Question 1

Everything else held constant,when output is ________ the natural rate level,wages will begin to ________,increasing short-run aggregate supply.
A) above; fall
B) above; rise
C) below; fall
D) below; rise

Accepted Answer

When output is below the natural rate level, wages will begin to fall, leading to a decrease in production costs and an increase in short-run aggregate supply.

Question 2

The total quantity of final goods and services offered for sale at different price levels is ________.
A) the aggregate supply curve
B) the aggregate demand curve
C) the 45° line
D) Both A and D of the above.

Accepted Answer

The total quantity of final goods and services offered for sale at different price levels is known as the aggregate supply curve. The aggregate demand curve represents the total quantity of final goods and services that buyers are willing to purchase at different price levels, while the 45° line represents the equilibrium point where aggregate demand equals aggregate supply. Therefore, choices B and C are not correct. Choice D is incorrect because Option D repeats Option A.

Question 3

What are the factors that can shift the aggregate demand curve to the right?

Accepted Answer

The answer of What are the factors that can shift...

Question 4

The aggregate supply curve is ________.
A) the total quantity of raw materials offered for sale at different prices
B) the total quantity of final goods and services offered for sale at the current price level
C) the total quantity of final goods and services offered for sale at different price levels
D) the total quantity of intermediate and final goods and service offered for sale at different price levels

Accepted Answer

The aggregate supply curve shows the total quantity of final goods and services that will be supplied at different price levels. This includes both consumer goods and investment goods. It does not include raw materials or intermediate goods, which are already included in the production of final goods and services.

Question 5

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 the economy produces when all its resources are fully employed. This is because in the long run, prices and wages are flexible and can adjust to changes in demand and supply, but the economy's production capacity is determined by factors such as technology, capital stock, and labor force size, that do not change in response to short-run fluctuations in output and prices. Therefore, the natural rate level of output represents the maximum sustainable level of production that the economy can achieve in the long run, and the LAS curve captures this potential output capacity. Choices A, B, and D are incorrect because they do not reflect the concept of the natural rate of output or the long-run behavior of the economy.

Question 6

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 natural levels. Therefore, it is primarily determined by the economy's underlying productivity and technology, which do not depend on changes in the price level or the level of demand in the short run. As a result, the long-run aggregate supply curve is a vertical line passing through the economy's natural rate of output, which is the level of output that can be sustained over the long term given the economy's available resources and technology.

Question 7

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. This rate includes frictional unemployment (due to normal turnover in the labor market) and structural unemployment (due to changes in the structure of the economy). It does not include cyclical unemployment (due to fluctuations in the business cycle).

Question 8

Economists believe the natural rate of unemployment is approximately ________ percent.
A) seven
B) six
C) five
D) four

Accepted Answer

The answer of Economists believe the natural rate of unemployment...

Question 9

Everything else held constant,an increase in the cost of production ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) increases; supply
D) decreases; supply

Accepted Answer

An increase in the cost of production would lead to a decrease in the supply of goods, as it becomes more expensive to produce them. This would result in a leftward shift of the supply curve, indicating a decrease in supply.

Question 10

The positively sloped short-run aggregate supply curve reflects the assumption that labour prices are ________.
A) more flexible than output prices
B) less flexible than output prices
C) fixed in the long run
D) perfectly flexible in both the short run and the long run

Accepted Answer

The positively sloped short-run aggregate supply curve reflects the assumption that labour prices are less flexible than output prices. This means that in the short run, output prices can adjust more quickly than wages or labor costs, leading to an increase in production and supply as prices rise.

Question 11

Some unemployment is always present due to the ________ and ________ components,which are greater than zero.
A) frictional; structural
B) frictional; cyclical
C) structural; cyclical
D) unvoluntary; frictional

Accepted Answer

Frictional unemployment occurs when workers are in-between jobs and looking for new employment. Structural unemployment occurs when there is a mismatch between the skills that workers have and the skills that are needed for available jobs. Both of these components are inherent in the labor market and therefore present even in times of full employment. Cyclical unemployment, on the other hand, is due to fluctuations in the economy and is not always present.

Question 12

Everything else held constant,a decrease in the cost of production ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) increases; supply
D) decreases; supply

Accepted Answer

A decrease in the cost of production will lead to an increase in supply, as it becomes more profitable for firms to produce and sell goods at the same price. This increased supply will result in a shift to the right of the supply curve, leading to a lower equilibrium price and a higher equilibrium quantity of goods. Therefore, a decrease in the cost of production increases aggregate supply.

Question 13

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

Accepted Answer

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

Question 14

The short-run aggregate supply curve is upward sloping because in the short run,costs of many factors that go into producing goods and services are ________,meaning that the price for a unit of output will ________ relative to input prices and the profit per unit will rise.
A) fixed; rise
B) fixed; fall
C) flexible; rise
D) flexible; fall

Accepted Answer

The answer of The short-run aggregate supply curve is upward...

Question 15

Why is the aggregate demand curve downward sloping?

Accepted Answer

The answer of Why is the aggregate demand curve downward...

Question 16

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

Accepted Answer

The aggregate supply curve depicts the relationship between the price level and the level of aggregate output supplied in an economy, holding constant other factors that influence production such as technology, input prices, and the amount of available capital and labor. As the price level increases, firms are willing to supply more output, ceteris paribus, because they can earn higher profits and cover higher costs. Conversely, if the price level falls, firms will reduce their production to avoid losses and idle resources. The aggregate supply curve can be upward sloping in the short run, when some input prices are sticky or fixed, causing firms to face different degrees of profit or loss depending on the overall price level. In the long run, the aggregate supply curve is usually vertical or close to it, meaning that changes in the price level do not affect the potential output of the economy, which is determined by the factors of production, technology, and institutions.

Question 17

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 18

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 and decreases consumer spending, which will ultimately result in a decrease in aggregate demand.

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

Planned investment spending is a component of aggregate demand, so an increase in planned investment spending would lead to an increase in aggregate demand. A, B, and D would all decrease aggregate demand.

Question 20

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, people have more disposable income to spend, which leads to an increase in consumption and investment spending, and thus an increase in aggregate demand. The other options given would lead to a decrease in aggregate demand.

Quiz 24: Aggregate Demand and Supply Analysis

Everything else held constant,when output is the natural rate level,wages will begin to ,increasing short-run aggregate supply.

The total quantity of final goods and services offered for sale at different price levels is ________.

What are the factors that can shift the aggregate demand curve to the right?

The aggregate supply curve is ________.

The long-run aggregate supply curve is ________.

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

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

Economists believe the natural rate of unemployment is approximately ________ percent.

Everything else held constant,an increase in the cost of production aggregate .

The positively sloped short-run aggregate supply curve reflects the assumption that labour prices are ________.

Some unemployment is always present due to the and components,which are greater than zero.

Everything else held constant,a decrease in the cost of production aggregate .

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

The short-run aggregate supply curve is upward sloping because in the short run,costs of many factors that go into producing goods and services are ,meaning that the price for a unit of output will relative to input prices and the profit per unit will rise.

Why is the aggregate demand curve downward sloping?

The aggregate supply curve shows the relationship between ________.

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.

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

Everything else held constant,aggregate demand increases when ________.

Everything else held constant,aggregate demand increases when ________.