Question 1

An increase in the price level and a reduction in output would result from
A) an increase in the money supply.
B) an increase in government expenditures.
C) a fall in stock prices.
D) bad weather in farm states.

Accepted Answer

Bad weather in farm states would reduce the output of agricultural goods, leading to a decrease in aggregate supply. This, in turn, would lead to an increase in the price level and a reduction in output, as the economy moves up along the aggregate demand curve. The other options do not necessarily lead to both an increase in the price level and a reduction in output.

Question 2

The economic boom of the early 1940s resulted mostly from
A) increased government expenditures.
B) falling prices of oil and other natural resources.
C) an increase in the growth rate of the money supply.
D) rapid developments in transportation,electronics,and communication.

Accepted Answer

The economic boom of the early 1940s was largely the result of increased government expenditures related to World War II, such as military spending and the production of war materials. This increased government spending led to a surge in demand for goods and services, creating jobs and stimulating economic growth.

Question 3

Other things the same,an increase in the expected price level shifts
A) short-run aggregate supply right.
B) short-run aggregate supply left.
C) aggregate-demand right.
D) aggregated-demand left.

Accepted Answer

The answer of Other things the same,an increase in the...

Question 4

A decrease in the availability of an important major resource such as oil shifts
A) aggregate supply right.
B) aggregate supply left.
C) aggregate demand right.
D) aggregate demand left.

Accepted Answer

A decrease in the availability of an important major resource such as oil would cause a decrease in production which in turn would cause a leftward shift in aggregate supply.

Question 5

Suppose that during World War II the long-run aggregate supply curve shifted right.In order for price and output to have changed in the direction they did,what would have to have happened to aggregate demand?
A) It would have to have shifted left by less than aggregate supply shifted
B) It would have to have to shifted left by more than aggregate supply shifted.
C) It would have to have shifted right by less than aggregate supply shifted
D) It would have to have to shifted right by more than aggregate supply shifted.

Accepted Answer

A rightward shift in the long-run aggregate supply curve implies an increase in potential output due to factors such as technological progress or an increase in the quantity and quality of resources. If aggregate demand had also shifted right by more than the shift in aggregate supply, both prices and output would have increased. However, the question specifically asks for a scenario in which output and price increased, but it is not clear by how much. Therefore, the best answer is A, which implies that aggregate demand shifted left by some amount, but not enough to fully offset the increase in aggregate supply. This would result in an increase in output and a decrease in price, consistent with the rightward shift in the long-run aggregate supply curve.

Question 6

Stagflation exists when prices
A) and output rise.
B) rise and output falls.
C) fall and output rises.
D) and output fall.

Accepted Answer

Stagflation is a condition where there is a combination of inflation (rise in prices) and stagnation (fall in output or economic growth). Option B correctly describes this condition.

Question 7

Suppose a shift in aggregate demand creates an economic contraction.If policymakers can respond with sufficient speed and precision,they can offset the initial shift by shifting
A) aggregate supply right.
B) aggregate supply left.
C) aggregate demand right.
D) aggregate demand left.

Accepted Answer

If there is a shift in aggregate demand that leads to an economic contraction, the best response for policymakers would be to shift aggregate demand right to counteract the initial shift. This can be done through policies such as increasing government spending or cutting taxes, which would stimulate consumer and business spending and increase demand for goods and services. Shifting aggregate supply right would not be effective in this situation since it would only increase the quantity of goods and services supplied, not the demand for them. Similarly, shifting aggregate supply left would only exacerbate the economic contraction by reducing the quantity of goods and services supplied. Shifting aggregate demand left would also be counterproductive in this situation since it would further decrease demand and worsen the economic contraction.

Question 8

Which of the following shifts short-run aggregate supply left?
A) an increase in price expectations
B) an increase in the actual price level
C) a decrease in the money supply
D) a decrease in the price of oil

Accepted Answer

The answer of Which of the following shifts short-run aggregate...

Question 9

Which of the following would cause stagflation?
A) aggregate demand shifts right
B) aggregate demand shifts left
C) aggregate supply shifts right
D) aggregate supply shifts left

Accepted Answer

Stagflation is a situation in which a combination of inflationary pressures and stagnant economic growth exists. This is caused by a decrease in aggregate supply, or a leftward shift in the aggregate supply curve, leading to higher prices and lower output.

Question 10

The short-run effects of an increase in the expected price level include
A) a lower level of output and a lower price level.
B) a lower level of output and a higher price level.
C) a higher level of output and a lower price level.
D) a higher level of output and a higher price level.

Accepted Answer

An increase in the expected price level signals that prices are likely to rise in the future, which causes suppliers to increase their output in the short run to take advantage of the higher prices. However, this increase in output is not sustainable in the long run, as resources are limited, and eventually, prices will rise, causing a decrease in output. In the short run, the increase in output leads to a higher demand for resources and causes prices to increase as well. Therefore, a short-run effect of an increase in the expected price level is a lower level of output and a higher price level.

Question 11

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left.If there is no policy response,then eventually
A) because unemployment is low wages will be bid up and short-run aggregate supply will shift right.
B) because unemployment is low wages will be bid down and short-run aggregate supply will shift right.
C) because unemployment is high wages will be bid up and short-run aggregate supply will shift right.
D) because unemployment is high wages will be bid down and short-run aggregate supply will shift right.

