Question 1

The aggregate supply (AS)curve is drawn with which variables on the axes of the graph?
A)the price level on the vertical axis and MPC on the horizontal axis
B)national income on the vertical axis and total desired consumption on the horizontal axis
C)the price level on the vertical axis and real GDP on the horizontal axis
D)national income on the vertical axis and marginal cost on the horizontal axis
E)the price level on the vertical axis and real disposable income on the horizontal axis

Accepted Answer

The aggregate supply (AS) curve is drawn with the price level on the vertical axis and real GDP on the horizontal axis. This is because the AS curve shows the relationship between the overall level of prices in the economy and the quantity of goods and services that firms are willing to produce and supply, which is measured by real GDP.

Question 2

Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift
A)downward (to the right),reducing the price level.
B)downward (to the right)and then return immediately to its original position.
C)upward (to the left)and then return immediately to its original position.
D)upward (to the left),increasing the price level.
E)None of the above; there will no effect on the AS curve.

Accepted Answer

When major labor unions increase wages across the economy, it leads to an increase in production costs for firms, causing a decrease in their profits. To maintain their profit levels, firms will have to increase prices, leading to a leftward shift of the AS curve. This results in a decrease in output and an increase in the price level. Therefore, the correct option is D - upward (to the left), increasing the price level.

Question 3

In building a macro model with an AS curve,it is assumed that producers will
A)increase prices without changing their output.
B)decrease their prices without changing output.
C)decrease their prices when they expand output.
D)produce as much as possible at the existing price level.
E)produce more output only if prices rise.

Accepted Answer

The answer of In building a macro model with an...

Question 4

The economy's aggregate supply curve is drawn under two main assumptions.They are
A)firms' unit costs are constant; prices of all factors of production are constant.
B)firms' unit costs are constant; the state of technology is constant.
C)firms will produce more output only if prices rise; technology improves only if prices rise.
D)the prices of all factors of production are constant; the state of technology is constant.
E)the prices of all factors of production are constant; productivity improves as the price level rises.

Accepted Answer

The aggregate supply curve is drawn under the assumption that the prices of all factors of production are constant and the state of technology is constant. This simplifies the analysis by focusing on the relationship between the overall price level and the total output produced in the economy, without the need to account for changes in input costs or technological advancements.

Question 5

Consider the basic AD/AS model.When wage rates rise faster than the increase in labour productivity,the
A)AD curve shifts left.
B)AS curve shifts upward.
C)output gap falls.
D)output gap increases.
E)AS curve shifts downward.

Accepted Answer

When wage rates rise faster than the increase in labor productivity, the cost of production for firms increases. This leads to a decrease in the aggregate supply (AS) as firms are willing to supply less at the same price levels, hence the AS curve shifts upward.

Question 6

A decrease in aggregate supply in the short run is
A)shown by a shift to the left of the AS curve.
B)shown by a shift to the right of the AS curve.
C)interpreted to mean that more national output will be supplied at any given price level.
D)caused by a decrease in the price level.
E)caused by an increase in the price level.

Accepted Answer

A decrease in aggregate supply means that the economy can produce less output at any given price level. This is shown by a leftward shift in the aggregate supply curve.

Question 7

Consider the economy's aggregate supply curve.Other things being equal,unit costs will tend to fall if
A)there is a fall in the price of oil.
B)the government increases payroll taxes.
C)wages fall.
D)wage and price controls are in effect.
E)wage increases are less than productivity increases.

Accepted Answer

If wages increase less than productivity increases, it means that unit labor costs will decrease, which will lead to a decrease in overall production costs. This will likely shift the aggregate supply curve to the right, causing an increase in output and a decrease in price levels. Thus, E is the correct choice. A, B, and D do not lead to a decrease in unit costs and may even increase them, while C may decrease wages but does not consider productivity increases.

Question 8

The economy's aggregate supply (AS)curve is assumed to slope upward because
A)inputs become more expensive at higher levels of output.
B)inputs become less expensive at higher levels of output.
C)firms' unit costs rise as output increases.
D)firms' unit costs fall as output increases.
E)aggregate demand increases at higher levels of national income.

Accepted Answer

The aggregate supply curve slopes upward because, as output increases, firms often face higher costs due to factors like overtime pay, resource scarcity, or inefficiencies, leading to rising unit costs.

