Question 1

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 ________.

Accepted Answer

Since the crisis raises the price of petroleum, the cost of production for many goods will increase, causing producers to supply fewer goods at any given price level. This will shift the aggregate supply curve to the left, resulting in a decrease in real GDP and an increase in the price level. The aggregate demand curve remains the same, so it does not affect the outcome.

Question 2

________ increases potential GDP.

Accepted Answer

An increase in the amount of human capital through education or training can increase labor productivity, which in turn increases potential GDP.

Question 3

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

Accepted Answer

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

Question 4

Unemployment increases when

Accepted Answer

Decreasing government expenditure means less money is flowing into the economy, leading to a decrease in aggregate demand and ultimately resulting in higher unemployment.

Question 5

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

Accepted Answer

An increase in the price of oil would increase the cost of production for businesses, leading to a decrease in aggregate supply. This would shift the aggregate supply curve leftward. Additionally, if the decrease in aggregate supply leads to a decrease in output and employment, then the economy could enter into a recession phase of the business cycle. Therefore, the best choice is D: decreases; leftward; recession.

Question 6

During the late 1960s, U.S. defense spending increased as the United States fought in Vietnam. This increase in government expenditure on goods and services most likely created

Accepted Answer

An increase in government expenditures during a time of war (Vietnam War) is likely to cause an inflationary gap, as the increased spending puts pressure on prices and increases aggregate demand. This is because there are limited resources and capacity to produce goods and services, which leads to higher prices.

Question 7

When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from ________, and the government policy to eliminate this gap will ________ real GDP to ________ the price level.

Accepted Answer

When real GDP exceeds potential GDP, there is an inflationary gap. To eliminate this, the government would decrease real GDP, which would decrease the price level.

Question 8

If the AD curve shifts rightward, then

Accepted Answer

When the AD curve shifts rightward, it means that there is an increase in aggregate demand. This results in an increase in both the price level and real GDP. As firms increase production to meet the higher demand, real GDP rises. However, as demand increases, prices also rise, leading to an increase in the price level.

Question 9

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 ________.

Accepted Answer

When the aggregate demand curve shifts leftward, it creates a decrease in overall demand in the economy. This results in a decrease in both price level and real GDP. Therefore, the best choice is D where the price level falls and real GDP decreases.

Question 10

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

Accepted Answer

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

Question 11

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

Accepted Answer

A decrease in investment leads to a decrease in aggregate demand as businesses are investing less in capital goods and consumers may also be more cautious about spending. This decrease in demand can lead to a decrease in real GDP as businesses produce fewer goods and services in response to lower demand.

Question 12

When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from ________, and the government policy to eliminate this gap will ________ real GDP to ________ the price level.

Accepted Answer

When real GDP is less than potential GDP, there is a recessionary gap. To eliminate this gap, the government can use expansionary policies to increase real GDP, which may also increase the price level.

Question 13

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.

Accepted Answer

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

Question 14

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

Accepted Answer

When the AD curve shifts rightward, it means that there is an increase in aggregate demand in the economy. In this case, there is no change in the AS curve and potential GDP. Therefore, there will be an increase in real GDP, which is the hallmark of the expansion phase of the business cycle.

Question 15

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 ________.

Accepted Answer

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

Question 16

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 ________.

Accepted Answer

When the government increases government expenditure, it leads to an increase in aggregate demand. As there is no change in the aggregate supply curve, the increase in demand will lead to an increase in real GDP and price level. Therefore, option C is the best choice.

Question 17

A recession in the rest of the world means U.S.

Accepted Answer

A recession in the rest of the world means less demand for U.S. exports, leading to a decrease in aggregate demand in the U.S. economy.

Question 18

In the late 1920s, the U.S. economy experienced a decrease in investment, which perhaps triggered the Great Depression. The decrease in investment

Accepted Answer

A decrease in investment would lead to a decrease in consumer spending and ultimately a decrease in overall demand (aggregate demand), which would trigger the Great Depression.

Question 19

Which of the following could result in a recession?

Accepted Answer

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

Answer: D 
 An increase in the quantity of money can lead to inflation, which can ultimately result in a recession if prices rise too quickly and consumers and businesses can no longer afford to spend or invest.

Answer: E
 While an increase in government expenditures on goods and services can stimulate economic growth, if the government spends more than it takes in through taxes, it can lead to an increase in the budget deficit and potentially result in a recession.

Question 20

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

Accepted Answer

Technological advance increases aggregate supply, shifting the aggregate supply curve to the right and potentially bringing the expansion phase of the business cycle.

Quiz 19: Aggregate Supply and Aggregate Demand

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 .

________ increases potential GDP.

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

Unemployment increases when

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

During the late 1960s, U.S. defense spending increased as the United States fought in Vietnam. This increase in government expenditure on goods and services most likely created

When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from , and the government policy to eliminate this gap will real GDP to the price level.

If the AD curve shifts rightward, then

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

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

When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from , and the government policy to eliminate this gap will real GDP to the price level.

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 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 .

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 recession in the rest of the world means U.S.

In the late 1920s, the U.S. economy experienced a decrease in investment, which perhaps triggered the Great Depression. The decrease in investment

Which of the following could result in a recession?

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