Question 1

Real GDP definitely increases if
A) both the AD curve and the AS curve shift rightward.
B) both the AD curve and AS curve shift leftward.
C) the AD curve shifts leftward and the AS curve shifts rightward.
D) the AS curve shifts leftward and the AD curve does not shift.
E) potential GDP decreases so that real GDP exceeds potential GDP.

Accepted Answer

When both the AD (aggregate demand) and AS (aggregate supply) curves shift rightward, it indicates an increase in both demand and supply in the economy. As a result, both prices and output increase, causing real GDP to increase as well.

Question 2

Which of the following could result in a recession?
A) a rise in the price of oil
B) an increase in investment
C) a tax cut
D) an increase in the quantity of money
E) an increase in government expenditures on goods and services

Accepted Answer

A rise in the price of oil can increase production costs for businesses and reduce consumer purchasing power, leading to a decrease in economic activity and potentially a recession.

Question 3

$$\begin{array} { c c c c } 
\begin{array} { c } 
\text { Price level } \
\text { (GDP deflator) }
\end{array} & \begin{array} { c } 
\text { Potential GDP } \
\text { (billions of 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { Real GDP supplied } \
\text { (billions of 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { Real GDP demanded } \
\text { (billions of 2005 dollars) }
\end{array} \
\hline 150 & 25 & 34 & 16 \
140 & 25 & 31 & 19 \
130 & 25 & 28 & 22 \
120 & 25 & 25 & 25 \
110 & 25 & 23 & 28 \
\hline
\end{array}$$
-The table above gives data for the nation of Pearl, a small island in the South Pacific.If aggregate demand increases so that the quantity of real GDP demanded is $6 billion more at each price level, the new equilibrium real GDP is
A) $34 billion.
B) $31 billion.
C) $28 billion.
D) $25 billion.
E) $23 billion.

Accepted Answer

The answer of \[\begin{array} { c c c c }...

Question 4

The government passes a law which doubles the wages of all workers.Aggregate supply will ________, and real GDP will ________, and the price level will ________.
A) increase; remain the same; increase.
B) remain the same; increase; increase.
C) increase; increase; remain the same.
D) decrease; increase; increase.
E) decrease; decrease; increase.

Accepted Answer

The answer of The government passes a law which doubles...

Question 5

$$\begin{array} { c c c c } 
\begin{array} { c } 
\text { Price level } \
\text { (GDP deflator) }
\end{array} & \begin{array} { c } 
\text { Potential GDP } \
\text { (billions of 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { Real GDP supplied } \
\text { (billions of 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { Real GDP demanded } \
\text { (billions of 2005 dollars) }
\end{array} \
\hline 150 & 25 & 34 & 16 \
140 & 25 & 31 & 19 \
130 & 25 & 28 & 22 \
120 & 25 & 25 & 25 \
110 & 25 & 23 & 28 \
\hline
\end{array}$$
-The table above gives data for the nation of Pearl, a small island in the South Pacific.If a supply shock decreases the quantity of real GDP supplied by $6 billion at each price level, the new equilibrium real GDP is
A) $16 billion.
B) $19 billion.
C) $22 billion.
D) $23 billion.
E) $17 billion.

Accepted Answer

The answer of \[\begin{array} { c c c c }...

Question 6

A deep recession hits the world economy and real GDP in the rest of the world decreases.In the United States,
A) aggregate supply and aggregate demand both increase and the price level rises.
B) aggregate supply decreases while aggregate demand does not change and the price level rises.
C) aggregate demand decreases while aggregate supply does not change and the price level falls.
D) aggregate supply increases and aggregate demand decreases, so the effect on the price level is uncertain.
E) aggregate supply and aggregate demand both decrease and the price level rises.

Accepted Answer

The answer of A deep recession hits the world economy...