Question 9

Other things being equal,the economy's AS curve will shift upward in the short run if there is
A)an increase in the cost of capital.
B)a decrease in the cost of capital.
C)a decrease in nominal wages.
D)a decrease in the price level.
E)an improvement in technology.

Accepted Answer

An increase in the cost of capital raises production costs for firms, leading to a decrease in aggregate supply, causing the AS curve to shift upward in the short run.

Question 10

Other things being equal,the economy's AS curve will shift downward if there is
A)a decrease in labour productivity.
B)a decrease in the cost of capital inputs.
C)a decrease in the price level.
D)an increase in the price level.
E)an increase in nominal wages.

Accepted Answer

A decrease in the cost of capital inputs reduces production costs, allowing firms to supply more at each price level, thus shifting the AS curve downward.

Question 11

A leftward shift in the economy's AS curve implies that
A)at any given price level,a lower level of output will be supplied.
B)at any given price level,a higher level of output will be supplied.
C)there is an increase in aggregate supply.
D)there is a demand shock.
E)the same output will be produced in equilibrium,but at a lower price level.

Accepted Answer

A leftward shift in the economy's AS curve implies that, at any given price level, a lower level of output will be supplied. This means that the cost of producing goods and services has increased, or that there are supply-side issues that have caused a decrease in production capacity, leading to a reduction in the amount of goods and services that producers are able and willing to supply at each price level.

Question 12

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell,given the assumption that
A)technology and the prices of all factors of production remain constant.
B)unit costs remain constant.
C)all firms are price takers.
D)all firms are price setters.
E)technology and the prices of all factors of production do not remain constant.

Accepted Answer

The aggregate supply curve assumes that technology and prices of all factors of production remain constant. This means that the level of output that firms are willing to produce and sell is independent of changes in the price level, which only affects the profitability of production but not the underlying factors that determine the capacity of firms to supply goods and services. The aggregate supply curve is therefore a vertical line at potential output, which corresponds to the level of production that can be sustained in the long run without inflationary pressures or excess capacity.

Question 13

In the short run,the aggregate supply curve has a positive slope because,as the price level rises,producers can
A)accumulate inventories.
B)charge a higher price sufficient to cover their higher unit costs.
C)experience rising factor prices.
D)produce less in response to falling profits.
E)increase output at unchanged unit costs.

Accepted Answer

In the short run, producers have fixed costs and resources, so as the price level rises, they can charge a higher price to cover their higher unit costs and increase profits. This results in a positive slope of the aggregate supply curve.

Question 14

Consider the basic AD/AS model.If there is a decrease in the cost of non-labour inputs to production,the result will be to
A)shift the AD curve to the left.
B)shift the AD curve to the right.
C)shift the AS curve to the left.
D)shift the AS curve to the right.
E)cause a movement to the left along the AS curve.

Accepted Answer

A decrease in the cost of non-labor inputs to production will lower the cost of production for firms, causing them to increase their supply at any given price level. This will lead to a rightward shift of the AS curve. The shift in AS will lead to a decrease in price levels and an increase in output, which will cause the AD curve to shift to the right as well. However, the AS curve will shift more to the right, resulting in a lower equilibrium price level and a higher equilibrium output.

Question 15

A decrease in aggregate supply in the short run is
A)reflected in a movement to the left along the AS curve.
B)reflected in a shift to the right in the AS curve.
C)interpreted to mean that less total output will be supplied at any given price level.
D)caused by a decrease in the price level.
E)caused by an increase in the price level.

Accepted Answer

A decrease in aggregate supply means that fewer goods and services are being produced at any given price level, leading to a leftward shift in the AS curve. This is because factors of production such as labor, capital, and raw materials have become more expensive or less available, leading to higher costs of production and lower output. Therefore, choice C is the best answer as it correctly interprets the meaning of a decrease in aggregate supply. Choices A and B are incorrect as they describe movements along or shifts in the AS curve, but do not explain the cause or interpretation of the change in aggregate supply. Choices D and E are also incorrect as changes in the price level do not cause changes in aggregate supply, but rather reflect changes in aggregate demand.

Question 16

A movement along the economy's AS curve could be caused by a change in
A)labour productivity.
B)the cost of capital.
C)the price level,caused in turn by an AD shock.
D)technology.
E)the wage rate.

