Question 1

During the Great Depression,aggregate demand in the U.S.economy decreased.As a result,the unemployment rate ________ and the price level ________.
A) decreased; increased
B) remained unchanged; increased
C) increased; remained unchanged
D) remained unchanged; remained unchanged
E) increased; decreased

Accepted Answer

The answer of During the Great Depression,aggregate demand in the...

Question 2

Refer to the following figure to answer the questions that follow.
 
-Based on the figure,starting at point A,if there is an increase in government spending,then in the short run we would move to point ________ and in the long run to point ________.
A) B; E
B) B; C
C) D; A
D) D; C
E) B; A

Accepted Answer

According to the figure, starting at point A, an increase in government spending would shift the aggregate demand curve to the right, leading to an increase in output and price level, moving the economy to point B in the short run. In the long run, the increase in output would lead to higher wages and production costs, shifting the short-run aggregate supply curve to the left, eventually bringing the economy to point E with higher price level but the same level of output as in the initial equilibrium.

Question 3

Refer to the following figure to answer the questions that follow.
 
-Based on the figure,a negative supply shock is best represented by a movement from:
A) C to B.
B) D to A.
C) A to D.
D) C to D.
E) A to B.

Accepted Answer

The answer of Refer to the following figure to answer...

Question 4

Suppose a country's population is aging and the size of the workforce is declining.In the long run,output will ________ and the price level will ________.
A) decrease; increase
B) remain unchanged; decrease
C) decrease; decrease
D) decrease; remain unchanged
E) increase; decrease

Accepted Answer

With a declining workforce, there will be a decrease in the production of goods and services which leads to a decrease in output. At the same time, with an increasing demand for goods and services and a decreasing supply of labor, the price level will increase. Therefore, the correct answer is A).

Question 5

During the Great Depression,aggregate demand in the U.S.economy decreased.As a result,the unemployment rate ________ and real gross domestic product (GDP)________.
A) increased; decreased
B) decreased; remained unchanged
C) increased; increased
D) decreased; decreased
E) remained unchanged; increased

Accepted Answer

A decrease in aggregate demand leads to a decrease in real GDP and an increase in unemployment. Therefore, the correct answer is that the unemployment rate increased (as more people were looking for jobs) and real GDP decreased (as there was less overall economic activity).

Question 6

Refer to the following figure to answer the questions that follow.
 
-Based on the figure,if the economy starts at point A and ends up at point E,then in the short run,there was a(n):
A) decrease in aggregate demand.
B) increase in aggregate demand.
C) decrease in short-run aggregate supply.
D) increase in short-run aggregate supply.
E) increase in long-run aggregate supply.

Accepted Answer

When the economy moves from point A to point E, both output and price level increase. This implies an increase in aggregate demand.

Question 7

During the Great Depression,aggregate demand in the U.S.economy decreased.As a result,the price level ________ and real gross domestic product (GDP)________.
A) decreased; decreased
B) increased; increased
C) remained unchanged; increased
D) decreased; remained unchanged
E) increased; decreased

Accepted Answer

During the Great Depression, a decrease in aggregate demand led to a decrease in both the price level and real GDP. This is because a decrease in aggregate demand means there is less demand for goods and services, leading to a decrease in production, employment, and income. This, in turn, leads to a decrease in the price level as there is less demand for goods and services, so businesses lower their prices to encourage consumer spending. As a result, both the price level and real GDP decreased.

Question 8

Refer to the following figure to answer the questions that follow.
 
-Based on the figure,if the economy is currently at point B,then in the long run,we can expect the economy to be at point:
A) A.
B) C.
C) D.
D) E.
E) B.

Accepted Answer

The answer of Refer to the following figure to answer...

Question 9

Supply shocks cause short-run aggregate supply to:
A) remain unchanged in both the short run and the long run.
B) decrease in both the short run and the long run.
C) decrease in the short run and increase in the long run.
D) increase in both the short run and the long run.
E) return to its original position in the long run.

Accepted Answer

Supply shocks can cause short-run aggregate supply to shift, but in the long run, the economy tends to return to its natural level of output, bringing aggregate supply back to its original position.

Question 10

Suppose a change in healthcare laws increases the cost of hiring an employee.We can expect output in the short run to ________ and output in the long run to ________.
A) be unaffected; be unaffected
B) decrease; decrease
C) decrease; be unaffected
D) decrease; increase
E) increase; increase

Accepted Answer

In the short run, the cost of hiring employees has increased, which will lead to a decrease in output. This is because, in the short run, firms cannot easily adjust their inputs, so they will have to produce fewer goods or services with the same level of resources. In the long run, firms can adjust their inputs, so they may be able to increase output back to its previous level, but the cost of hiring employees will continue to be higher, so output will be lower than it would have been without the change in healthcare laws. Therefore, output in the long run is expected to be unaffected.

