Question 1

Recall the Application about the behavior of prices in retail catalogs to answer the following question(s). Economist Anil Kashyap of the University of Chicago examined the prices of 12 selected goods from L.L. Bean, REI, and The Orvis Company, Inc. Kashyap tracked the prices from the companies' catalogs which were reissued every six months.
-According to this Application, the prices which were tracked in the retail catalogs exemplified the macroeconomic concept of the short run, a period of time in which
A) price changes are significant because the aggregate supply curve is vertical.
B) prices never change because the aggregate demand curve is vertical.
C) prices change frequently because of changes in aggregate supply.
D) prices don't change very much, implying that the aggregate supply curve is relatively flat.

Accepted Answer

In the short run, prices tend to be sticky or don't change very much, indicating that the aggregate supply curve is relatively flat, which allows for changes in aggregate demand to have a larger effect on output than on prices.

Question 2

What are some reasons why coordination of economic affairs through the price system may not work perfectly?

Accepted Answer

The answer of What are some reasons why coordination of...

Question 3

The short run in macroeconomics is the period in which
A) prices change significantly.
B) no contracts or agreements exist to fix prices.
C) demand determines output.
D) the demand curve is vertical.

Accepted Answer

In the short run in macroeconomics, demand is a key determinant of output because firms adjust their production levels to meet the current demand for their products, while other factors such as prices and wages may not adjust immediately.

Question 4

Prices of industrial products and wages tend to be the most "flexible."

Accepted Answer

Prices of industrial products and wages are often considered less flexible due to factors like contracts, regulations, and negotiation processes that can delay adjustments to changing economic conditions.

Question 5

Recall the Application about the behavior of prices in retail catalogs to answer the following question(s). Economist Anil Kashyap of the University of Chicago examined the prices of 12 selected goods from L.L. Bean, REI, and The Orvis Company, Inc. Kashyap tracked the prices from the companies' catalogs which were reissued every six months.
-This Application examines the concept of
A) the wealth effect.
B) sticky prices.
C) consumer spending habits.
D) stagflation.

Accepted Answer

The application examines the concept of sticky prices, as Kashyap tracked the prices of goods from retail catalogs which were only updated every six months.

Question 6

Suppose consumer tastes and preferences shift from tacos to pizzas. In the short run, these changing tastes will result in pizza restaurants ________ pizza prices and taco restaurants ________ taco prices.
A) increasing; decreasing
B) decreasing; increasing
C) decreasing; decreasing
D) increasing; increasing

Accepted Answer

As the demand for pizzas increases due to changing tastes, the price of pizzas will increase in the short run to reflect this increase in demand. On the other hand, the decreasing demand for tacos will lead to a decrease in the price of tacos, as taco restaurants try to encourage consumers to continue buying their products. Therefore, pizza restaurants will increase pizza prices while taco restaurants will decrease taco prices in the short run.

Question 7

As the price level ________, the purchasing power of money ________.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; stays the same

Accepted Answer

As the price level increases, the amount of goods and services that can be purchased with a unit of money decreases, hence the purchasing power of money decreases.

Question 8

The price system works in an economy on a day-to-day basis to match the desires of consumers with the output from producers.

Accepted Answer

The price system is the mechanism through which prices of goods and services are determined in a free-market economy. It allows consumers to express their preferences through the purchases they make, and producers to allocate resources efficiently to meet those preferences. This happens on a daily basis and helps to ensure that supply and demand are in balance, resulting in an efficient allocation of resources.

Question 9

Suppose that demand for a product falls, but prices are sticky. What is likely to happen to prices and output in that market, in the short run?

Accepted Answer

The answer of Suppose that demand for a product falls,...

Question 10

Recall the Application about the behavior of prices in retail catalogs to answer the following question(s). Economist Anil Kashyap of the University of Chicago examined the prices of 12 selected goods from L.L. Bean, REI, and The Orvis Company, Inc. Kashyap tracked the prices from the companies' catalogs which were reissued every six months.
-Even though the catalogs listed in the Application were reissued every six months, the prices which were tracked in these retail catalogs
A) were typically fixed for a year or more.
B) changed every month.
C) tended to fall during periods of high inflation.
D) were not listed due to low rates of inflation.

Accepted Answer

The article states that "Kashyap tracked the prices from the companies' catalogs which were reissued every six months," suggesting that the prices remained fixed for at least six months at a time. The article does not provide any evidence to suggest that the prices changed every month, tended to fall during periods of high inflation, or were not listed due to low rates of inflation.

Question 11

Changes in demand will often be met with changes in output rather than changes in prices because of formal and informal contracts.

Accepted Answer

When demand for a product or service changes, firms may choose to adjust their output instead of changing prices due to formal and informal contracts they have in place, such as supply agreements with raw material suppliers or employment contracts with workers. Changing output can be a more flexible and manageable way to respond to changes in demand, while changing prices can be more disruptive and potentially harmful to long-term relationships with customers or suppliers.

