Question 1

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

Accepted Answer

The long-run aggregate supply curve is vertical because it represents a point where the economy is at its full employment level, and output is not affected by the price level. As prices rise, the money wage rate also rises to maintain the purchasing power of wages, keeping the quantity of goods and services supplied constant in the long run.

Question 2

The quantity of real GDP supplied depends on the
A) level of aggregate demand.
B) quantity of capital, bonds, and stocks.
C) quantity of labor, the quantity of capital, and the state of technology.
D) price level, the unemployment rate, and the quantity of government expenditures on goods and services.

Accepted Answer

The quantity of real GDP supplied is determined by the factors of production available in the economy, which include the quantity of labor, the quantity of capital, and the state of technology. These factors influence the economy's productive capacity.

Question 3

An aggregate supply curve depicts the relationship between
A) the price level and the quantity of nominal GDP supplied.
B) household expenditures and household income.
C) the price level and the quantity of real GDP supplied.
D) the money wage rate and the quantity of real GDP supplied.

Accepted Answer

The aggregate supply curve shows the relationship between the price level and the quantity of real GDP that firms are willing to produce and sell, with all other factors being held constant.

Question 4

The long-run aggregate supply curve illustrates the
A) relationship between the price level and real GDP when the economy is at full employment.
B) relationship between the price level and real GDP when the economy is at zero unemployment.
C) amount of products producers offer at various prices when money wages and other resource prices are fixed.
D) surpluses, shortages and equilibrium level of GDP.

Accepted Answer

The long-run aggregate supply curve illustrates the relationship between the price level and real GDP when the economy is at full employment, not necessarily at zero unemployment, as it accounts for natural unemployment. It is vertical because it represents the economy's potential output independent of the price level, unlike the short-run aggregate supply curve which can slope upwards due to fixed wages and other costs.

Question 5

For movements along the long-run aggregate supply curve
A) potential GDP is dependent on the price level.
B) the prices of goods and services change while the prices of productive resources hold steady.
C) the price level and the money wage rate change by the same percentage.
D) All of the above answers are correct.

Accepted Answer

Movements along the long-run aggregate supply curve imply that the price level and the money wage rate change by the same percentage, keeping the real wage constant and allowing full employment output (or potential GDP) to remain unchanged.

Question 6

In the macroeconomic long run
A) real GDP equals potential GDP.
B) the economy is at full employment.
C) regardless of the price level, the economy is producing at potential GDP.
D) All of the above are correct.

Accepted Answer

In the macroeconomic long run, real GDP equals potential GDP, the economy is at full employment, and regardless of the price level, the economy is producing at potential GDP. These conditions reflect an economy operating at its full capacity, which is why all of the given statements are correct.

Question 7

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

Accepted Answer

The long-run aggregate supply curve is vertical because potential GDP is independent of the price level, indicating that in the long run, the total output of an economy is determined by its resources, technology, and institutions, not by the price level.

Question 8

We distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve. In the long run
A) technology is fixed but it is not in the short run.
B) the price level is constant but in the short run it fluctuates.
C) the aggregate supply curve is horizontal while in the short run it is upward sloping.
D) real GDP equals potential GDP.

Accepted Answer

In the long run, real GDP equals potential GDP, reflecting the economy's full employment output when all factors of production are used efficiently. This contrasts with the short-run aggregate supply curve, where real GDP can deviate from potential GDP due to price level fluctuations and other short-term factors.

Question 9

In the macroeconomic long run
A) real GDP is always below potential GDP.
B) there is full employment with no unemployment.
C) output always is above potential GDP.
D) there is full employment, and real GDP is equal to potential GDP.

Accepted Answer

In the macroeconomic long run, the economy is expected to operate at full employment, where real GDP equals potential GDP, reflecting an equilibrium state without cyclical unemployment.

Question 10

In the macroeconomic short run
A) actual real GDP may be less than or more than potential GDP.
B) the unemployment rate is zero.
C) by definition, the economy is always moving away from full employment.
D) actual real GDP always equals potential GDP.

Accepted Answer

In the short run, actual real GDP can fluctuate above or below potential GDP due to business cycles, demand shifts, and other economic factors, unlike options B, C, and D which do not accurately describe short-run macroeconomic conditions.

Question 11

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

Accepted Answer

The long-run aggregate supply curve is vertical, indicating that in the long run, the total output of an economy is not affected by the price level. Therefore, when the price level rises, the long-run aggregate supply curve does not shift.

