Question 1

An aggregate supply curve depicts the relationship between
A) the price level and nominal GDP.
B) household expenditures and household income.
C) the price level and the aggregate quantity supplied.
D) the price level and the aggregate quantity demanded.

Accepted Answer

An aggregate supply curve depicts the relationship between the price level and the aggregate quantity supplied, where the aggregate quantity supplied is the total output that firms are willing to produce and sell at a given price level. The curve shows the quantity of goods and services that firms are willing to supply at each price level, holding other things constant such as input prices, the state of technology, and the size of the labor force.

Question 2

In the macroeconomic long run,
A) real GDP equals potential GDP.
B) the economy is at full employment.
C) regardless of the price level, the economy is producing at potential GDP.
D) All of the above are correct.

Accepted Answer

In the long run, the economy reaches full employment and produces at potential GDP, which means that real GDP equals potential GDP regardless of the price level. Therefore, all three statements are correct.

Question 3

The long-run aggregate supply curve is
A) horizontal at the full employment price level.
B) vertical at the full employment level of real GDP.
C) upward sloping because of the effects of price level changes on real GDP.
D) the same as the short-run aggregate supply curve.

Accepted Answer

The long-run aggregate supply curve is vertical at the full employment level of real GDP because in the long run, all inputs are variable, and changes in the price level do not affect the quantity of output produced. In other words, the economy will always return to its natural rate of output in the long run, regardless of changes in the price level.

Question 4

We distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve.In the long run
A) technology is fixed but not in the short run.
B) the price level is constant but in the short run it fluctuates.
C) the aggregate supply curve is horizontal while in the short run it is upward sloping.
D) real GDP equals potential GDP.

Accepted Answer

In the long run, real GDP equals potential GDP, as all factors of production are assumed to be fully utilized and the economy is operating at its natural level of output. In contrast, the short-run aggregate supply curve can be upward sloping, indicating that increases in the price level can lead to higher levels of output due to factors such as sticky wages or prices. Technology can also change in the long run, but this would shift the long-run aggregate supply curve rather than change its shape. The price level can also fluctuate in the long run, but this would only affect movements along the long-run aggregate supply curve rather than its position.

Question 5

For movements along the long-run aggregate supply curve,
A) potential GDP is dependent on the price level.
B) the prices of goods and services change while the prices of productive resources hold steady.
C) the price level and the money wage rate change by the same percentage.
D) All of the above are correct.

Accepted Answer

Movements along the long-run aggregate supply curve reflect changes in the price level where the price level and the money wage rate change by the same percentage, keeping real wages constant and not affecting the quantity of goods and services supplied in the long run.

Question 6

The long-run aggregate supply curve is vertical because
A) at full employment prices are stable.
B) there is no cyclical inflation.
C) potential GDP is independent of the price level.
D) the money wage rate increases faster than the price level.

Accepted Answer

The long-run aggregate supply curve is vertical because potential GDP is independent of the price level. This means that in the long run, changes in the price level will not affect the economy's ability to produce goods and services at its maximum sustainable level. The other choices are incorrect because while they may be related to the long run or aggregate supply, they do not provide a sufficient explanation for why the long-run aggregate supply curve is vertical.

Question 7

The long-run aggregate supply curve illustrates the
A) relationship of the price level and real GDP when the economy is at full employment.
B) relationship of aggregate supply and aggregate demand.
C) amount of products producers offer at various prices when money wages and other resource prices do not change.
D) surpluses, shortages and equilibrium level of GDP.

Accepted Answer

The long-run aggregate supply curve illustrates the relationship of the price level and real GDP when the economy is at full employment. This means that in the long run, when all factors of production have adjusted to their equilibrium levels, real GDP will not change with changes in the price level. This is because, in the long run, all input prices adjust with changes in the price level, so there is no incentive for firms to increase or decrease their production levels.

Question 8

When the labor market is at full employment,
A) real GDP equals potential GDP.
B) the price level is stable.
C) the price level equals the potential price level.
D) the SAS curve is horizontal.

Accepted Answer

When the labor market is at full employment, real GDP equals potential GDP because the economy is producing at its maximum sustainable output level without causing inflation.

Question 9

In the long-run
A) the aggregate supply curve is upward sloping.
B) real GDP is equal to potential GDP.
C) aggregate supply depends on the price level.
D) All of the above answers are correct.

Accepted Answer

In the long-run, the economy operates at its potential, which means real GDP is equal to potential GDP. The aggregate supply curve is relatively vertical in the long-run, meaning that it is not affected by changes in the price level. The long-run aggregate supply curve reflects the economy's potential output level, which is determined by the factors of production and technology. Therefore, aggregate supply does not depend on the price level in the long-run.

Question 10

When the price level rises,the long-run aggregate supply curve ________.
A) shifts rightward
B) does not shift
C) slopes upward
D) shifts leftward

Accepted Answer

The long-run aggregate supply curve is vertical, indicating that in the long run, the total output of an economy is not affected by the price level. Therefore, when the price level rises, the long-run aggregate supply curve does not shift.

Question 11

The long-run aggregate supply curve is ________ because along it,as prices rise,the money wage rate ________.
A) vertical; falls
B) vertical; rises
C) upward sloping; falls
D) upward sloping; stays constant

Accepted Answer

The long-run aggregate supply curve is vertical because it represents a point where the economy is at its full employment level, and output is not affected by the price level. As prices rise, the money wage rate also rises to maintain the purchasing power of wages, keeping the quantity of goods and services supplied constant in the long run.

Question 12

The long-run aggregate supply curve shows the
A) maximum GDP the nation will ever produce.
B) full-employment level of real GDP.
C) level of real GDP associated with a constant price level.
D) level of output at which real GDP equals nominal GDP.

