Question 1

Figure 8-4 
-In Figure 8-4,the economy would most likely move from A D₁ to A D₂ because of

Accepted Answer

An increase in government expenditures can shift the aggregate demand curve from AD1 to AD2 as it injects more spending into the economy, stimulating demand for goods and services.

Question 2

A short run equilibrium occurs at the intersection of the ________ and the aggregate demand curve.

Accepted Answer

In the short-run, equilibrium occurs where the short-run aggregate supply curve intersects the aggregate demand curve. The long-run aggregate supply curve is not relevant for determining short-run equilibrium, while the planned aggregate expenditure and investment demand curves are not commonly used in the analysis of short-run equilibrium.

Question 3

The difference between the equilibrium level of real GDP and how much the economy could be producing if it were operating at full employment on its long-run aggregate supply curve is known as the

Accepted Answer

The difference between the equilibrium level of real GDP and how much the economy could be producing if it were operating at full employment on its long-run aggregate supply curve is known as the recessionary gap. This means that the economy is producing at a level below its potential, which indicates an economic recession.

Question 4

Figure 8-3 
-Which point or points on Figure 8-3 illustrate an eventual long-run equilibrium?

Accepted Answer

The answer of Figure 8-3 
-Which point or points on...

Question 5

A short run equilibrium occurs at the intersection of the short-run aggregate supply curve and the

Accepted Answer

A short run equilibrium occurs at the point where the short-run aggregate supply curve intersects the aggregate demand curve, representing the point where the quantity of goods and services supplied equals the quantity demanded at a given price level in the short run. The long-run aggregate supply curve represents the level of potential output in the long run and does not affect the short run equilibrium. The planned aggregate expenditure curve and investment demand curve are not directly related to the determination of short run equilibrium.

Question 6

OPEC's oil embargo of Canada in the 1970s was an example of

Accepted Answer

The oil embargo by OPEC on Canada was a supply shock, as it reduced the supply of oil to Canada. This reduction in supply led to an increase in the price of oil, as there was now a scarcity of it in the market. Therefore, the correct choice is C, a supply shock that increased price levels.

Question 7

A ________ occurs at the intersection of the short-run aggregate supply curve and the aggregate demand curve.

Accepted Answer

Short run equilibrium occurs at the intersection of the short-run aggregate supply curve and the aggregate demand curve. This is the point where the economy is producing at the level of potential output, and the price level is stable.

Question 8

Figure 8-3 
-According to Figure 8-3,what will the price level be in the new long-run equilibrium?

Accepted Answer

The new long-run equilibrium price level will be 115 because the aggregate supply curve shifts to the right, causing the price level to fall and the quantity supplied to increase.

Question 9

Economic growth will be associated with a constant price level when

Accepted Answer

When the increase in aggregate demand exactly equals the increase in long-run aggregate supply, there will be no pressure on prices to rise or fall, resulting in a constant price level.

Question 10

A long run equilibrium occurs at the intersection of the short-run aggregate supply curve and the

Accepted Answer

The long run equilibrium occurs at the intersection of the short-run aggregate supply curve and the long-run aggregate supply curve because in the long-run, prices and wages are flexible and adjustments have taken place so that the economy is operating at its potential output level. This intersection is also known as the natural rate of output, and it represents the point where the economy is in equilibrium, with no excess supply or excess demand in the labor or product markets.

Question 11

One possible result of a fall in aggregate demand coupled with a stable aggregate supply is

Accepted Answer

A fall in aggregate demand means that consumers and businesses are spending less, which can lead to a contraction in the economy. If aggregate supply remains stable, this means that the production of goods and services is not changing, but since demand is lower, there will be a surplus of goods and services, leading to lower prices and possibly decreased production. This can lead to businesses laying off workers and decreased economic activity, which are hallmarks of a recession.

Question 12

Figure 8-3 
-In Figure 8-3,the three curves are:

Accepted Answer

In typical macroeconomic models, the long-run aggregate supply (LRAS) curve is vertical, reflecting the economy's potential output independent of price level. The short-run aggregate supply (SRAS) curve slopes upwards, indicating that higher prices can lead to higher output in the short term. The aggregate demand (AD) curve slopes downwards, showing that lower prices increase the quantity of goods and services demanded. Choice A correctly identifies these characteristics.

Question 13

A long run equilibrium occurs at the intersection of the short-run aggregate supply curve and the

Accepted Answer

In the long run, all factors of production are variable, meaning that the short-run aggregate supply curve will shift until it intersects with the aggregate demand curve at potential GDP. Therefore, the long run equilibrium occurs at the intersection of the short-run aggregate supply curve and the aggregate demand curve.