Question 11

A severe drought hits a country and reduces farm output by 50%.In the short run,this will ________ output and ________ employment.
A) decrease; decrease
B) decrease; increase
C) decrease; have no effect on
D) have no effect on; have no effect on
E) increase; increase

Accepted Answer

A severe drought that reduces farm output by 50% will lead to a decrease in output as the supply of agricultural products is reduced. This decrease in output will also lead to a decrease in employment as a reduced supply of agricultural products will lead to a reduction in the demand for labor in the agricultural sector. Therefore, choice A is the best answer.

Question 12

Refer to the following figure to answer the questions that follow.
 
-Based on the figure,which of the following would cause the short-run aggregate supply curve to shift from SRAS₁ to SRAS₂?
A) Congress votes to increase the minimum wage.
B) There is an increase in spending and firms respond by producing more output.
C) Wages and input prices fall as the economy recovers from a recession.
D) A severe drought reduces farm production.
E) A temporary rise in the price of oil results in higher gasoline prices.

Accepted Answer

A fall in wages and input prices reduces production costs, leading to an increase in short-run aggregate supply, shifting the curve to the right from SRAS₁ to SRAS₂.

Question 13

Refer to the following figure to answer the questions that follow.
 
-Based on the figure,if the economy is at point F,then in the long run,we can expect:
A) the price level to increase and output to increase.
B) the price level to decrease and output to increase.
C) the long-run aggregate supply curve to shift to the left.
D) aggregate demand to increase.
E) aggregate demand to decrease.

Accepted Answer

At point F, the economy is experiencing an inflationary gap as output is above potential output, which would lead to an increase in the price level. However, in the long run, the economy will adjust by decreasing input prices and moving back towards potential output. This shift towards potential output would lead to an increase in output and a decrease in the price level, indicating the correct answer is B. The long-run aggregate supply curve would shift to the right, rather than the left (option C). There is no information in the graph to suggest that aggregate demand will change (options D and E).

Question 14

If the current short-run equilibrium level of output is less than full employment output,we can then expect that in the long run:
A) the price level will fall.
B) the price level will rise.
C) aggregate demand will decrease.
D) aggregate demand will increase.
E) long-run aggregate supply will decrease.

Accepted Answer

The answer of If the current short-run equilibrium level of...

Question 15

Suppose a country's population is growing due to immigration.In the long run,output will ________ due to ________.
A) increase; an increase in both long-run and short-run aggregate supply
B) increase; an increase in long-run aggregate supply
C) increase; an increase in aggregate demand
D) increase; an increase in short-run aggregate supply
E) remain unaffected; price adjustment

Accepted Answer

The answer of Suppose a country's population is growing due...

Question 16

If short-run equilibrium output is above full employment output,then in the long run input prices will:
A) decrease and output will increase.
B) increase and output will be unaffected.
C) increase and short-run aggregate supply will increase.
D) increase and output will fall.
E) decrease and output will fall.

Accepted Answer

If short-run equilibrium output is above full employment output, it suggests that the economy is currently operating at an unsustainable rate, with resources being overutilized. In the long run, input prices will tend to increase, as the demand for inputs will be high due to overutilization, leading to an increase in the cost of production. This, in turn, will result in a decrease in output and a shift leftward in the short-run aggregate supply curve. Therefore, option D is the best choice.

Question 17

An increase in long-run aggregate supply can be expected to ________ the price level and ________ the natural rate of unemployment.
A) have no effect on; have no effect on
B) have no effect on; increase
C) decrease; decrease
D) decrease; have no effect on
E) increase; have no effect on

Accepted Answer

An increase in long-run aggregate supply means that the economy can produce more goods and services at the same price level or the same amount of output at a lower price level. This leads to a decrease in the price level. However, it does not have a direct effect on the natural rate of unemployment, which is determined by non-monetary factors such as demographics, technology, and institutions. Therefore, it does not have an effect on the natural rate of unemployment.

Question 18

Refer to the following figure to answer the questions that follow.
 
