Question 1

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 2

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 3

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 4

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 that increases worker productivity will increase the efficiency of production, resulting in higher output levels and lower costs, increasing aggregate supply in the short-run. Option A is incorrect as it would increase costs of production and decrease aggregate supply. Option B and C are incorrect as they would increase production costs and decrease short-run aggregate supply.

Question 5

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 of the economy on the curve but does not shift the curve itself.

Question 6

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, also known as the equilibrium rate of unemployment, is the long-run rate of unemployment to which an economy gravitates. It is the level of unemployment at which there is no cyclical unemployment, only structural and frictional unemployment. This rate varies depending on factors such as labor market institutions, technology, and demographics.

Question 7

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 shows the relationship between the inflation rate and the level of aggregate output supplied. As the price level increases, producers are willing to supply more output in the short run as they can increase their profits. However, in the long run, the aggregate supply curve becomes vertical as the level of aggregate output supplied is determined by the economy's potential output or the level of inputs.

Question 8

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

According to the Phillips Curve, a rise in aggregate demand (option D) leads to a short-run increase in both inflation and output, but in the long-run, the economy moves back to the natural rate of output and the only effect is a rise in inflation. An increase in aggregate supply (option C) would lead to a long-run increase in output and a decrease in inflation. A decrease in either demand or supply (options A and B) would lead to a short-run decrease in both inflation and output.

Question 9

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

If workers expect that inflation will increase, they will demand higher wages to compensate for the expected increase in the cost of living. This will cause an increase in production costs and a leftward shift of the short-run aggregate supply curve. Conversely, if workers expect inflation to decrease, they will be willing to accept lower wage increases or even wage decreases, leading to a decrease in production costs and a rightward shift of the short-run aggregate supply curve.

Question 10

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 an economy can produce in the long run when all of its resources are fully employed. This level of output is independent of the price level and is determined by factors such as technology, population, and capital stock. Therefore, the long-run aggregate supply curve does not shift in response to changes in the price level, and it is a vertical line in the long run.

Question 11

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change

Accepted Answer

The answer of Suppose the economy is producing at the...

Question 12

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 economy's potential output when all factors of production are utilized at their normal or natural rates. Therefore, in the long run, the aggregate supply curve is vertical at the economy's potential output level or the "natural rate of output." The other options (B, C, D) are not necessarily fixed or determined by the normal state of the economy's factors of production, and thus cannot define the long-run aggregate supply curve in the same way.

Question 13

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 reduces disposable income, which then reduces consumption expenditure. Therefore, it does not cause aggregate demand to increase.

Question 14

________ 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

Flexible wages and prices mean that the economy can adjust more quickly to changes, leading to a steeper short-run aggregate supply curve as output responds more to price changes.

Question 15

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 is the idea that an economy will always return to its natural rate level of output, which includes the natural rate of unemployment. This is because any deviations from this level will result in price and wage adjustments that will eventually bring the economy back to its natural state. The excess demand hypothesis is not a recognized theory, and the price-adjustment mechanism is a part of the self-correcting mechanism.

Question 16

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause ________ in the unemployment rate in the long run and ________ in inflation in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) no change; a decrease
D) no change; no change

Accepted Answer

If the economy is producing at the natural rate of output, then there is no cyclical unemployment. With the development of new, more productive technology, the economy will shift to a higher natural rate of output in the long run, which means the natural rate of unemployment will decrease. However, in the short run, there may be some adjustment costs associated with the transition to the new technology, which could lead to a temporary decrease in the demand for labor and modestly lower inflation. Overall, there will be no change in the long-run inflation rate. Therefore, the correct answer is C: no change in unemployment and a decrease in inflation in the short run.

Question 17

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 shows the total quantity of final goods and services that firms are willing to produce and offer for sale at different price levels (which can be interpreted as different inflation rates). Therefore, choice C is the correct answer. Choices A, B, and D do not accurately describe what the aggregate supply curve represents.

Question 18

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

The long-run aggregate supply is affected by changes in the natural rate of unemployment, which is the lowest possible rate of unemployment that an economy can achieve given its available resources. A decline in the natural rate of unemployment means that there is a larger pool of available workers, which in turn increases the total amount of labor supplied in the economy, leading to a rightward shift in the long-run aggregate supply curve. A decrease in the total amount of capital in the economy or the available technology would decrease the economy's potential output, leading to a leftward shift in the long-run aggregate supply curve.

Question 19

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 level of output produced by firms in the short run. When expected inflation is lower, firms may be willing to produce more output at any given price level, as they do not anticipate having to increase their prices as much in the future. This results in a rightward shift of the short-run aggregate supply curve.

Question 20

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, the economy is operating above its potential and there is upward pressure on prices. This means that firms are facing higher costs of production, which will lead to a decrease in aggregate supply in the short-run. In the long-run, however, the natural rate of output will adjust upward to the new level of actual output, resulting in an increase in aggregate supply.

Quiz 22: Aggregate Demand and Supply Analysis

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,if workers expect an increase in inflation, aggregate supply .

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

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

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

The aggregate supply curve shows the relationship between

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.

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

The long-run aggregate supply curve is

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause in the unemployment rate in the short run and in inflation in the short run.

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

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant,the development of a new,more productive technology will cause in the unemployment rate in the long run and in inflation in the short run.

The aggregate supply curve is the total quantity of

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

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

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