Question 7

An increase in government expenditure on goods and services ________ aggregate demand, shifting the aggregate demand curve ________ and potentially bringing the ________ phase of the business cycle.
A) decreases; rightward; expansion
B) increases; rightward; recession
C) decreases; leftward; recession
D) increases; rightward; expansion
E) increases; leftward; recession

Accepted Answer

An increase in government expenditure on goods and services will increase aggregate demand, shifting the aggregate demand curve rightward and potentially bringing the expansion phase of the business cycle. Therefore, options A, C, and E are incorrect. Option B is incorrect because an increase in government expenditure on goods and services would not cause a recession.

Question 8

If the AD curve shifts rightward while the AS curve and potential GDP don't change, then
A) the economy will move from a peak into recession.
B) the expansion phase of the business cycle occurs.
C) there will be no change in real GDP, so the economy is at the peak of the cycle.
D) there will be no change in real GDP, so the economy is at the trough of the cycle.
E) real GDP does not change.

Accepted Answer

When the AD curve shifts rightward while the AS curve and potential GDP don't change, there will be an increase in demand for goods and services, leading to an increase in production, output, and employment. This will result in the expansion phase of the business cycle.

Question 9

The government increases the level of government expenditure.If there is no change in the aggregate supply curve, then aggregate demand will ________, real GDP will ________, and the price level will ________.
A) increase; remain the same; increase
B) remain the same; increase; increase
C) increase; increase; increase
D) decrease; increase; increase
E) decrease; remain the same; decrease

Accepted Answer

An increase in government expenditure will increase aggregate demand. If there is no change in aggregate supply, this increase in demand will result in an increase in real GDP and an increase in the price level. Therefore, option C is the best choice.

Question 10

A combination of declining real GDP and rising price level is referred to as
A) an expansion.
B) a trough.
C) stagflation.
D) deflation.
E) a depression.

Accepted Answer

Stagflation is a condition where there is a combination of high inflation (rising price level) and low economic growth (declining real GDP).

Question 11

A technological advance ________ aggregate supply, shifting the aggregate supply curve ________ and potentially bringing the ________ phase of the business cycle.
A) decreases; rightward; expansion
B) decreases; leftward recession
C) increases; rightward; expansion
D) increases; rightward; recession
E) increases; leftward; expansion

Accepted Answer

A technological advance increases aggregate supply, shifting the aggregate supply curve rightward and potentially bringing the expansion phase of the business cycle.

Question 12

An increase in the price of oil ________ aggregate supply, shifting the aggregate supply curve ________ and potentially bringing the ________ phase of the business cycle.
A) decreases; rightward; expansion
B) increases; rightward; recession
C) increases; rightward; expansion
D) decreases; leftward; recession
E) decreases; rightward; recession

Accepted Answer

According to the question, an increase in the price of oil will decrease aggregate supply, shifting the aggregate supply curve leftward. This means that businesses will face higher costs of production and will produce less output. As a result, aggregate demand may exceed aggregate supply, potentially bringing the economy into a recessionary phase of the business cycle. Therefore, the correct answer is D.

Question 13

The global economy enters a recession, thereby decreasing the level of U.S.exports.If the aggregate supply curve does not shift, then aggregate demand will ________, real GDP will ________, and the price level will ________.
A) increase; remain the same; increase
B) remain the same; increase; increase
C) increase; increase; remain the same
D) decrease; increase; increase
E) decrease; decrease; decrease

Accepted Answer

The answer of The global economy enters a recession, thereby...

Question 14

An economy is at a full-employment equilibrium, and then the aggregate demand curve shifts leftward.As a result, the price level ________ and real GDP ________.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
E) falls; does not change

Accepted Answer

When the aggregate demand curve shifts leftward, it means that demand for goods and services has decreased. This will lead to a decrease in the price level and a decrease in real GDP, as businesses will produce less since there is less demand for their products. This is known as a recessionary gap, where the economy is producing less than its potential output.

Question 15

A crisis in the Middle East drastically raises the price of petroleum.If the aggregate demand curve does not shift, then aggregate supply will ________, real GDP will ________, and the price level will ________.
A) increase; remain the same; increase
B) decrease; decrease; increase
C) increase; increase; increase
D) remain the same; increase; increase
E) decrease; remain the same; decrease

Accepted Answer

The answer of A crisis in the Middle East drastically...

