Question 1

A decrease in the availability of an important major resource such as oil shifts
A)aggregate supply right.
B)aggregate supply left.
C)aggregate demand right.
D)aggregate demand left.

Accepted Answer

A decrease in the availability of an important major resource such as oil will increase the cost of production for businesses, leading to a decrease in aggregate supply.

Question 2

Which of the following shifts short-run aggregate supply left?
A)an increase in price expectations
B)an increase in the actual price level
C)a decrease in the money supply
D)a decrease in the price of oil

Accepted Answer

The answer of Which of the following shifts short-run aggregate...

Question 3

The economic boom of the early 1940s resulted mostly from
A)increased government expenditures.
B)falling prices of oil and other natural resources.
C)an increase in the growth rate of the money supply.
D)rapid developments in transportation, electronics, and communication.

Accepted Answer

The economic boom of the early 1940s resulted mostly from increased government expenditures. The U.S. government spent heavily on military preparation for World War II, which helped to stimulate economic growth and reduce unemployment. This spending also had a multiplier effect, as it created jobs and increased demand for goods and services.

Question 4

An increase in the price level and a reduction in output would result from
A)a fall in stock prices.
B)natural disasters such as hurricanes, floods, and droughts.
C)declining government expenditures.
D)tax rebates.

Accepted Answer

Natural disasters such as hurricanes, floods, and droughts disrupt production, reduce supply, and increase costs, which results in an increase in the price level and a reduction in output. The other options are not likely to result in such an outcome.

Question 5

An increase in the price level and a reduction in output would result from
A)an increase in the money supply.
B)an increase in government expenditures.
C)a fall in stock prices.
D)bad weather in farm states.

Accepted Answer

Bad weather in farm states would reduce the output of agricultural goods, leading to a decrease in aggregate supply. This, in turn, would lead to an increase in the price level and a reduction in output, as the economy moves up along the aggregate demand curve. The other options do not necessarily lead to both an increase in the price level and a reduction in output.

Question 6

Which of the following would raise the price level in both the short and long run?
A)an increase in taxes
B)an increase in government expenditures
C)a decrease in the minimum wage
D)an increase in the capital stock

Accepted Answer

Increase in government expenditures leads to an increase in aggregate demand in the short run, which increases the price level. In the long run, this increase in aggregate demand leads to an increase in the price level due to an increase in production costs and a decrease in aggregate supply. Therefore, both in the short and long run, an increase in government expenditures raises the price level.

Question 7

Which of the following will reduce the price level and real output in the short run?
A)an increase in the money supply
B)an increase in oil prices
C)a decrease in the money supply
D)technical progress

Accepted Answer

A decrease in the money supply reduces aggregate demand, leading to lower price levels and real output in the short run.

Question 8

If there are floods or droughts or a decrease in the availability of raw materials
A)aggregate supply shifts right.
B)output falls in the short run.
C)prices fall in the short run.
D)None of the above is correct.

Accepted Answer

Floods or droughts can damage crops and harm production, while the decrease in raw materials can lead to a decrease in production capacity. These factors will cause a decrease in output in the short run, so option B is correct. Option A is incorrect because floods or droughts and a decrease in the availability of raw materials would reduce aggregate supply, not shift it right. Option C is incorrect because a decrease in output would lead to an increase in prices in the short run, not a fall in prices. Option D is incorrect, as option B correctly answers the question.

Question 9

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting
A)aggregate supply right.
B)aggregate supply left.
C)aggregate demand right.
D)aggregate demand left.

Accepted Answer

If the initial shift in aggregate demand creates an economic contraction, policymakers can respond by shifting aggregate demand right to offset the initial shift. This involves increasing government spending or decreasing taxes, both of which will increase consumption and investment, leading to an increase in aggregate demand. By doing so, policymakers can help stabilize the economy and prevent a recession. Shifting aggregate supply left or right may not be effective in this situation as the issue is a demand-side issue, not a supply-side issue.

Question 10

Which of the following would cause stagflation?
A)aggregate demand shifts right
B)aggregate demand shifts left
C)aggregate supply shifts right
D)aggregate supply shifts left

Accepted Answer

A leftward shift in the aggregate supply curve means that the economy is facing higher costs of production, resulting in lower output levels and higher prices. This combination of high inflation (due to higher prices) and low economic growth (due to lower output levels) is known as stagflation.

Question 11

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually
A)because unemployment is low wages will be bid up and short-run aggregate supply will shift right.
B)because unemployment is low wages will be bid down and short-run aggregate supply will shift right.
C)because unemployment is high wages will be bid up and short-run aggregate supply will shift right.
D)because unemployment is high wages will be bid down and short-run aggregate supply will shift right.

Accepted Answer

With an increase in the costs of production that shifts the short-run aggregate supply curve left, the economy will experience both higher prices and lower real output. The decrease in real output will lead to higher unemployment, which will decrease demand for labor and put downward pressure on wages. Therefore, because unemployment is high, wages will be bid down and short-run aggregate supply will shift right.