-Based on the figure,starting at point A,if there is an increase in the price of oil,then in the short run we move to point ________ and in the long run to point ________.
A) F; E
B) F; A
C) D; C
D) D; A
E) B; E

Accepted Answer

Starting at point A, an increase in the price of oil leads to an increase in costs, which shifts the short-run aggregate supply curve (SRAS) to the left. This movement takes the economy to point F in the short run. However, eventually, firms will adjust their prices and the long-run aggregate supply curve (LRAS) will shift to the left to reflect the higher costs of production. This takes the economy to point A in the long run. Therefore, the correct answer is B, as it indicates that the economy moves to point F in the short run and then back to point A in the long run.

Question 19

Perfect summer weather increases farm output by 30%.In the short run,this can be expected to ________ the price level and ________ real wealth.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) have no effect on; have no effect on

Accepted Answer

An increase in farm output due to perfect summer weather leads to a higher supply of agricultural products, which typically decreases the price level. Lower prices increase consumers' purchasing power, effectively increasing real wealth.

Question 20

If the current short-run equilibrium level of output is greater than full employment output,we can then expect that in the long run the:
A) price level will rise and short-run aggregate supply will fall.
B) price level will rise and aggregate demand will fall.
C) price level will fall and short-run aggregate supply will rise.
D) price level will fall and aggregate demand will rise.
E) long-run aggregate supply will increase.

Accepted Answer

If the current short-run equilibrium level of output is greater than full employment output, it means that the economy is operating above its potential, leading to increasing prices and a tightening labor market. In the long run, prices will continue to rise due to the excess demand, leading to a decrease in short-run aggregate supply. This is represented by the movement from point A to point B on the Phillips Curve. Therefore, the correct answer is A.

Quiz 12: Aggregate Demand and Aggregate Supply

During the Great Depression,aggregate demand in the U.S.economy decreased.As a result,the unemployment rate and the price level .

Refer to the following figure to answer the questions that follow. -Based on the figure,starting at point A,if there is an increase in government spending,then in the short run we would move to point and in the long run to point .

Refer to the following figure to answer the questions that follow. -Based on the figure,a negative supply shock is best represented by a movement from:

Suppose a country's population is aging and the size of the workforce is declining.In the long run,output will and the price level will .

During the Great Depression,aggregate demand in the U.S.economy decreased.As a result,the unemployment rate and real gross domestic product (GDP) .

Refer to the following figure to answer the questions that follow. -Based on the figure,if the economy starts at point A and ends up at point E,then in the short run,there was a(n) :

During the Great Depression,aggregate demand in the U.S.economy decreased.As a result,the price level and real gross domestic product (GDP) .

Refer to the following figure to answer the questions that follow. -Based on the figure,if the economy is currently at point B,then in the long run,we can expect the economy to be at point:

Supply shocks cause short-run aggregate supply to:

Suppose a change in healthcare laws increases the cost of hiring an employee.We can expect output in the short run to and output in the long run to .

A severe drought hits a country and reduces farm output by 50%.In the short run,this will output and employment.

Refer to the following figure to answer the questions that follow. -Based on the figure,which of the following would cause the short-run aggregate supply curve to shift from SRAS₁ to SRAS₂?

Refer to the following figure to answer the questions that follow. -Based on the figure,if the economy is at point F,then in the long run,we can expect:

If the current short-run equilibrium level of output is less than full employment output,we can then expect that in the long run:

Suppose a country's population is growing due to immigration.In the long run,output will due to .

If short-run equilibrium output is above full employment output,then in the long run input prices will:

An increase in long-run aggregate supply can be expected to the price level and the natural rate of unemployment.

Refer to the following figure to answer the questions that follow. -Based on the figure,starting at point A,if there is an increase in the price of oil,then in the short run we move to point and in the long run to point .

Perfect summer weather increases farm output by 30%.In the short run,this can be expected to the price level and real wealth.

If the current short-run equilibrium level of output is greater than full employment output,we can then expect that in the long run the:

Quiz 12: Aggregate Demand and Aggregate Supply

During the Great Depression,aggregate demand in the U.S.economy decreased.As a result,the unemployment rate ________ and the price level ________.

Refer to the following figure to answer the questions that follow. -Based on the figure,starting at point A,if there is an increase in government spending,then in the short run we would move to point ________ and in the long run to point ________.

Refer to the following figure to answer the questions that follow. -Based on the figure,a negative supply shock is best represented by a movement from:

Suppose a country's population is aging and the size of the workforce is declining.In the long run,output will ________ and the price level will ________.

During the Great Depression,aggregate demand in the U.S.economy decreased.As a result,the unemployment rate ________ and real gross domestic product (GDP) ________.