Accepted Answer

The long-run aggregate supply curve shows the relationship between the level of real GDP and the full-employment level of output. It represents the level of output that can be sustained in the long run, given the economy's resources and technology, and is not affected by changes in the price level. It is essentially a vertical line at the point where the economy is producing at its potential or full-employment level.

Question 13

The quantity of real GDP supplied depends on the
A) level of aggregate demand.
B) quantity of capital, bonds, and stocks.
C) quantity of labor, the quantity of capital, and the state of technology.
D) price level, the unemployment rate, and the quantity of government expenditures on goods and services.

Accepted Answer

Real GDP is determined by the quantity of labor, the quantity of capital, and the state of technology, as stated by the production function Y = F(K,L,A). Aggregate demand (A), price level, unemployment rate, and government expenditures on goods and services affect the short-run fluctuations in output, but the long-run level of real GDP is determined by the factors of production and technology. The quantity of capital, bonds, and stocks (B) are financial assets that do not directly affect real GDP.

Question 14

In the macroeconomic long run,
A) GDP always is below potential GDP.
B) there is full employment with no unemployment.
C) output always is above potential GDP.
D) there is full employment and real GDP is equal to potential GDP.

Accepted Answer

In the macroeconomic long run, the economy will reach its potential or full employment level of output. This means there is no cyclical unemployment and real GDP is equal to potential GDP. Therefore, D is the correct choice. A is incorrect because potential GDP is the maximum level of output an economy can produce, and it is not always lower than actual GDP. B and C are also incorrect because full employment means there is no cyclical unemployment, but it does not necessarily mean that output is always above potential GDP.

Question 15

The supply of real GDP is a function of
A) the total expenditures of consumers, investors and government.
B) the sum of wages, salaries, corporate profits, rents and interest.
C) only the state of technology.
D) the quantities of labor, capital and the state of technology.

Accepted Answer

Real GDP is a measure of the output of final goods and services produced in an economy. The supply of real GDP relies on the quantities of labor and capital available in the economy as well as the state of technology. Therefore, choice D is the correct answer. Choices A and B are not accurate as they do not account for the factors of production such as labor and capital. Choice C is also incorrect as it overlooks the role of labor and capital in the production process.

Question 16

In the macroeconomic short run,
A) actual real GDP may be less than or more than potential GDP.
B) the unemployment rate is zero.
C) by definition, the economy is always moving away from full employment.
D) actual real GDP always equals potential GDP.

Accepted Answer

In the short run, actual real GDP may vary from potential GDP due to factors such as changes in aggregate demand or supply. The unemployment rate is not necessarily zero in the short run, and the economy may move towards or away from full employment in the short run. Therefore, A is the best choice.

Question 17

Which of the following statements is TRUE?
A) The long-run aggregate supply curve is upward sloping.
B) The long-run aggregate demand curve is upward sloping.
C) The short-run aggregate supply curve is vertical.
D) The long-run aggregate supply curve is vertical.

Accepted Answer

The long-run aggregate supply curve is vertical as it represents the economy's potential output level when all resources are fully utilized and there is no cyclical unemployment. The short-run aggregate supply curve is upward sloping due to the sticky prices and wages in the short run. The long-run aggregate demand curve is a horizontal line as it shows the level of output that can be produced without affecting the price level, which is determined by the potential output in the long run.

Question 18

The long-run aggregate supply curve is the relationship between the quantity of real GDP supplied and ________ when ________.
A) the price level; real GDP equals potential GDP
B) real GDP demanded; the wage rate is constant
C) the price level; real GDP equals nominal GDP
D) real GDP demanded; the price level does not change

Accepted Answer

The long-run aggregate supply curve depicts the quantity of real GDP supplied at different price levels when real GDP equals potential GDP, which is the maximum level of output an economy can produce with its current resources and technology. Choices B, C, and D are incorrect because they do not accurately describe the relationship depicted by the long-run aggregate supply curve.

Question 19

When talking about aggregate supply,it is necessary to
A) focus on the short run.
B) focus on the long run.
C) distinguish between long-run aggregate supply and short-run aggregate supply.
D) distinguish between long-run full employment and short-run full-employment.

Accepted Answer

It is necessary to distinguish between long-run aggregate supply (LAS) and short-run aggregate supply (SAS) when discussing aggregate supply. LAS represents the maximum amount of goods and services that can be produced in an economy when all factors of production are utilized, while SAS is the total amount of goods and services that firms are willing and able to produce in the short run, considering the current market conditions.

Question 20

The long-run aggregate supply (LAS) curve
A) has a positive slope.
B) has a negative slope.
C) is vertical.
D) is horizontal.

Accepted Answer

The long-run aggregate supply curve is vertical because in the long-run, changes in the price level do not affect the overall level of output produced in an economy. This means that the economy can produce its potential level of output regardless of the price level. Factors such as technology, capital stock, and the size of the labor force determine the economy's potential output level in the long run.

Quiz 10: Aggregate Supply and Aggregate Demand

An aggregate supply curve depicts the relationship between

In the macroeconomic long run,

The long-run aggregate supply curve is

We distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve.In the long run

For movements along the long-run aggregate supply curve,

The long-run aggregate supply curve is vertical because

The long-run aggregate supply curve illustrates the

When the labor market is at full employment,

In the long-run

When the price level rises,the long-run aggregate supply curve ________.

The long-run aggregate supply curve is because along it,as prices rise,the money wage rate .

The long-run aggregate supply curve shows the

The quantity of real GDP supplied depends on the

In the macroeconomic long run,

The supply of real GDP is a function of

In the macroeconomic short run,

Which of the following statements is TRUE?

The long-run aggregate supply curve is the relationship between the quantity of real GDP supplied and when .

When talking about aggregate supply,it is necessary to

The long-run aggregate supply (LAS) curve