Question 1

Everything else held constant,if workers expect an increase in inflation,________ aggregate supply ________.
A)long-run;increases
B)long-run;decreases
C)short-run;decreases
D)short-run;increases

Accepted Answer

When workers expect an increase in inflation, they typically anticipate higher future costs and may push for higher wages to compensate. This can lead to increased production costs for firms in the short run, which can decrease short-run aggregate supply as firms are less willing or able to produce at any given price level.

Question 2

The long-run rate of unemployment to which an economy always gravitates is the
A)normal rate of unemployment.
B)natural rate of unemployment.
C)neutral rate of unemployment.
D)inflationary rate of unemployment.

Accepted Answer

The natural rate of unemployment is the long-run rate of unemployment to which an economy always gravitates. It is the sum of frictional and structural unemployment, meaning it represents the unemployment rate that would exist in a perfectly functioning labor market.

Question 3

The aggregate supply curve shows the relationship between
A)the level of inputs and aggregate output.
B)the inflation rate and the level of inputs.
C)the wage rate and the level of employment.
D)the inflation rate and the level of aggregate output supplied.

Accepted Answer

The aggregate supply curve illustrates the relationship between the overall price level (often related to inflation) and the total quantity of goods and services that producers in an economy are willing to supply. Hence, it shows the connection between the inflation rate and the level of aggregate output supplied.

Question 4

Which of the followings does NOT shift the short-run aggregate supply curve?
A)supply shocks.
B)persistent positive output gap.
C)changes in expected inflation.
D)an increase in output gap.

Accepted Answer

An increase in output gap does not shift the short-run aggregate supply curve; it affects the position on the curve.

Question 5

The short-run aggregate supply curve shifts to the right when
A)output gap is higher.
B)output gap is lower.
C)expected inflation is higher.
D)expected inflation is lower.

Accepted Answer

The short-run aggregate supply curve shows the relationship between the price level and the quantity of output that firms are willing to produce in the short run. A rightward shift of the short-run aggregate supply curve signifies an increase in the quantity of output supplied at any given price level. This shift can be caused by a decrease in input prices, an increase in the quantity and quality of physical and human capital, or improvements in technology. This, in turn, reduces the cost of production and, therefore, increases the profitability of firms. Consequently, firms will be willing and able to produce more at any given price level. The shift to the right is not affected by output gap or expected inflation.

Question 6

Everything else held constant,aggregate demand increases when
A)taxes are cut.
B)government spending is reduced.
C)animal spirits decrease.
D)the money supply is reduced.

Accepted Answer

When taxes are cut, there is more money available for individuals and businesses to spend or invest, which leads to an increase in aggregate demand.

B) Government spending reduction typically leads to a decrease in aggregate demand. 
C) Animal spirits refer to the level of confidence and optimism among consumers and businesses. A decrease in animal spirits suggests a decrease in consumer and business confidence, which can lead to a decrease in aggregate demand.
D) A reduction in the money supply would typically lead to a decrease in aggregate demand since there is less money available for individuals and businesses to spend or invest.

Question 7

Which of the following increases aggregate supply in the short-run,everything else held constant?
A)an increase in the price of crude oil
B)a successful wage push by workers
C)expectations of a higher inflation
D)a technological improvement that increases worker productivity

Accepted Answer

A technological improvement increases worker productivity, which allows firms to produce more output with the same amount of inputs, thus increasing aggregate supply in the short-run. None of the other choices listed would increase aggregate supply in the short-run. A wage push by workers would increase costs for firms, leading to a decrease in aggregate supply. Expectations of higher inflation would lead to an increase in input costs, also decreasing aggregate supply. An increase in the price of crude oil would increase production costs for firms, also leading to a decrease in aggregate supply.

Question 8

The long-run aggregate supply curve shifts to the right when there is
A)an increase in the total amount of capital in the economy.
B)an increase in the available technology.
C)a decrease in the natural rate of unemployment.
D)A and B.
E)A,B,and C.

