Question 1

Exhibit 14-1 Aggregate supply curve
 
-In Exhibit 14-1,there are plenty of idle resources and no upward pressure on prices in:
A) the segment labeled ab.
B) the segment labeled bc.
C) the segment labeled cd.
D) both segment bc and segment cd.
E) the entire curve.

Accepted Answer

In the segment labeled ab, there are plenty of idle resources and no upward pressure on prices, indicating an economy operating below full capacity.

Question 2

When the economy is operating well below capacity,an increase in spending tends to be reflected primarily in a(n):
A) lower level of employment.
B) increase in price.
C) lower level of output.
D) higher level of output and employment.
E) increase in business failures.

Accepted Answer

When the economy is operating well below capacity, there is unused or idle resources such as labor and capital. An increase in spending will increase the demand for goods and services, prompting firms to increase their production and hire more workers to meet the increased demand. Consequently, the economy's output and employment will increase.

Question 3

In the aggregate demand and supply model,the:
A) vertical axis measures the average price level.
B) horizontal axis measures real GDP.
C) aggregate supply curve is vertical at full-employment real GDP.
D) All of the above.

Accepted Answer

All of the options are correct statements in the aggregate demand and supply model. The vertical axis measures the average price level, while the horizontal axis measures real GDP. The aggregate supply curve is vertical at full-employment real GDP, indicating that beyond that point, increases in demand will primarily result in higher prices rather than increased production.

Question 4

Suppose workers become pessimistic about their future employment,which causes them to save more and spend less.If the economy is on the intermediate range of the aggregate supply curve,then:
A) both real GDP and the price level will fall.
B) real GDP will fall and the price level will rise.
C) real GDP will rise and the price level will fall.
D) real GDP and the price level will rise.

Accepted Answer

When workers become pessimistic about their future employment, they save more and spend less which leads to a decrease in consumption expenditure. This leads to a fall in the aggregate demand for goods and services. Since the economy is on the intermediate range of the aggregate supply curve, the fall in aggregate demand will cause a fall in both real GDP and the price level. Hence, the correct choice is A.

Question 5

Exhibit 14-1 Aggregate supply curve
 
-In Exhibit 14-1,as production increases,firms resort to offering higher-wage rates to attract the dwindling supply of unemployed resources in:
A) the segment labeled ab.
B) the segment labeled bc.
C) the segment labeled cd.
D) both segment bc and segment cd.
E) the entire curve.

Accepted Answer

The answer of Exhibit 14-1 Aggregate supply curve
 
-In Exhibit...

Question 6

In the aggregate demand and supply model,the:
A) aggregate supply curve is horizontal at full-employment real GDP.
B) vertical axis measures real GDP.
C) vertical axis measures the average price level.
D) All of the above.
E) None of the above.

Accepted Answer

The vertical axis in the aggregate demand and supply model measures the average price level. The aggregate supply curve is typically upward sloping, not horizontal at full-employment real GDP. The vertical axis does not measure real GDP, as this is typically shown on the horizontal axis. Therefore, only choice C is correct.

Question 7

At low levels of employment,the Keynesian aggregate supply curve:
A) tilts downward to the right.
B) tilts upward to the right.
C) is vertical.
D) shows a constant price level.
E) shows a rising price level.

Accepted Answer

At low levels of employment, the Keynesian aggregate supply curve is horizontal, indicating a constant price level because there is enough spare capacity in the economy to increase output without increasing prices.

Question 8

The aggregate supply curve reflects the relationship between the price:
A) of a particular good and the quantity supplied by all firms producing that good.
B) of a particular good and the quantity supplied by the aggregate economy.
C) level and the quantity supplied of all goods in the economy.
D) level and the quantity of all goods purchased in the economy.

Accepted Answer

The aggregate supply curve shows the relationship between the overall price level in the economy and the total quantity of goods and services that firms are willing and able to produce.

Question 9

In the aggregate demand and aggregate supply model,
A) the factors that cause the demand curves in both models to slope downward are the same.
B) the factors that cause the supply curves in both models to slope upward are the same.
C) the upward-sloping aggregate demand curve intersects the downward-sloping aggregate supply curve to determine the economy's price level and GDP.
D) the upward-sloping aggregate supply curve intersects the downward-sloping aggregate demand curve to determine the economy's price level and GDP.
E) the price level never changes even with shifts in aggregate demand and aggregate supply.