Accepted Answer

When there is an increase in the costs of production, firms face higher input costs which reduces their profitability. In response, firms reduce their production and employment which increases unemployment rates. Since unemployment is high, workers will be willing to accept lower wages in order to secure a job. This reduces the costs of production for firms and shifts the short-run aggregate supply curve rightward. Therefore, the correct answer is D - because unemployment is high wages will be bid down and short-run aggregate supply will shift right.

Question 12

If there are floods or droughts or a decrease in the availability of raw materials
A) aggregate supply shifts right.
B) output falls in the short run.
C) prices fall in the short run.
D) None of the above is correct.

Accepted Answer

Floods or droughts can disrupt production and decrease the availability of raw materials, leading to a decrease in output in the short run. Prices may also rise due to scarcity, but this is not always the case. Aggregate supply shifts right when there is an increase in production potential, which is not the case in this scenario.

Question 13

Which of the following would cause prices to rise and real GDP to fall in the short run?
A) an increase in the expected price level
B) an increase in the capital stock
C) an increase in the quantity of labor available
D) All of the above are correct.

Accepted Answer

An increase in the expected price level would cause producers to raise their prices, leading to inflation. In the short run, if wages and other input costs do not adjust immediately, this could lead to firms producing less and real GDP falling. An increase in the capital stock or the quantity of labor available would typically lead to an increase in real GDP, not a fall.

Question 14

Which of the following would raise the price level in both the short and long run?
A) an increase in taxes
B) an increase in government expenditures
C) a decrease in the minimum wage
D) an increase in the capital stock

Accepted Answer

An increase in government expenditures would shift the aggregate demand curve to the right, causing an increase in both the price level and output in the short run. In the long run, however, the increase in spending would cause an increase in wages and input prices, eventually causing the short-run aggregate supply curve to shift to the left, raising the price level but reducing output to the initial level.

Question 15

An increase in the price level and a reduction in output would result from
A) a fall in stock prices.
B) natural disasters such as hurricanes,floods,and droughts.
C) declining government expenditures.
D) tax rebates.

Accepted Answer

Natural disasters can disrupt production and supply chains, leading to a decrease in output. At the same time, the demand for goods and services may remain constant or increase, leading to an increase in the price level. The other choices do not necessarily lead to a reduction in output and an increase in the price level.

Question 16

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift
A) aggregate supply to the right.
B) aggregate supply to the left.
C) aggregate demand to the right.
D) aggregate demand to the left.

Accepted Answer

If policymakers want to offset the effects on output of an economic contraction caused by a shift in aggregate supply, they must shift aggregate demand to the right. This will increase demand and push the economy back towards full employment. Shifting aggregate supply to the right would be useful if there were a shortage of goods and services, but a contraction in supply has already occurred in this scenario. Shifting aggregate supply to the left or aggregate demand to the left would only worsen the economic contraction.

Question 17

When production costs rise,
A) the short-run aggregate supply curve shifts to the right.
B) the short-run aggregate supply curve shifts to the left.
C) the aggregate demand curve shifts to the right.
D) the aggregate demand curve shifts to the left.

Accepted Answer

When production costs rise, it becomes more expensive for firms to produce goods and services. As a result, the short-run aggregate supply curve shifts to the left indicating a decrease in the quantity of goods and services supplied at any given price level.

Question 18

In the short-run an increase in the costs of production makes
A) output and prices rise.
B) output rise and prices fall.
C) output fall and prices rise.
D) output and prices fall.

Accepted Answer

An increase in the costs of production would result in a decrease in the supply of goods and services, leading to a decrease in output. This would cause an increase in the price of goods and services, as the demand for them has not decreased. Therefore, output would fall and prices would rise.

Question 19

Which of the following would cause stagflation?
A) rising government expenditures
B) rising oil prices
C) a falling money supply
D) technical progress

Accepted Answer

Rising oil prices can cause both inflation (due to higher production costs and increased demand for alternative energy sources) and a slowdown in economic growth (due to reduced consumer purchasing power and reduced business investment). This combination of inflation and stagnation is known as stagflation. None of the other options listed would necessarily cause stagflation.

Question 20

Which of the following will reduce the price level and real output in the short run?
A) an increase in the money supply
B) an increase in oil prices
C) a decrease in the money supply
D) technical progress

Accepted Answer

The answer of Which of the following will reduce the...

Quiz 33: Aggregate Demand and Aggregate Supply

An increase in the price level and a reduction in output would result from

The economic boom of the early 1940s resulted mostly from

Other things the same,an increase in the expected price level shifts

A decrease in the availability of an important major resource such as oil shifts

Suppose that during World War II the long-run aggregate supply curve shifted right.In order for price and output to have changed in the direction they did,what would have to have happened to aggregate demand?

Stagflation exists when prices

Suppose a shift in aggregate demand creates an economic contraction.If policymakers can respond with sufficient speed and precision,they can offset the initial shift by shifting

Which of the following shifts short-run aggregate supply left?

Which of the following would cause stagflation?

The short-run effects of an increase in the expected price level include

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left.If there is no policy response,then eventually

If there are floods or droughts or a decrease in the availability of raw materials

Which of the following would cause prices to rise and real GDP to fall in the short run?

Which of the following would raise the price level in both the short and long run?

An increase in the price level and a reduction in output would result from

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

When production costs rise,

In the short-run an increase in the costs of production makes

Which of the following would cause stagflation?

Which of the following will reduce the price level and real output in the short run?