Question 1

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 expected price level leads to a decrease in demand for goods and services which leads to lower output. At the same time, producers may increase their prices to match the expected higher price level, leading to a higher price level in the short run. Therefore, the correct choice is B - a lower level of output and a higher price level.

Question 2

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, particularly on military production and supplies for World War II. This led to a surge in demand for goods and services, triggering economic growth and lowering the unemployment rate.

Question 3

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, firms are less willing to supply the same level of output at every price level. This means that the short-run aggregate supply curves shifts to the left, indicating that the economy's potential output has decreased.

Question 4

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

If there is no policy response to the increase in production costs, firms will reduce production, leading to a decrease in employment and an increase in unemployment. This will lead to a decrease in wages, which will eventually shift the short-run aggregate supply curve back to the right. Option D correctly states that wages will be bid down because of the high unemployment, leading to a rightward shift in the short-run aggregate supply curve.

Question 5

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 the...

Question 6

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 could lead to a reduction in agricultural output, causing a decrease in supply and an increase in prices for agricultural products. This could then lead to an overall reduction in output in the economy, as consumers have less disposable income to spend on other goods and services.

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 will decrease the amount of money available in the economy, leading to a decrease in demand and a decrease in prices and output in the short run. Option A is incorrect because an increase in the money supply will increase demand and output, leading to an increase in prices in the short run. Option B is incorrect because an increase in oil prices will increase production costs, leading to a decrease in output and an increase in prices in the short run. Option D is incorrect because technical progress will increase productivity and output, leading to a decrease in prices in the long run, but not necessarily in the short run.

Question 8

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 costs of production leads to a decrease in output (quantity of goods produced) as the producer may find it too expensive to produce as much as before. This decrease in output leads to a decrease in supply (assuming demand stays the same) causing prices to rise. Therefore, in the short run, an increase in production costs leads to reduced output and higher prices, as per option C.

Question 9

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

An increase in government expenditures would increase the demand for goods and services in the economy, leading to a decrease in the supply of money and an increase in prices in both the short and long run.

Question 10

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

If there is a contraction caused by a shift in aggregate supply, policymakers can use expansionary monetary and fiscal policies to stimulate aggregate demand, which would shift the AD curve to the right. This will help to offset the negative effects on output and employment caused by the initial supply shift.

Question 11

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 shift the aggregate supply curve to the left because it will increase the cost of production for firms, leading to a decrease in the quantity of goods and services supplied at any given price level.

Question 12

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 there is a shift in aggregate demand that creates an economic contraction, policymakers can respond with sufficient speed and precision by shifting aggregate demand right. This will help to offset the initial shift and bring the economy out of contraction. Shifting aggregate supply left would only worsen the contraction and could lead to stagflation. Shifting aggregate supply right would not address the issue of a contraction caused by a shift in aggregate demand. Shifting aggregate demand left would further worsen the contraction, leading to a deeper recession.

Question 13

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 there is a combination of high inflation and low economic growth, which means that prices are rising while output or GDP (an indicator of economic growth) is falling. Therefore, option B is the correct choice as it describes this phenomenon.

Question 14

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

Stagflation occurs when there is a decrease in aggregate supply, which results in a decrease in real output and an increase in prices. Therefore, when aggregate supply shifts left, it can cause stagflation.

Question 15

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 increases the cost of production for businesses, which can lead to higher prices for consumers. This can lead to inflation. Additionally, higher oil prices can lead to a decrease in consumer spending and economic growth, causing stagnation.

Question 16

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 would cause firms to increase prices and reduce output, which would lead to a fall in real GDP.

Question 17

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 that the economy became more productive and efficient in the long run. This would lead to an increase in output and a decrease in prices. For price and output to have changed in the direction they did, aggregate demand would have had to shift left, but by less than aggregate supply shifted right. This means that the increase in output and decrease in prices due to the shift in long-run aggregate supply were partially offset by a decrease in aggregate demand, resulting in a smaller overall change in price and output.

Question 18

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 can disrupt production, increase production costs, and reduce output, leading to an increase in the price level.

Question 19

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 decrease agricultural output, while a decrease in the availability of raw materials can limit production capacity. Both of these factors would cause a decrease in output in the short run, as firms struggle to adjust to the new conditions. Aggregate supply shifting right or prices falling are not likely outcomes in these scenarios.

Question 20

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...

Quiz 23: Aggregate Demand and Aggregate Supply

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

The economic boom of the early 1940s resulted mostly from

When production costs rise,

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

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

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

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

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

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

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

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

Stagflation exists when prices

Which of the following would cause stagflation?

Which of the following would cause stagflation?

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

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?

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

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

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