Accepted Answer

In the aggregate demand and aggregate supply model, the upward-sloping aggregate supply curve intersects the downward-sloping aggregate demand curve to determine the economy's price level and GDP. The factors that cause the demand curves in both models to slope downward are not necessarily the same as the factors that cause the supply curves in both models to slope upward. The price level does change with shifts in aggregate demand and aggregate supply, as shown by movements along the curves and shifts of the curves themselves.

Question 10

Exhibit 14-1 Aggregate supply curve
 
-In Exhibit 14-1,higher price levels allow producers to earn higher profits,stimulating production and employment in:
A) the segment labeled ab.
B) the segment labeled bc.
C) the segment labeled cd.
D) both segment bc and segment cd.
E) the entire curve.

Accepted Answer

In the segment labeled bc, producers experience an increase in profits due to the higher price levels. This encourages them to increase their production and employment to meet the higher demand. However, in segment cd, as price levels continue to rise, the production costs also increase, limiting the ability of producers to expand their output. Therefore, the best choice is B) the segment labeled bc, as it represents the range of prices that lead to increased production and employment.

Question 11

Suppose the economy is on the intermediate range of the aggregate supply curve.Which of the following would reduce both real GDP and the price level?
A) A decrease in aggregate supply.
B) An increase in aggregate supply.
C) A decrease in aggregate demand.
D) An increase in aggregate demand.

Accepted Answer

When the economy is on the intermediate range of the aggregate supply curve, if there is a decrease in aggregate demand, both real GDP and the price level will decrease. This is because a decrease in aggregate demand means that there is less demand for goods and services, leading to a decrease in production and prices. On the other hand, an increase in aggregate supply would increase real GDP but decrease the price level. A decrease in aggregate supply would decrease real GDP and increase the price level. An increase in aggregate demand would increase both real GDP and the price level.

Question 12

Along the intermediate range of the aggregate supply curve,an increase in the aggregate demand curve will increase:
A) both the price level and real GDP.
B) only real GDP.
C) only the price level.
D) real GDP and reduce the price level.

Accepted Answer

Along the intermediate range of the aggregate supply curve, an increase in aggregate demand will cause both the price level and real GDP to increase. This is because firms are able to increase output in response to increased demand, but there is not yet enough upward pressure on wages and other input prices to cause significant inflationary pressure. Therefore, the economy can expand output without significant inflationary pressure.

Question 13

During the Great Depression of the 1930s,the aggregate demand curve intersected the aggregate supply curve in:
A) the horizontal portion of the aggregate supply curve.
B) the upward-sloping part of the aggregate supply curve.
C) the vertical portion of the aggregate supply curve.
D) the early years in the horizontal portion, but in the later years in the vertical portion.
E) the early years in the vertical portion, but in the later years in the horizontal portion.

Accepted Answer

During the Great Depression, the economy was operating far below its potential output, so the aggregate demand curve intersected the horizontal portion of the aggregate supply curve, indicating significant underutilization of resources.

Question 14

If aggregate demand increases in the intermediate range of the aggregate supply curve then the:
A) price level rises and real GDP falls.
B) price level rises and real GDP rises.
C) price level falls and real GDP falls.
D) price level falls and real GDP rises.

Accepted Answer

When aggregate demand increases in the intermediate range of the aggregate supply curve, it leads to an increase in both price level and real GDP because firms are able to increase their output in response to increased demand without significantly increasing their production costs. This leads to an increase in overall output and prices. Therefore, the correct answer is B.

Question 15

Given aggregate demand,a decrease in aggregate supply creates:
A) a higher price level and a higher GDP level.
B) a lower price level and a higher GDP level.
C) cost-push inflation.
D) demand-pull inflation.

Accepted Answer

A decrease in aggregate supply leads to a decrease in real GDP and an increase in the price level, known as cost-push inflation. Choice A and B are incorrect because a decrease in aggregate supply results in a lower GDP level. Choice D is incorrect because demand-pull inflation is caused by an increase in aggregate demand, not a decrease in aggregate supply.

