Question 1

If output is below the natural rate, explain why it would automatically fall through changes in the labor market.

Accepted Answer

The answer of If output is below the natural rate,...

Question 2

A loose labor market occurs when output is _____ the natural rate.
A) above
B) below
C) equal to
D) none of the above

Accepted Answer

A loose labor market occurs when output is below the natural rate, leading to higher unemployment as the demand for labor decreases.

Question 3

Why is the theory of aggregate demand and supply attractive?

Accepted Answer

The answer of Why is the theory of aggregate demand...

Question 4

Show the short-run effect of a currency depreciation on an AS-AD graph.

Accepted Answer

The answer of Show the short-run effect of a currency...

Question 5

Which of the following is NOT a step on the growth diamond?
A) public education
B) open access entrepreneurship
C) modern financial system
D) They are all steps on the growth diamond.

Accepted Answer

Public education is not a step on the growth diamond. The growth diamond is a model of economic development that identifies four key factors that contribute to economic growth: open access entrepreneurship, a modern financial system, and a sound legal system.

Question 6

An increase in net exports would involve a short-run shift in ____ and a long-run shift in
A) AD, AD.
B) AD, AS.
C) AS, AD.
D) AS, AS.

Accepted Answer

In the short run, an increase in net exports raises aggregate demand (AD) because it means more foreign demand for a country's goods and services. In the long run, this can lead to an increase in aggregate supply (AS) as firms increase capacity to meet the higher demand.

Question 7

Show (and explain) the short- and long-run effects of a decrease in the money supply, on a graph of AS and AD, starting at the natural rate of output. Is money neutral?

Accepted Answer

The answer of Show (and explain) the short- and long-run...

Question 8

When taxes go up, AD
A) moves to the left.
B) moves to the right.
C) achieves equilibrium.
D) none of the above.

Accepted Answer

When taxes increase, disposable income decreases, leading to a reduction in consumer spending. This decrease in spending causes the Aggregate Demand (AD) curve to shift to the left.

Question 9

Which of the following is a step on the growth diamond?
A) modern financial system
B) effective management
C) non-predatory government
D) all of the above

Accepted Answer

The growth diamond model includes all these elements: a modern financial system, effective management, and a non-predatory government, as essential components for economic development.

Question 10

The 1990s saw high growth with low inflation. Give a possible explanation that would result in higher equilibrium output with a lower equilibrium price level on an AS-AD graph.

Accepted Answer

The answer of The 1990s saw high growth with low...

Question 11

Farms of white farmers in Zimbabwe were recently confiscated. What does this suggest about Zimbabwe progress along the growth diamond?

Accepted Answer

The answer of Farms of white farmers in Zimbabwe were...

Question 12

According to the quantity theory of money, how would a decrease in velocity affect AD?
A decrease in V would require a lower Y for any given level of P (or vice versa), so AD would shift to the left (down).

Accepted Answer

The answer of According to the quantity theory of money,...

Question 13

A negative supply shock
A) increases production.
B) decreases production.
C) has no impact on production.
D) none of the above.

Accepted Answer

A negative supply shock typically decreases production by increasing the costs of inputs or by some other means, making it more difficult or expensive to produce goods and services.

Question 14

A permanent improvement in productivity would mean a shift in
A) AD.
B) AS.
C) ASL.
D) all of the above.

Accepted Answer

The answer of A permanent improvement in productivity would mean...

Question 15

Changes in what could affect the natural rate of output?

Accepted Answer

The answer of Changes in what could affect the natural...

Question 16

An increase in inflation expectations would involve a short-run shift in ____ and a long-run shift in
A) AD, AD.
B) AD, AS.
C) AS, AD.
D) AS, AS.

Accepted Answer

The answer of An increase in inflation expectations would involve...

Question 17

If unemployment is exceptionally low, wages would be expected to _____, shifting AS to the
A) rise, right.
B) rise, left.
C) fall, right.
D) fall, left.

Accepted Answer

When unemployment is exceptionally low, it typically leads to an increase in wages as employers compete for a smaller pool of available workers. This increase in wages raises the cost of production for companies, which can lead to a decrease in the aggregate supply (AS), shifting the AS curve to the left.

Question 18

What are the four major steps on the growth diamond?

Accepted Answer

The answer of What are the four major steps on...

Question 19

An activist response to a recession would involve a shift in
A) AD.
B) short-run AS.
C) long-run AS.
D) none of the above.

Accepted Answer

An activist response to a recession typically involves measures to increase aggregate demand (AD), such as fiscal stimulus or monetary easing, to counteract the downturn.

Quiz 23: Aggregate Supply and Demand and the Growth Diamond

If output is below the natural rate, explain why it would automatically fall through changes in the labor market.

A loose labor market occurs when output is _____ the natural rate.

Why is the theory of aggregate demand and supply attractive?

Show the short-run effect of a currency depreciation on an AS-AD graph.

Which of the following is NOT a step on the growth diamond?

An increase in net exports would involve a short-run shift in ____ and a long-run shift in

Show (and explain) the short- and long-run effects of a decrease in the money supply, on a graph of AS and AD, starting at the natural rate of output. Is money neutral?

When taxes go up, AD

Which of the following is a step on the growth diamond?

The 1990s saw high growth with low inflation. Give a possible explanation that would result in higher equilibrium output with a lower equilibrium price level on an AS-AD graph.

Farms of white farmers in Zimbabwe were recently confiscated. What does this suggest about Zimbabwe progress along the growth diamond?

According to the quantity theory of money, how would a decrease in velocity affect AD? A decrease in V would require a lower Y for any given level of P (or vice versa), so AD would shift to the left (down).

A negative supply shock

A permanent improvement in productivity would mean a shift in

Changes in what could affect the natural rate of output?

An increase in inflation expectations would involve a short-run shift in ____ and a long-run shift in

If unemployment is exceptionally low, wages would be expected to _____, shifting AS to the

What are the four major steps on the growth diamond?

An activist response to a recession would involve a shift in