Question 12

For most firms, the biggest cost of doing business is wages.

Accepted Answer

Wages are typically the largest expense for most firms, especially in industries where labor is a significant part of the production process.

Question 13

Suppose consumer tastes and preferences shift from pizza to tacos. In the short run case, these changing tastes will result in pizza restaurants ________ pizza prices and taco restaurants ________ taco prices.
A) increasing; decreasing
B) decreasing; increasing
C) decreasing; decreasing
D) increasing; increasing

Accepted Answer

As consumer preferences shift from pizza to tacos, demand for pizza decreases, leading pizza restaurants to potentially lower prices to attract customers. Conversely, demand for tacos increases, prompting taco restaurants to raise prices due to higher demand.

Question 14

What are the two types of prices in an economy?

Accepted Answer

The answer of What are the two types of prices...

Question 15

The relationship between the level of prices and the total demand for all goods and services is known as
A) aggregate supply.
B) market supply.
C) aggregate demand.
D) market demand.

Accepted Answer

The relationship between the level of prices and the total demand for all goods and services is known as aggregate demand. This concept is used in macroeconomics to understand the overall demand for goods and services in a given economy. It takes into account variables such as consumer spending, investment, government spending, and net exports.

Question 16

Aggregate demand refers to the relationship between
A) prices and the quantity of a good supplied.
B) the price level and the quantity of real GDP supplied.
C) prices and the quantity of a good demanded.
D) the price level and the quantity of real GDP demanded.

Accepted Answer

Aggregate demand refers to the relationship between the price level and the quantity of real GDP demanded. It shows the total amount of goods and services that households, firms, and the government are willing to purchase at a given price level. This is because the price level affects the purchasing power of consumers and affects the profitability of firms, thus influencing the level of expenditures in the economy.

Question 17

The price system always works instantaneously.

Accepted Answer

The price system may not always work instantaneously as there can be a lag between changes in supply and demand and adjustments to prices. Additionally, there may be market imperfections or barriers that prevent the price system from functioning efficiently.

Question 18

The aggregate demand curve is
A) downward sloping.
B) upward sloping.
C) a vertical line at potential output.
D) a horizontal line at the current price level.

Accepted Answer

The aggregate demand curve is downward sloping, indicating that as the price level increases, the quantity of real GDP demanded by households, businesses, and the government decreases. This is due to the inverse relationship between the price level and the purchasing power of consumers and the cost of borrowing for businesses and government.

Question 19

What is the total demand for goods and services in an entire economy called?
A) supply and demand
B) aggregate demand
C) consumer demand
D) GDP demand

Accepted Answer

The total demand for goods and services in an entire economy is called aggregate demand. This includes the demand from consumers, businesses, government, and foreign buyers. It is a key concept in macroeconomics and is used to understand how changes in factors like government spending, interest rates, and consumer confidence can affect the overall level of economic activity in a country. Choices A, C, and D are not correct as they do not accurately describe this concept.

Question 20

The increase in spending that occurs because the real value of money increases when the price level falls is known as the
A) interest rate effect.
B) international trade effect.
C) price effect.
D) wealth effect.

Accepted Answer

The increase in spending that occurs because the real value of money increases when the price level falls is called the "wealth effect." As the price level falls, the purchasing power of each dollar increases. This means that consumers feel wealthier, as they can afford to buy more goods and services for the same amount of money. As a result, they tend to spend more, which increases economic output.

Quiz 14: Aggregate Demand and Aggregate Supply

What are some reasons why coordination of economic affairs through the price system may not work perfectly?

The short run in macroeconomics is the period in which

Prices of industrial products and wages tend to be the most "flexible."

Suppose consumer tastes and preferences shift from tacos to pizzas. In the short run, these changing tastes will result in pizza restaurants pizza prices and taco restaurants taco prices.

As the price level , the purchasing power of money .

The price system works in an economy on a day-to-day basis to match the desires of consumers with the output from producers.

Suppose that demand for a product falls, but prices are sticky. What is likely to happen to prices and output in that market, in the short run?

Changes in demand will often be met with changes in output rather than changes in prices because of formal and informal contracts.

For most firms, the biggest cost of doing business is wages.

Suppose consumer tastes and preferences shift from pizza to tacos. In the short run case, these changing tastes will result in pizza restaurants pizza prices and taco restaurants taco prices.

What are the two types of prices in an economy?

The relationship between the level of prices and the total demand for all goods and services is known as

Aggregate demand refers to the relationship between

The price system always works instantaneously.

The aggregate demand curve is

What is the total demand for goods and services in an entire economy called?

The increase in spending that occurs because the real value of money increases when the price level falls is known as the