Question 1

An aggregate supply curve represents the relationship between the

Accepted Answer

An aggregate supply curve represents the relationship between the price level and the production of real domestic output. In other words, it shows how much producers are willing to supply at different price levels.

Question 2

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of

Accepted Answer

A sharp rise in the real value of stock prices would increase the real value of consumer wealth, leading to increased spending and higher aggregate demand. This is an example of the real-balances effect, as it pertains to the purchasing power of consumers' wealth. The interest-rate effect involves changes in borrowing costs affecting investment and consumption, while a change in excess capacity would affect the level of output and prices.

Question 3

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.Which of the factors best explain the downward slope of aggregate demand curve?

Accepted Answer

The downward slope of the aggregate demand curve is best explained by the wealth effect (1), the interest rate effect (3), and the exchange rate effect (8). These factors describe how changes in the price level affect consumption, investment, and net exports, leading to a downward-sloping aggregate demand curve.

Question 4

When national income in other nations decreases, aggregate demand in our economy

Accepted Answer

When national income in other nations decreases, their ability to purchase goods from our economy will decrease, leading to a decrease in our exports and a reduction in aggregate demand in our economy. This is because our exports are a component of our aggregate demand. Therefore, option B is the correct answer.

Question 5

The upward slope of the short-run aggregate supply curve is based on the assumption that

Accepted Answer

The upward slope of the short-run aggregate supply curve assumes that wages and other resource prices are sticky and do not immediately respond to changes in the price level, allowing firms to increase output when prices rise.

Question 6

A fall in the prices of inputs will shift the aggregate

Accepted Answer

A fall in the prices of inputs reduces production costs, leading to an increase in supply, which shifts the aggregate supply curve rightward.

Question 7

The long-run aggregate supply analysis assumes that

Accepted Answer

In the long-run aggregate supply analysis, both input and product prices are variable, allowing the economy to adjust to its full employment level of output.

Question 8

The short-run aggregate supply curve shows the

Accepted Answer

The short-run aggregate supply curve illustrates a direct relationship between the price level and the quantity of goods and services that firms are willing to produce. As prices increase, firms are typically willing to produce and supply more, reflecting an expansion in production due to the higher profitability of selling goods and services at higher prices.

Question 9

Changes in which of the following would not shift the aggregate demand curve?

Accepted Answer

Changes in productivity rates may affect the aggregate supply curve, but not the aggregate demand curve. The other options listed are factors that would shift the aggregate demand curve, as they directly affect consumer spending and investment.

Question 10

The short-run aggregate supply curve

Accepted Answer

In the short run, as output exceeds full-employment levels, resources become scarce, leading to higher costs and prices, making the aggregate supply curve steeper.

Question 11

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.A change in net export spending would most likely be caused by changes in

Accepted Answer

The answer of Degree of Excess Capacity Answer the question...

Question 12

Which combination of factors would most likely increase aggregate demand?

Accepted Answer

An increase in consumer wealth and a decrease in interest rates would likely increase aggregate demand, as consumers have more purchasing power and borrowing becomes cheaper, encouraging spending and investment.

Question 13

The slope of the immediate-short-run aggregate supply curve is based on the assumption that

Accepted Answer

In the immediate-short-run, both input and output prices are assumed to be fixed, leading to a horizontal aggregate supply curve.

Question 14

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.Changes in which two of the factors would most likely cause a shift in aggregate demand due to a change in consumer spending?

Accepted Answer

The answer of Degree of Excess Capacity Answer the question...

Question 15

The immediate-short-run aggregate supply curve is

Accepted Answer

The immediate-short-run aggregate supply curve is horizontal because in the short run, firms can adjust their output levels without changing their input prices. Therefore, regardless of the level of aggregate demand, the level of output supplied remains the same.

Question 16

The short-run version of aggregate supply assumes that

Accepted Answer

In the short-run aggregate supply, product prices are flexible, allowing firms to adjust prices based on demand, while resource prices (like wages) are often fixed due to contracts and other rigidities.

Question 17

The long-run aggregate supply curve is

Accepted Answer

The long-run aggregate supply curve is vertical because, in the long run, the economy's output is determined by factors such as technology and resources, not by the price level.

Question 18

The version of aggregate supply that allows for changes in both product prices and resource prices is the

Accepted Answer

In the long run, both product prices and resource prices are flexible, allowing for adjustments in response to changes in demand or supply. This contrasts with the short run, where some prices might be sticky or fixed.

Question 19

Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve.Investment spending would most likely be influenced by changes in

Accepted Answer

Investment spending is influenced by factors such as interest rates (5) and business expectations (10), as these affect the cost of borrowing and the anticipated return on investment.

Question 20

The labels for the axes of an aggregate supply curve should be

Accepted Answer

The vertical axis of the aggregate supply curve represents real domestic output, while the horizontal axis represents the price level. This is because the aggregate supply curve shows the level of output that firms are willing to produce at each given price level.

Quiz 32: Aggregate Demand and Aggregate Supply