Accepted Answer

The long-run aggregate supply curve shifts to the right with an increase in the total amount of capital in the economy, an increase in available technology, and a decrease in the natural rate of unemployment. All these factors enhance the economy's productive capacity.

Question 9

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate. Be sure to discuss two channels through which changes in inflation rates affect demand.

Accepted Answer

The answer of Explain through the component parts of aggregate...

Question 10

The long-run aggregate supply curve shifts to the right when there is
A)a decrease in the total amount of capital in the economy.
B)a decrease in the total amount of labor supplied in the economy.
C)a decrease in the available technology.
D)a decline in the natural rate of unemployment.

Accepted Answer

A decline in the natural rate of unemployment leads to a larger pool of available workers for businesses to hire from, which increases the potential output of the economy, thereby shifting the long-run aggregate supply curve to the right. Options A, B, and C would all lead to a decrease in potential output and therefore shift the curve to the left.

Question 11

Everything else held constant,when actual output exceeds the natural rate of output ________ aggregate supply ________.
A)short-run;decreases
B)short-run;increases
C)long-run;increases
D)long-run;decreases

Accepted Answer

When actual output exceeds the natural rate of output in the short-run, firms may face higher input costs due to increased demand for their inputs. This can cause a decrease in aggregate supply, as firms are less willing/able to produce at higher costs. In the long-run, the natural rate of output adjusts to the higher actual output, resulting in an increase in aggregate supply.

Question 12

Assuming the economy is starting at the natural rate of output and everything else held constant,the effect of ________ in aggregate ________ is a rise in both inflation and output in the short-run,but in the long-run the only effect is a rise in inflation.
A)a decrease;supply
B)a decrease;demand
C)an increase;supply
D)an increase;demand

Accepted Answer

An increase in aggregate demand will lead to an increase in both inflation and output in the short run due to firms increasing production to meet the increased demand. However, in the long run, the economy will reach its natural rate of output and the only effect will be a rise in inflation. Therefore, choice D (an increase in demand) is the correct answer.

Question 13

The long-run aggregate supply curve is a vertical line passing through
A)the natural rate of output.
B)the natural-rate price level.
C)the actual rate of unemployment.
D)the expected rate of inflation.

Accepted Answer

The long-run aggregate supply curve represents the potential output of an economy when all factors of production are at their natural level. This means that the economy is producing at its maximum sustainable level and there is no cyclical unemployment. Therefore, in the long run, the aggregate supply curve is vertical and passes through the natural rate of output. Choices B, C, and D are incorrect because they do not represent the long-run aggregate supply curve.

Question 14

Everything else held constant,which of the following does NOT cause aggregate demand to increase?
A)an increase in net exports
B)an increase in government spending
C)an increase in taxes
D)an increase in consumer optimism

Accepted Answer

An increase in taxes would decrease disposable income and decrease consumption, leading to a decrease in aggregate demand.

Question 15

________ flexible wages and prices imply that the short-run aggregate supply curve is ________.
A)More;flatter
B)Less;steeper
C)Less;vertical
D)More;steeper

Accepted Answer

More flexible wages and prices imply that the short-run aggregate supply curve is steeper because firms can adjust wages and prices more quickly in response to changes in demand, leading to a more immediate effect on output.

Question 16

The aggregate supply curve is the total quantity of
A)raw materials offered for sale at different inflation rates.
B)final goods and services offered for sale at the current inflation rate.
C)final goods and services offered for sale at different inflation rates.
D)intermediate and final goods and service offered for sale at different inflation rates.

Accepted Answer

The aggregate supply curve represents the total quantity of final goods and services that firms in an economy are willing to sell at different price levels (inflation rates). It does not include raw materials or intermediate goods and services.

