Question 1

In the mid-1970s the price of oil rose dramatically.This
A) shifted aggregate supply left.
B) caused U.S.prices to fall.
C) was the consequence of OPEC increasing oil production.
D) All of the above are correct.

Accepted Answer

The rise in oil prices in the mid-1970s would have led to a decrease in aggregate supply, as the increased cost of production would make it more expensive for firms to produce goods and services, reducing the quantity of output supplied at every given price level. The correct answer is A. Choices B and C are not correct; while the rise in oil prices would have had an impact on U.S. prices, it would have led to an increase rather than a decrease, and OPEC's decision to decrease oil production was responsible for the rise in prices, not increase. Choice D is also incorrect, as only one of the possible answers is correct.

Question 2

Changes in the price of oil
A) can only lead to recessions.
B) have not contributed much to output fluctuations in the United States.
C) change the economy principally by changing aggregate demand.
D) created both inflation and recession in the United States in the 1970s.

Accepted Answer

Changes in the price of oil created both inflation and recession in the United States in the 1970s. This was due to the OPEC oil embargo, which caused a significant increase in the price of oil and led to stagflation (a combination of inflation and recession) in the US economy. Generally, changes in the price of oil can have significant impacts on the economy, as they affect production costs, consumer spending, and overall aggregate demand. However, their direct impact on output fluctuations may vary depending on other economic factors.

Question 3

In 1936,John Maynard Keynes published a book,The General Theory,which attempted to explain
A) stagflation.
B) the classical dichotomy.
C) short-run economic fluctuations.
D) how changes in the money supply had created the Great Depression.

Accepted Answer

The General Theory attempted to explain short-run economic fluctuations.

Question 4

Keynes explained that recessions and depressions occur because of
A) excess aggregate demand.
B) inadequate aggregate demand.
C) excess aggregate supply.
D) inadequate aggregate supply.

Accepted Answer

According to Keynes, recessions and depressions occur because of inadequate aggregate demand, meaning that overall consumption and investment spending in the economy is not sufficient to support full employment and production levels.

Question 5

Keynes believed that economies experiencing high unemployment should adopt policies to
A) reduce the money supply.
B) reduce government expenditures.
C) increase aggregate demand.
D) increase aggregate supply.

Accepted Answer

Keynes believed in the importance of increasing aggregate demand (spending by households, firms, government, and foreign countries) during times of high unemployment. This could be achieved through government spending or through monetary policy measures such as lowering interest rates. Reducing the money supply or government expenditure would have the opposite effect and could worsen unemployment levels. Increasing aggregate supply would also not address the issue of demand deficiency leading to high unemployment.

Question 6

The recessions of the 1970s are often attributed to
A) declining inflation expectations.
B) an increase in oil prices.
C) declines in the price of stock.
D) decreases in the money supply.

Accepted Answer

The increase in oil prices, particularly in 1973 and 1979, played a significant role in causing economic recessions during the 1970s. The oil shocks led to both higher inflation and decreased economic growth, as higher energy prices increased production costs and reduced consumer purchasing power.

Quiz 33: Aggregate Demand and Aggregate Supply

In the mid-1970s the price of oil rose dramatically.This

Changes in the price of oil

In 1936,John Maynard Keynes published a book,The General Theory,which attempted to explain

Keynes explained that recessions and depressions occur because of

Keynes believed that economies experiencing high unemployment should adopt policies to

The recessions of the 1970s are often attributed to