Question 14

Figure 8-4 
-The reason that it is possible for the economy in Figure 8-4 to be at E₂ rather than at E₁ is that

Accepted Answer

In the short run, there may be factors that allow the economy to produce more than it would be able to in the long run due to full adjustment. For example, low interest rates or increased government spending can temporarily stimulate demand and lead to output above potential GDP. However, in the long run, the economy will adjust back to the natural rate of output, represented by E₁.

Question 15

Figure 8-4 
-In Figure 8-4,the expansionary gap can correctly be identified as

Accepted Answer

The expansionary gap is the difference between the actual output level in the economy and the potential output level when the economy is at full employment. It is represented by the difference between the current level of real GDP and the level of GDP at full employment. In this context, the difference between 7 billion and 7.2 billion represents the gap between the current economic output and the potential output, indicating an expansionary gap.

Question 16

________ will be associated with a constant price level when the increase in aggregate demand exactly equals the increase in long-run aggregate supply.

Accepted Answer

When the increase in aggregate demand exactly equals the increase in long-run aggregate supply, the economy is at its potential output level, which means that the economy is experiencing economic growth. At this level of output, there is no pressure on the price level to increase or decrease. Therefore, choice A, economic growth, will be associated with a constant price level.

Question 17

Figure 8-3 
-According to Figure 8-3,the price level in the short run will be

Accepted Answer

Without access to Figure 8-3, the correct answer cannot be determined directly. However, in macroeconomics, short-run price levels can be influenced by aggregate demand and supply shifts. If the question implies an increase in aggregate demand or a decrease in short-run aggregate supply, the price level could rise above its current level. Assuming a starting price level of 100, an answer of 110 suggests a scenario where prices have increased, which could be plausible in a short-run analysis due to demand-pull inflation or cost-push inflation.

Question 18

The long-run aggregate supply curve is vertical at $5 billion but the short-run aggregate supply curve intersects the aggregate demand curve at $6 billion.From this,we know that

Accepted Answer

The long-run aggregate supply curve being vertical at $5 billion indicates the full capacity output of the economy. If the short-run aggregate supply intersects the aggregate demand curve at $6 billion, it means the economy is currently producing above its full capacity. Adjustments will naturally occur to bring the economy back to its full capacity level of $5 billion, aligning the short-run aggregate supply with the long-run aggregate supply.

Question 19

Figure 8-4 
-In Figure 8-4,the economy would most likely move from A D₁ to A D₂ because of

Accepted Answer

The shift in the aggregate demand curve from AD₁ to AD₂ implies an increase in demand, which is most likely caused by a demand shock. A supply shock would cause a shift in the short-run aggregate supply curve, while a recession or depression would cause a decrease in aggregate demand, shifting the curve to the left.

Question 20

Figure 8-3 
-Which point or points on Figure 8-3 illustrate a short-run equilibrium?

Accepted Answer

The answer of Figure 8-3 
-Which point or points on...

Quiz 8: Modelling Real Gdp and the Price Level in the Short Run

Figure 8-4 -In Figure 8-4,the economy would most likely move from A D₁ to A D₂ because of

A short run equilibrium occurs at the intersection of the ________ and the aggregate demand curve.

The difference between the equilibrium level of real GDP and how much the economy could be producing if it were operating at full employment on its long-run aggregate supply curve is known as the

Figure 8-3 -Which point or points on Figure 8-3 illustrate an eventual long-run equilibrium?

A short run equilibrium occurs at the intersection of the short-run aggregate supply curve and the

OPEC's oil embargo of Canada in the 1970s was an example of

A ________ occurs at the intersection of the short-run aggregate supply curve and the aggregate demand curve.

Figure 8-3 -According to Figure 8-3,what will the price level be in the new long-run equilibrium?

Economic growth will be associated with a constant price level when

A long run equilibrium occurs at the intersection of the short-run aggregate supply curve and the

One possible result of a fall in aggregate demand coupled with a stable aggregate supply is

Figure 8-3 -In Figure 8-3,the three curves are:

A long run equilibrium occurs at the intersection of the short-run aggregate supply curve and the

Figure 8-4 -The reason that it is possible for the economy in Figure 8-4 to be at E₂ rather than at E₁ is that

Figure 8-4 -In Figure 8-4,the expansionary gap can correctly be identified as

________ will be associated with a constant price level when the increase in aggregate demand exactly equals the increase in long-run aggregate supply.

Figure 8-3 -According to Figure 8-3,the price level in the short run will be

The long-run aggregate supply curve is vertical at $5 billion but the short-run aggregate supply curve intersects the aggregate demand curve at $6 billion.From this,we know that

Figure 8-4 -In Figure 8-4,the economy would most likely move from A D₁ to A D₂ because of

Figure 8-3 -Which point or points on Figure 8-3 illustrate a short-run equilibrium?