Question 17

The fact that an economy always returns to the natural rate level of output is known as
A)the excess demand hypothesis.
B)the price-adjustment mechanism.
C)the self-correcting mechanism.
D)the natural rate of unemployment.

Accepted Answer

The self-correcting mechanism refers to the fact that an economy always returns to the natural rate level of output in the long run, even after experiencing temporary shocks or deviations from this level of output. This is due to the adjustment of prices and wages that eventually lead to a restoration of equilibrium in the economy. The excess demand hypothesis refers to the idea that aggregate demand shocks can lead to persistent unemployment, while the price-adjustment mechanism is a part of the self-correcting mechanism that involves changes in relative prices in response to changes in supply and demand. The natural rate of unemployment refers to the level of unemployment that exists when the economy is producing at its potential output level.

Question 18

Everything else held constant,a change in workers' expectations about inflation will cause ________ to change.
A)aggregate demand
B)short-run aggregate supply
C)the production function
D)long-run aggregate supply

Accepted Answer

Workers' expectations about inflation will affect their wage demands. If workers expect higher inflation, they will demand higher wages to compensate for the expected loss of purchasing power. This increase in wages will lead to an increase in production costs, causing a shift in the short-run aggregate supply curve. Therefore, the correct answer is B, short-run aggregate supply.

Question 19

Everything else held constant,aggregate demand increases when
A)net exports decrease.
B)taxes increase.
C)planned investment spending increases.
D)the money supply decreases.

Accepted Answer

When planned investment spending increases, it leads to an increase in aggregate demand as businesses are increasing their output and contributing to overall economic growth.

Answer: A, D 
 A decrease in net exports would lead to an increase in aggregate demand, as there would be an increase in demand for domestically produced goods due to a decrease in imported goods. Similarly, a decrease in the money supply would lead to an increase in aggregate demand, as consumers and businesses would have less money to spend, and therefore would be more likely to spend it on goods and services, contributing to an overall increase in demand.  However, the question asks for a choice where everything else is held constant, so in reality, other factors may change as well, which could affect the overall impact.

Question 20

The long-run aggregate supply curve is
A)a vertical line through the non-inflationary rate of output.
B)a vertical line through the current level of output.
C)a vertical line through the natural rate level of output.
D)a horizontal line through the current level of output.

Accepted Answer

The long-run aggregate supply curve is a vertical line through the natural rate level of output, which is the level of output that can be sustained without increasing inflation in the long run. This is because in the long run, all input prices, including wages, adjust fully to changes in the overall price level, so firms are able to produce at their full, efficient capacity without experiencing cost-push inflation.

Quiz 22: Aggregate Demand and Supply Analysis

Everything else held constant,if workers expect an increase in inflation, aggregate supply .

The long-run rate of unemployment to which an economy always gravitates is the

The aggregate supply curve shows the relationship between

Which of the followings does NOT shift the short-run aggregate supply curve?

The short-run aggregate supply curve shifts to the right when

Everything else held constant,aggregate demand increases when

Which of the following increases aggregate supply in the short-run,everything else held constant?

The long-run aggregate supply curve shifts to the right when there is

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate. Be sure to discuss two channels through which changes in inflation rates affect demand.

The long-run aggregate supply curve shifts to the right when there is

Everything else held constant,when actual output exceeds the natural rate of output aggregate supply .

Assuming the economy is starting at the natural rate of output and everything else held constant,the effect of in aggregate is a rise in both inflation and output in the short-run,but in the long-run the only effect is a rise in inflation.

The long-run aggregate supply curve is a vertical line passing through

Everything else held constant,which of the following does NOT cause aggregate demand to increase?

flexible wages and prices imply that the short-run aggregate supply curve is .

The aggregate supply curve is the total quantity of

The fact that an economy always returns to the natural rate level of output is known as

Everything else held constant,a change in workers' expectations about inflation will cause ________ to change.

Everything else held constant,aggregate demand increases when

The long-run aggregate supply curve is