Question 12

The long-run aggregate supply curve is
A) horizontal at the full-employment price level.
B) vertical at the full-employment level of real GDP.
C) upward sloping because of the effects of price level changes on real GDP.
D) the same as the short-run aggregate supply curve.

Accepted Answer

The long-run aggregate supply curve is vertical at the full-employment level of real GDP, indicating that in the long run, the total output of an economy is determined by its resources, technology, and institutions, and is not affected by changes in the price level.

Question 13

An aggregate supply curve depicts the relationship between
A) the price level and nominal GDP.
B) household expenditures and household income.
C) the price level and the aggregate quantity supplied.
D) the price level and the aggregate quantity demanded.

Accepted Answer

The aggregate supply curve shows the relationship between the overall price level in an economy and the total quantity of goods and services that producers are willing to supply. It reflects how much output producers are willing to create and sell at different price levels.

Question 14

Which of the following statements is TRUE?
A) The long-run aggregate supply curve is upward sloping.
B) The long-run aggregate demand curve is upward sloping.
C) The short-run aggregate supply curve is vertical.
D) The long-run aggregate supply curve is vertical.

Accepted Answer

In the long run, all factors of production are variable, which means that the economy can adjust to full employment and there are no fixed costs. Therefore, the long-run aggregate supply curve is vertical at the potential output level, indicating that changes in the price level do not impact the overall level of output.

Question 15

The long-run aggregate supply curve is the relationship between the quantity of real GDP supplied and ________ when ________.
A) the price level; real GDP equals potential GDP
B) real GDP demanded; the wage rate is constant
C) the price level; real GDP equals nominal GDP
D) real GDP demanded; the price level does not change

Accepted Answer

The long-run aggregate supply curve shows the relationship between the quantity of real GDP supplied and the price level when real GDP equals potential GDP, indicating the economy's maximum sustainable output level without causing inflation.

Question 16

When the labor market is at full employment
A) real GDP equals potential GDP.
B) the price level is stable.
C) the price level equals the potential price level.
D) the short run aggregate supply curve is horizontal.

Accepted Answer

When the labor market is at full employment, real GDP equals potential GDP, indicating that the economy is producing at its maximum sustainable output without increasing inflation. Choices B, C, and D do not necessarily hold true in this scenario.

Question 17

When talking about aggregate supply, it is necessary to
A) focus on the short run.
B) focus on the long run.
C) distinguish between long-run aggregate supply and short-run aggregate supply.
D) distinguish between long-run full employment and short-run full employment.

Accepted Answer

Distinguishing between long-run aggregate supply (LRAS) and short-run aggregate supply (SRAS) is crucial because they are affected by different factors and have different implications for the economy. LRAS reflects the economy's maximum sustainable output level, determined by resources, technology, and institutions, while SRAS can fluctuate due to temporary supply shocks or demand changes.

Question 18

The long-run aggregate supply (LAS) curve
A) has a positive slope.
B) has a negative slope.
C) is vertical.
D) is horizontal.

Accepted Answer

The long-run aggregate supply (LAS) curve is vertical because it represents the real GDP of an economy when all resources are fully employed, and it is unaffected by the price level in the long run.

Question 19

The supply of real GDP is a function of
A) the total expenditures of consumers, investors and government.
B) the sum of wages, salaries, corporate profits, rents and interest.
C) only the state of technology.
D) the quantities of labor, capital and the state of technology.

Accepted Answer

The supply of real GDP is determined by the factors of production available in the economy, which include the quantities of labor and capital, as well as the state of technology. These elements influence the economy's productive capacity and thus its supply of goods and services.

Question 20

In the long run
A) the aggregate supply curve is upward sloping.
B) real GDP is equal to potential GDP.
C) aggregate supply depends on the price level.
D) All of the above answers are correct.

Accepted Answer

In the long run, real GDP is equal to potential GDP, reflecting the economy's full employment output independent of the price level. This is why the long-run aggregate supply curve is vertical, not upward sloping, and does not depend on the price level.

Quiz 10: Aggregate Supply and Aggregate Demand

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

The quantity of real GDP supplied depends on the

An aggregate supply curve depicts the relationship between

The long-run aggregate supply curve illustrates the

For movements along the long-run aggregate supply curve

In the macroeconomic long run

The long-run aggregate supply curve is vertical because

We distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve. In the long run

In the macroeconomic long run

In the macroeconomic short run

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

The long-run aggregate supply curve is

An aggregate supply curve depicts the relationship between

Which of the following statements is TRUE?

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

When the labor market is at full employment

When talking about aggregate supply, it is necessary to

The long-run aggregate supply (LAS) curve

The supply of real GDP is a function of

In the long run