Question 16

Along the Keynesian range of the aggregate supply curve,an increase in the aggregate demand curve will increase:
A) both the price level and real GDP.
B) only real GDP.
C) only the price level.
D) real GDP and reduce the price level.

Accepted Answer

In the Keynesian range of the aggregate supply curve, the economy is below full employment, and firms can increase output without raising prices. Therefore, an increase in aggregate demand will increase real GDP without affecting the price level.

Question 17

Along the classical or vertical range of the aggregate supply curve,an increase in the aggregate demand curve will increase:
A) both the price level and real GDP.
B) only real GDP.
C) only the price level.
D) real GDP and reduce the price level.

Accepted Answer

In the classical or vertical range of the aggregate supply curve, the economy is at or near full employment, meaning output (real GDP) cannot increase significantly. Therefore, an increase in aggregate demand primarily raises the price level rather than real GDP.

Question 18

The aggregate supply curve will be vertical when:
A) output can be increased without an increase in the price level.
B) the economy is operating at full-employment capacity.
C) output and price level rise together.
D) the aggregate demand curve is shifting to the left.
E) aggregate demand is absent.

Accepted Answer

When the economy is operating at full-employment capacity, the aggregate supply curve will become vertical. This is because the economy cannot produce more without causing inflation and an increase in the price level. The vertical curve signifies that the economy has reached its full potential output, and any increase in demand will only lead to a rise in prices, not output.

Question 19

Exhibit 14-1 Aggregate supply curve
 
-In Exhibit 14-1,resources are fully employed,and competition among producers for resources will lead to a higher price level in:
A) the segment labeled ab.
B) the segment labeled bc.
C) the segment labeled cd.
D) both segment bc and segment cd.
E) the entire curve.

Accepted Answer

In segment cd, resources are fully employed and any increase in demand will lead to an increase in price level due to competition among producers. In segments ab and bc, resources are not fully employed, so an increase in demand can be met by an increase in production without leading to an increase in price level. The entire curve represents the relationship between price level and output when resources are fully employed.

Question 20

The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a(n):
A) vertical line.
B) upward-sloping line.
C) horizontal line.
D) downward-sloping line.

Accepted Answer

The full employment level of real GDP is represented as a vertical line on an aggregate supply and demand diagram because it reflects a point where the economy is producing at its maximum sustainable output level, beyond which inflation would increase.

Quiz 14: Aggregate Demand and Supply

Exhibit 14-1 Aggregate supply curve -In Exhibit 14-1,there are plenty of idle resources and no upward pressure on prices in:

When the economy is operating well below capacity,an increase in spending tends to be reflected primarily in a(n) :

In the aggregate demand and supply model,the:

Suppose workers become pessimistic about their future employment,which causes them to save more and spend less.If the economy is on the intermediate range of the aggregate supply curve,then:

Exhibit 14-1 Aggregate supply curve -In Exhibit 14-1,as production increases,firms resort to offering higher-wage rates to attract the dwindling supply of unemployed resources in:

In the aggregate demand and supply model,the:

At low levels of employment,the Keynesian aggregate supply curve:

The aggregate supply curve reflects the relationship between the price:

In the aggregate demand and aggregate supply model,

Exhibit 14-1 Aggregate supply curve -In Exhibit 14-1,higher price levels allow producers to earn higher profits,stimulating production and employment in:

Suppose the economy is on the intermediate range of the aggregate supply curve.Which of the following would reduce both real GDP and the price level?

Along the intermediate range of the aggregate supply curve,an increase in the aggregate demand curve will increase:

During the Great Depression of the 1930s,the aggregate demand curve intersected the aggregate supply curve in:

If aggregate demand increases in the intermediate range of the aggregate supply curve then the:

Given aggregate demand,a decrease in aggregate supply creates:

Along the Keynesian range of the aggregate supply curve,an increase in the aggregate demand curve will increase:

Along the classical or vertical range of the aggregate supply curve,an increase in the aggregate demand curve will increase:

The aggregate supply curve will be vertical when:

Exhibit 14-1 Aggregate supply curve -In Exhibit 14-1,resources are fully employed,and competition among producers for resources will lead to a higher price level in:

The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a(n) :