Accepted Answer

A movement along the Aggregate Supply (AS) curve is typically caused by a change in the price level, which can be due to an Aggregate Demand (AD) shock. Other factors like labor productivity, cost of capital, technology, and wage rate would shift the AS curve rather than cause a movement along it.

Question 17

Consider the economy's aggregate supply curve.Other things being equal,unit costs will tend to increase if
A)there is a rise in the price of oil.
B)the government reduces payroll taxes.
C)wage increases exceed productivity increases.
D)wages rise.
E)wage and price controls are in effect.

Accepted Answer

Unit costs will tend to increase if wages increase at a faster rate than productivity because it means that each worker is producing less output per hour, which leads to higher costs to produce each unit of output. A rise in the price of oil (A) would increase costs for firms but not necessarily wages. Payroll tax reductions (B) would decrease costs for firms but not impact wages. Wages rising in general (D) would increase costs for firms but not necessarily impact unit costs if productivity also increases. Wage and price controls (E) would have varying effects on unit costs depending on how they are implemented.

Question 18

The economy's AS curve will shift upward in the short run if there is
A)an improvement in technology.
B)a decrease in the cost of capital.
C)an increase in the price level.
D)a decrease in nominal wages.
E)an increase in nominal wages.

Accepted Answer

An increase in nominal wages raises production costs for firms, leading to a decrease in aggregate supply, which shifts the AS curve upward in the short run.

Question 19

The economy's AS curve is often assumed to be relatively flat at low levels of real GDP.The underlying reasoning is that
A)consumer demand for most goods tends to be non-responsive to price when output is low.
B)consumer demand for most goods tends to be very responsive to price when output is low.
C)at low levels of output,firms are faced with unused capacity and thus can increase output without significantly increasing their costs.
D)the price level is constant.
E)profits are normally high in this section of the AS curve,so firms are willing to expand output.

Accepted Answer

When output is low, firms have unused capacity so they can increase output without significantly increasing their costs. This means that the AS curve is relatively flat.

Question 20

A rightward shift in the economy's AS curve implies that
A)at any given price level,a lower level of output will be supplied.
B)at any given price level,a higher level of output will be supplied.
C)there is a decrease in aggregate supply.
D)there is a demand shock.
E)the same output will be produced,but only at a higher price level.

Accepted Answer

A rightward shift in the economy's AS (aggregate supply) curve means that at any given price level, producers are willing and able to supply a higher level of output, usually because there has been an increase in factors such as productivity, technology, or availability of resources. This is different from a leftward shift in the AS curve, which would imply a decrease in aggregate supply. Therefore, option B is the correct choice. Options A, C, and D are all incorrect because they describe effects that would be associated with a leftward shift in the AS curve, not a rightward shift. Option E is also incorrect because a rightward shift means that more output can be produced at the same price level or even at lower price levels, not just at higher prices.

Quiz 23: Output and Prices in the Short Run

The aggregate supply (AS) curve is drawn with which variables on the axes of the graph?

Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift

In building a macro model with an AS curve,it is assumed that producers will

The economy's aggregate supply curve is drawn under two main assumptions.They are

Consider the basic AD/AS model.When wage rates rise faster than the increase in labour productivity,the

A decrease in aggregate supply in the short run is

Consider the economy's aggregate supply curve.Other things being equal,unit costs will tend to fall if

The economy's aggregate supply (AS) curve is assumed to slope upward because

Other things being equal,the economy's AS curve will shift upward in the short run if there is

Other things being equal,the economy's AS curve will shift downward if there is

A leftward shift in the economy's AS curve implies that

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell,given the assumption that

In the short run,the aggregate supply curve has a positive slope because,as the price level rises,producers can

Consider the basic AD/AS model.If there is a decrease in the cost of non-labour inputs to production,the result will be to

A decrease in aggregate supply in the short run is

A movement along the economy's AS curve could be caused by a change in

Consider the economy's aggregate supply curve.Other things being equal,unit costs will tend to increase if

The economy's AS curve will shift upward in the short run if there is

The economy's AS curve is often assumed to be relatively flat at low levels of real GDP.The underlying reasoning is that

A rightward shift in the economy's AS curve implies that