Question 16

Stagflation is defined as a period when real GDP ________ and the price level ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) is constant; rises rapidly

Accepted Answer

Stagflation is characterized by a decrease in real GDP and an increase in the price level. Option A and B are incorrect as they imply an increase in real GDP, which is not the case during stagflation. Option D is incorrect as it implies a decrease in both real GDP and the price level, which is not specific to stagflation. Option E is also incorrect as it implies a constant real GDP, which is not the case during stagflation.

Question 17

If real GDP exceeds potential GDP, then the money wage rate ________, aggregate supply ________, and the price level ________.
A) rises; decreases; rises
B) falls; decreases; rises
C) rises; increases; falls
D) falls; increases; rises
E) does not change; increases; rises

Accepted Answer

When real GDP exceeds potential GDP, the economy is operating above its full capacity, leading to upward pressure on wages as firms compete for scarce labor. This increase in the money wage rate causes aggregate supply to decrease because higher wages increase production costs. Consequently, the price level rises due to increased costs and demand pressures.

Question 18

A decrease in investment leads to ________ in aggregate demand and ________ in real GDP.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
E) no change; a decrease

Accepted Answer

A decrease in investment means businesses are investing less in new capital goods and projects, leading to a decrease in aggregate demand. This decrease in aggregate demand will lead to a decrease in real GDP.

Question 19

If the AD curve shifts rightward, then
A) both the price level and real GDP will increase.
B) the price level will increase but no change will occur in real GDP.
C) the price level will not change but real GDP will increase.
D) both the price level and real GDP will decrease.
E) potential GDP increases.

Accepted Answer

When the AD curve shifts rightward, it means that there is an increase in demand for goods and services in an economy. This leads to an increase in both the price level and real GDP as firms increase production to meet the increased demand. Therefore, choice A is correct. Choices B, C, and D are incorrect because they imply either no change or a decrease in one of the variables. Choice E is not directly related to the effects of a rightward shift in the AD curve.

Question 20

A combination of recession and inflation is called
A) an expansion.
B) stagflation.
C) a business cycle.
D) depression.
E) a recession.

Accepted Answer

Stagflation is a combination of high inflation and high unemployment or slow economic growth, which is usually associated with a recession.

Quiz 13: Aggregate Supply and Aggregate Demand

Real GDP definitely increases if

Which of the following could result in a recession?

The government passes a law which doubles the wages of all workers.Aggregate supply will , and real GDP will , and the price level will .

A deep recession hits the world economy and real GDP in the rest of the world decreases.In the United States,

An increase in government expenditure on goods and services aggregate demand, shifting the aggregate demand curve and potentially bringing the phase of the business cycle.

If the AD curve shifts rightward while the AS curve and potential GDP don't change, then

The government increases the level of government expenditure.If there is no change in the aggregate supply curve, then aggregate demand will , real GDP will , and the price level will .

A combination of declining real GDP and rising price level is referred to as

A technological advance aggregate supply, shifting the aggregate supply curve and potentially bringing the phase of the business cycle.

An increase in the price of oil aggregate supply, shifting the aggregate supply curve and potentially bringing the phase of the business cycle.

The global economy enters a recession, thereby decreasing the level of U.S.exports.If the aggregate supply curve does not shift, then aggregate demand will , real GDP will , and the price level will .

An economy is at a full-employment equilibrium, and then the aggregate demand curve shifts leftward.As a result, the price level and real GDP .

A crisis in the Middle East drastically raises the price of petroleum.If the aggregate demand curve does not shift, then aggregate supply will , real GDP will , and the price level will .

Stagflation is defined as a period when real GDP and the price level .

If real GDP exceeds potential GDP, then the money wage rate , aggregate supply , and the price level .

A decrease in investment leads to in aggregate demand and in real GDP.

If the AD curve shifts rightward, then

A combination of recession and inflation is called