Question 1

The short-run aggregate supply curve is vertical.

Accepted Answer

The short-run aggregate supply curve is upward sloping, indicating that as prices increase, the quantity of goods and services supplied will also increase.

Question 2

A decrease in investment causes the price level to ________ in the short run and ________ in the long run.

Accepted Answer

In the short run, a decrease in investment reduces aggregate demand, leading to a lower price level. In the long run, the economy adjusts to a new equilibrium with potentially lower output and price level, causing the price level to decrease further.

Question 3

What are sticky prices and how can contracts make them "sticky"?

Accepted Answer

The answer of What are sticky prices and how can...

Question 4

Workers and firms both expect that prices will be 3% higher next year than they are this year.As a result,

Accepted Answer

If workers and firms expect prices to be 3% higher next year, workers will demand a 3% increase in their nominal wages to maintain their real wages. Firms, in turn, will have to increase their costs, which will result in a decrease in short-run aggregate supply - causing the supply curve to shift to the left.

Question 5

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age.What did this technological change do to the short-run supply curve?

Accepted Answer

The invention of the integrated circuit increased productivity and efficiency in the production of goods and services. As a result, it lowered production costs, which shifted the short-run supply curve to the right. This increase in aggregate supply also contributed to economic growth and expansion.

Question 6

An increase in aggregate demand results in a(n)________ in the ________.

Accepted Answer

An increase in aggregate demand leads to an expansion in the short run, where output, employment, and prices all rise. In the long run, however, prices are flexible, and the increase in aggregate demand leads to a rise in prices only, with no effect on output or employment. A recession is associated with a decrease in aggregate demand, as output and employment fall, and prices either fall gradually (in the long run) or remain fixed (in the short run, due to sticky prices).

Question 7

Explain how each of the following events would affect the long-run aggregate supply curve.
a.a lower price level
b.a decrease in the labour force
c.a decrease in the quantity of capital goods
d.technological change

Accepted Answer

The answer of Explain how each of the following events...

Question 8

Which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services?

Accepted Answer

Unions are successful in pushing up wages, so the wages of unionized workers may rise more quickly than those of non-unionized workers. This is a reason why the wages of workers could rise more quickly than the prices of inputs. However, the question asks for a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services. Choices A, B, and C all describe reasons why prices and wages may be "sticky" and slow to adjust, which would explain why they might rise more slowly than the prices of final goods and services, which can change more quickly in response to changes in demand and supply. Therefore, D is the correct answer because it does not explain why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services.

Question 9

A decrease in the price level will

Accepted Answer

A decrease in the price level does not shift the short-run aggregate supply (SRAS) curve; instead, it moves the economy down along the existing SRAS curve because producers are willing to supply less at lower price levels.

Question 10

Explain how each of the following events would affect the short-run aggregate supply curve.
a.a decrease in the price level
b.a decrease in what the price level is expected to be in the future
c.a price level that is currently lower than expected
d.an unexpected decrease in the price of an important raw material
e.a decrease in the labour force

Accepted Answer

The answer of Explain how each of the following events...

Question 11

When potential GDP increases, short-run aggregate supply also increases, but long-run aggregate supply does not change.

Accepted Answer

Potential GDP is directly related to long-run aggregate supply, so when potential GDP increases, long-run aggregate supply increases as well. Short-run aggregate supply is influenced by other factors such as prices of inputs and demand.

Question 12

When the price level falls from 135 to 120, the aggregate level of GDP supplied falls from $140 billion to $125 billion.This ________ relationship represents the ________ relationship between GDP and the price level.

Accepted Answer

The described scenario illustrates a positive relationship between the price level and the aggregate level of GDP supplied in the short run, indicating that as the price level falls, the GDP supplied also falls, and vice versa. This is characteristic of the short-run aggregate supply curve.

Question 13

Which of the following would cause the short-run aggregate supply curve to shift to the left?

Accepted Answer

An increase in inflation expectations can cause firms to anticipate higher costs in the future, leading them to reduce supply at any given price level, thus shifting the short-run aggregate supply curve to the left.

Question 14

If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like?

Accepted Answer

The long-run aggregate supply curve is vertical at the potential GDP level, which in this case is $600 billion. This implies that the economy produces its maximum sustainable output in the long run at this level, independent of changes in the price level.

Question 15

Suppose there has been an increase in government spending.As a result, real GDP will ________ in the short run, and ________ in the long run.

Accepted Answer

An increase in government spending typically boosts aggregate demand, leading to an increase in real GDP in the short run. However, in the long run, the economy tends to return to its potential output level, implying that the real GDP would decrease back to its initial value as the economy adjusts.

