________.

When real GDP exceeds potential GDP, then the economy has

-The curve labelled A in the above figure is a

The aggregate demand curve shows that, if other factors are held constant, a

If you have $5,000 in wealth and the price level decreases 20 per cent, then

Which of the following does NOT shift the aggregate demand curve?

People expect that the El Nino effect will cause drought in Australia in coming years. If most Australian firms expect that their profits will fall during the next five years, Australia's ________ this year.

The quantity of real GDP demanded equals $12.2 billion when the price level is 90. If the price level rises to 95, the quantity of real GDP demanded equals

A change in the money wage rate shifts

-In the above figure, which part corresponds to a destruction of part of the nation's capital stock?

When the price level rises, the long-run aggregate supply curve ________.

Which of the following shifts the aggregate demand curve rightward?

-In the above figure, curve A is the curve, curve B is the curve, and curve C is the curve.

The SAS curve and the LAS curve

-In the above figure, the short- run aggregate supply curve is SAS₁. If the prices of resources fall, there is

Which of the following events will increase long- run aggregate supply?

The long-run aggregate supply curve is because along it, as prices rise, the money wage rate .

The long- run aggregate supply curve is vertical because

When the prices of Australian- produced goods rise and the prices of foreign- produced goods do not change, the result is