Question 1

Which of the following will result in secular deflation?

Accepted Answer

A continuous rightward shift of the long-run aggregate supply curve indicates an increase in the economy's productivity due to advancements in technology, knowledge, or capital accumulation. This shift causes a decrease in prices due to increased supply without a corresponding increase in demand. This decrease in prices is known as secular deflation.

Question 2

Secular deflation occurs when

Accepted Answer

Secular deflation occurs when the economy's long-run aggregate supply increases due to economic growth, while aggregate demand remains unchanged. This leads to a decrease in the general price level over time as the supply of goods and services increases relative to demand.

Question 3

When the price level is below the level at which the aggregate demand curve crosses the long run aggregate supply curve,

Accepted Answer

The answer of When the price level is below the...

Question 4

Economic growth takes place

Accepted Answer

Economic growth takes place when aggregate supply increases. This means that the economy is producing more goods and services, leading to an increase in real Gross Domestic Product (GDP) and ultimately, a higher standard of living for its citizens. While an increase in aggregate demand can lead to short-term growth, sustained economic growth requires an increase in aggregate supply. A decrease in aggregate demand would actually lead to a contraction in the economy, resulting in a decrease in real GDP and a lower standard of living. The price level can fluctuate during periods of economic growth, but it is not a determining factor in whether or not growth takes place.

Question 5

Suppose the Federal Reserve implements expansionary monetary policy where the money supply increases. Which of the following will tend to occur in the long run as a result of this monetary policy action?

Accepted Answer

In the long run, expansionary monetary policy only leads to an increase in the price level and no change in the output. This is due to the fact that the increase in money supply creates excess demand, which drives up prices but has no effect on the economy's productive capacity.

Question 6

When the price level is below the level at which the aggregate demand curve crosses the long run aggregate supply curve

Accepted Answer

When the price level is below the level at which the aggregate demand curve crosses the long-run aggregate supply curve, it indicates that the demand for goods and services is higher than what is being produced at current prices, leading to an increase in the price level as the economy moves towards equilibrium. This scenario is described by option C, where total planned real expenditures exceed actual real GDP, prompting an increase in the price level to balance demand with supply.

Question 7

If you have $1,000 and the Gross Domestic Product (GDP) deflator increases from 100 to 120, then

Accepted Answer

An increase in GDP deflator from 100 to 120 signifies an increase in the price level by 20%. Hence, the $1,000 will now only buy 80% of the goods and services it could have bought previously. This means it can buy 20% (or 1/5th) fewer goods and services.

Question 8

The intersection of aggregate demand and long-run aggregate supply identify the price level at which total planned

Accepted Answer

The intersection of aggregate demand and long-run aggregate supply identifies the price level at which total planned real expenditures equal total planned production, indicating an equilibrium state in the economy where aggregate demand equals aggregate supply.

Question 9

If the economy grows steadily over several years and at the same time maintains the aggregate demand curve in its present position, then the economy will experience which of the following?

Accepted Answer

The answer of If the economy grows steadily over several...

Question 10

In the long run, an increase in government spending, other things equal, generates

Accepted Answer

The answer of In the long run, an increase in...

Question 11

An increase in the amount of physical capital will cause

Accepted Answer

An increase in the amount of physical capital increases aggregate supply because more goods and services can be produced with more capital. This increase in aggregate supply leads to an increase in real GDP as more goods and services are available. Additionally, the increase in supply, with demand remaining constant, puts downward pressure on prices, leading to a reduction in the price level.

Question 12

Suppose total planned expenditures equal $14.4 trillion when the value of the price level is 95. If the price level dropped to 90, total planned real expenditures will equal

Accepted Answer

When the price level drops, the real value of money increases, leading to an increase in total planned real expenditures as consumers and businesses are able to purchase more goods and services with the same amount of money.

Question 13

Economic growth will be associated with a constant price level when

Accepted Answer

Economic growth results from an increase in long-run aggregate supply or an increase in aggregate demand. When the increase in aggregate demand exactly equals the increase in long-run aggregate supply, there will be no upward pressure on prices, and the price level will remain constant. This implies that the growth rate of the economy can be sustained without causing inflationary or deflationary pressures. Therefore, the correct answer is choice A.

Question 14

The U.S. economy has had persistent inflation in recent decades. A possible explanation for the inflation is that

Accepted Answer

Persistent inflation can be caused when growth in aggregate demand outpaces growth in aggregate supply, leading to an increase in prices. This can happen due to factors such as increased government spending, growth in the money supply, or a surge in consumer spending.

Question 15

-Refer to the above figure. If the price level is 80,

Accepted Answer

The answer of 
-Refer to the above figure. If the...

Question 16

The U. S. has experienced inflation every year since 1959 due to

Accepted Answer

Inflation typically occurs when there is a sustained increase in aggregate demand that outpaces the increase in aggregate supply. This scenario leads to higher prices as demand for goods and services exceeds the available supply.

Question 17

Supply-side inflation is caused by

Accepted Answer

Supply-side inflation occurs when there is a decrease in aggregate supply, meaning fewer goods and services are being produced, while aggregate demand remains unchanged. This can be caused by factors such as natural disasters, reduced productivity, or increased production costs. As a result, prices of goods and services rise due to the decreased supply.

Question 18

How is economic growth graphically depicted?

Accepted Answer

Economic growth is graphically depicted by a rightward shift of the long-run aggregate supply curve, indicating an increase in the productive capacity of the economy.

Question 19

A persistently declining price level resulting from economic growth and unchanged aggregate demand is called

Accepted Answer

This type of deflation is known as secular deflation, which occurs due to sustained economic growth leading to an increase in the supply of goods and services, leading to a decline in their prices. The aggregate demand remains unchanged.

Question 20

Over the last twenty years, real GDP in the U.S. economy has increased and there has been inflation. This indicates that

Accepted Answer

If real GDP has increased along with inflation, it suggests that aggregate demand has increased more than aggregate supply. This means that consumers and businesses are demanding more goods and services than what the economy is currently able to produce. As a result, prices rise due to the increased competition for limited resources, causing inflation.

Quiz 10: Real GDP and the Price Level in the Long Run