Question 16

If workers leave a country to seek out better opportunities in another country, then this will

Accepted Answer

When workers leave a country to seek out better opportunities in another country, the labor supply in the original country decreases. This leads to a leftward shift of the short-run aggregate supply curve in the original country, as the production capacity of the economy decreases.

Question 17

Workers expect inflation to fall from 4% to 1% next year.As a result, this should

Accepted Answer

When workers expect inflation to fall, they adjust their wage and price expectations, leading to lower nominal wages and prices. This shift in expectations results in a decrease in production costs, causing the short-run aggregate supply curve to shift to the right. Therefore, the correct answer is B.

Question 18

During the winter of 2015, incredible snowfall in the Maritimes and Ontario brought down power lines and closed whole cities.The result of this extreme weather was

Accepted Answer

The extreme weather caused by the snowfall brought down power lines and closed whole cities, which led to a decrease in productivity and increased costs of production. As a result, the short-run aggregate supply curve shifted to the left due to a decrease in the availability of goods and services, which caused inflationary pressure in the economy.

Question 19

Why does the short-run aggregate supply curve slope upward?

Accepted Answer

The answer of Why does the short-run aggregate supply curve...

Question 20

Long-run macroeconomic equilibrium occurs when

Accepted Answer

Long-run macroeconomic equilibrium occurs when aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve. This represents a situation where the economy is producing at potential GDP and there is no pressure on the price level to change. Structural and frictional unemployment may still exist in this situation. Output above potential GDP would not represent equilibrium, while option A only represents a short-run equilibrium.

Quiz 9: Aggregate Demand and Aggregate Supply Analysis

The short-run aggregate supply curve is vertical.

A decrease in investment causes the price level to in the short run and in the long run.

What are sticky prices and how can contracts make them "sticky"?

Workers and firms both expect that prices will be 3% higher next year than they are this year.As a result,

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age.What did this technological change do to the short-run supply curve?

An increase in aggregate demand results in a(n) in the .

Explain how each of the following events would affect the long-run aggregate supply curve. a.a lower price level b.a decrease in the labour force c.a decrease in the quantity of capital goods d.technological change

Which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services?

A decrease in the price level will

When potential GDP increases, short-run aggregate supply also increases, but long-run aggregate supply does not change.

When the price level falls from 135 to 120, the aggregate level of GDP supplied falls from $140 billion to $125 billion.This relationship represents the relationship between GDP and the price level.

Which of the following would cause the short-run aggregate supply curve to shift to the left?

If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like?

Suppose there has been an increase in government spending.As a result, real GDP will in the short run, and in the long run.

If workers leave a country to seek out better opportunities in another country, then this will

Workers expect inflation to fall from 4% to 1% next year.As a result, this should

During the winter of 2015, incredible snowfall in the Maritimes and Ontario brought down power lines and closed whole cities.The result of this extreme weather was

Why does the short-run aggregate supply curve slope upward?

Long-run macroeconomic equilibrium occurs when

Quiz 9: Aggregate Demand and Aggregate Supply Analysis

The short-run aggregate supply curve is vertical.

A decrease in investment causes the price level to ________ in the short run and ________ in the long run.

What are sticky prices and how can contracts make them "sticky"?

Workers and firms both expect that prices will be 3% higher next year than they are this year.As a result,

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age.What did this technological change do to the short-run supply curve?

An increase in aggregate demand results in a(n) ________ in the ________.

Explain how each of the following events would affect the long-run aggregate supply curve. a.a lower price level b.a decrease in the labour force c.a decrease in the quantity of capital goods d.technological change

Which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services?

A decrease in the price level will

When potential GDP increases, short-run aggregate supply also increases, but long-run aggregate supply does not change.

When the price level falls from 135 to 120, the aggregate level of GDP supplied falls from $140 billion to $125 billion.This ________ relationship represents the ________ relationship between GDP and the price level.

Which of the following would cause the short-run aggregate supply curve to shift to the left?

If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like?

Suppose there has been an increase in government spending.As a result, real GDP will ________ in the short run, and ________ in the long run.

If workers leave a country to seek out better opportunities in another country, then this will

Workers expect inflation to fall from 4% to 1% next year.As a result, this should

During the winter of 2015, incredible snowfall in the Maritimes and Ontario brought down power lines and closed whole cities.The result of this extreme weather was

Why does the short-run aggregate supply curve slope upward?

Long-run macroeconomic equilibrium occurs when

A decrease in investment causes the price level to in the short run and in the long run.

An increase in aggregate demand results in a(n) in the .

When the price level falls from 135 to 120, the aggregate level of GDP supplied falls from $140 billion to $125 billion.This relationship represents the relationship between GDP and the price level.

Suppose there has been an increase in government spending.As a result, real GDP will in the short run, and in the long run.