Question 12

Which of the following would cause stagflation?
A)rising government expenditures
B)rising oil prices
C)a falling money supply
D)technical progress

Accepted Answer

Rising oil prices can cause stagflation because it simultaneously causes an increase in the costs of production for businesses and a decrease in consumer purchasing power, leading to a slowdown in economic growth and employment while also increasing inflation. The other options do not typically lead to stagflation.

Question 13

Other things the same, an increase in the expected price level shifts
A)short-run aggregate supply right.
B)short-run aggregate supply left.
C)aggregate-demand right.
D)aggregated-demand left.

Accepted Answer

The answer of Other things the same, an increase in...

Question 14

In the short-run an increase in the costs of production makes
A)output and prices rise.
B)output rise and prices fall.
C)output fall and prices rise.
D)output and prices fall.

Accepted Answer

An increase in the costs of production would lead to a decrease in the supply of goods or services in the market, causing a contraction in output. This contraction in output would result in a shortage of goods or services, leading to an increase in prices. Thus, in the short-run, an increase in the costs of production would cause output to fall and prices to rise.

Question 15

Stagflation exists when prices
A)and output rise.
B)rise and output falls.
C)fall and output rises.
D)and output fall.

Accepted Answer

Stagflation is a situation where inflation (prices rising) coexists with a stagnant economy, which means either a decrease or unchanging output. Therefore, option B is the correct choice as prices rise and output falls under stagflation.

Question 16

Suppose that during World War II the long-run aggregate supply curve shifted right. In order for price and output to have changed in the direction they did, what would have to have happened to aggregate demand?
A)It would have to have shifted left by less than aggregate supply shifted
B)It would have to have to shifted left by more than aggregate supply shifted.
C)It would have to have shifted right by less than aggregate supply shifted
D)It would have to have to shifted right by more than aggregate supply shifted.

Accepted Answer

If the long-run aggregate supply curve shifted right, it means there was an increase in the economy's potential output. If aggregate demand shifted left by more than aggregate supply shifted, it would have caused a decrease in both price and output, which contradicts the information given in the question. Therefore, the most likely scenario is that aggregate demand shifted left by less than aggregate supply shifted, allowing for an increase in output and a slight decrease in price. Choice A is the most reasonable option.

Question 17

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift
A)aggregate supply to the right.
B)aggregate supply to the left.
C)aggregate demand to the right.
D)aggregate demand to the left.

Accepted Answer

When there is an economic contraction caused by a shift in aggregate supply, the economy experiences lower output and higher prices. To offset these effects, policymakers should shift aggregate demand to the right, increasing spending by reducing interest rates or increasing government spending. This will help to increase output and reduce prices, leading to a more stable economy.

Question 18

Which of the following would cause prices to rise and real GDP to fall in the short run?
A)an increase in the expected price level
B)an increase in the capital stock
C)an increase in the quantity of labor available
D)All of the above are correct.

Accepted Answer

An increase in the expected price level (also known as inflation expectations) can cause prices to rise in the short run as firms try to adjust to the expected increase in costs. However, this increase in prices can lead to a decrease in real GDP as consumers and producers may reduce their spending and investment due to the higher costs. An increase in capital stock and quantity of labor available would typically lead to an increase in real GDP and potentially lower prices in the long run.

Question 19

When production costs rise,
A)the short-run aggregate supply curve shifts to the right.
B)the short-run aggregate supply curve shifts to the left.
C)the aggregate demand curve shifts to the right.
D)the aggregate demand curve shifts to the left.

Accepted Answer

When production costs rise, it becomes more expensive for firms to produce goods and services, which leads to a decrease in supply. This decrease in supply is reflected in a leftward shift of the short-run aggregate supply curve.

Question 20

The short-run effects of an increase in the expected price level include
A)a lower level of output and a lower price level.
B)a lower level of output and a higher price level.
C)a higher level of output and a lower price level.
D)a higher level of output and a higher price level.

Accepted Answer

An increase in the expected price level would lead to a decrease in real money balances and therefore a decrease in aggregate demand. This, in turn, would lead to a decrease in output and an increase in the price level in the short run.

Quiz 20: Aggregate Demand and Aggregate Supply

A decrease in the availability of an important major resource such as oil shifts

Which of the following shifts short-run aggregate supply left?

The economic boom of the early 1940s resulted mostly from

An increase in the price level and a reduction in output would result from

An increase in the price level and a reduction in output would result from

Which of the following would raise the price level in both the short and long run?

Which of the following will reduce the price level and real output in the short run?

If there are floods or droughts or a decrease in the availability of raw materials

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting

Which of the following would cause stagflation?

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually

Which of the following would cause stagflation?

Other things the same, an increase in the expected price level shifts

In the short-run an increase in the costs of production makes

Stagflation exists when prices

Suppose that during World War II the long-run aggregate supply curve shifted right. In order for price and output to have changed in the direction they did, what would have to have happened to aggregate demand?

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

Which of the following would cause prices to rise and real GDP to fall in the short run?

When production costs rise,

The short-run effects of an increase in the expected price level include