Question 1

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

Accepted Answer

A decrease in the money supply will lead to a decrease in aggregate demand, reducing both the price level and real output in the short run. A decrease in government purchases or a decrease in oil prices could increase aggregate demand and potentially increase both the price level and real output. Technical progress could potentially increase real output in the long run, but its effect on the price level would depend on its impact on aggregate demand and aggregate supply.

Question 2

Figure 33-10. 
-Refer to Figure 33-10.If the economy starts at point A,a short-run fall in output would be consistent with a movement to point

Accepted Answer

The answer of Figure 33-10. 
-Refer to Figure 33-10.If the...

Question 3

Suppose the economy is in long-run equilibrium.If there is an increase in government purchases at the same time there is a large increase in the price of oil,then in the short-run

Accepted Answer

An increase in government purchases will shift the aggregate demand curve to the right, leading to an increase in both real GDP and the price level. However, at the same time, a large increase in the price of oil will likely shift the aggregate supply curve to the left, leading to an increase in the price level and a decrease in real GDP. The net effect depends on the relative magnitude of these shifts, but the most likely outcome is an increase in the price level and uncertainty about the impact on real GDP.

Question 4

Suppose the economy is in long-run equilibrium.Senator A succeeds in getting taxes raised.At the same time,Senator B succeeds in getting major restrictions on logging removed.In the short run

Accepted Answer

The answer of Suppose the economy is in long-run equilibrium.Senator...

Question 5

Figure 33-8. 
-Refer to Figure 33-8.Suppose the economy starts at Z.Stagflation would be consistent with the move to

Accepted Answer

Stagflation is characterized by high inflation and low output. A move to P3 and Y1 indicates higher prices (inflation) and lower output, consistent with stagflation.

Question 6

Figure 33-8. -Refer to Figure 33-8.Suppose the economy starts at Z.If changes occur that move the economy to a new short run equilibrium of P₁ and Y₁ ,then it must be the case that

Accepted Answer

If the economy moves to a new short-run equilibrium with a lower price level (P1) and lower output (Y1), it indicates a decrease in aggregate demand.

Question 7

Figure 33-9. -Refer to Figure 33-9.Suppose the economy starts where LRAS = AD1 = SRAS₁.A decrease in short-run aggregate supply would be consistent with the movement to

Accepted Answer

A decrease in short-run aggregate supply shifts the SRAS curve to the left, leading to a higher price level (P2) and the same output level (Y1) as the economy moves along the AD curve.

Question 8

Figure 33-10. 
-Refer to Figure 33-10.If the economy starts at point C,stagflation would be consistent with point

Accepted Answer

The answer of Figure 33-10. 
-Refer to Figure 33-10.If the...

Question 9

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

Accepted Answer

According to the short-run Phillips curve, there is a negative relationship between inflation and unemployment in the short run. An increase in the expected price level will lead to an increase in the actual price level, causing inflation. As a result, firms will increase their output in the short run to meet the higher demand for goods and services, leading to a lower level of unemployment. However, the increase in production costs due to higher prices for inputs will lead to a lower level of output than the economy would have produced at the original price level. Therefore, the short-run effect of an increase in the expected price level is a lower level of output and a higher price level.

Question 10

Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,taxes fall.In the short-run

Accepted Answer

The restriction on electricity production decreases aggregate supply, which tends to increase the price level. The tax cut increases aggregate demand, which also tends to increase the price level. The net effect on real GDP is uncertain as it depends on the relative magnitudes of the shifts in aggregate supply and demand.

Question 11

Figure 33-8. -Refer to Figure 33-8.Suppose the economy starts at Z.If changes occur that move the economy to a new short run equilibrium of P₃ and Y₃ ,then it must be the case that

Accepted Answer

In the new short run equilibrium, the level of output (Y) has increased, while the price level (P) has remained the same as in the initial equilibrium. This indicates that there has been an increase in aggregate demand. However, given that the price level has not changed, it is unlikely that there was a shift in the long run aggregate supply curve. Therefore, the most likely explanation is that there has been an increase in short run aggregate supply, allowing firms to produce more output at the same price level.

Question 12

Imagine the U.S.economy is in long-run equilibrium.Then suppose the value of the U.S.dollar decreases.At the same time,people in the U.S.revise their expectations so that the expected price level rises.We would expect that in the short-run

Accepted Answer

When the value of the U.S. dollar decreases and people revise their expectations so that the expected price level rises, it will lead to an increase in aggregate demand. This increase in aggregate demand will cause output and prices to rise in the short run. Therefore, real GDP might rise, fall or stay the same, while the price level will definitely rise in the short run. This is because the lower value of the U.S. dollar will make domestically produced goods less expensive to foreign buyers, which will increase the demand for U.S. goods and services from abroad.

Question 13

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

Accepted Answer

The answer of Which of the following would cause prices...

Question 14

Figure 33-11. -Refer to Figure 33-11.A movement from P₁ and Y₂,to P₂ and Y₁ would be consistent with

Accepted Answer

This movement represents a shift from the production of one good to another (specifically, from P₁ to P₂ and from Y₂ to Y₁). If this shift results in both higher prices (due to decreased supply of the first good) and higher unemployment (due to decreased demand for the inputs used to produce the first good), it is consistent with stagflation.

Question 15

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

Accepted Answer

When there is an increase in costs of production that shifts the short-run aggregate supply curve left, prices will rise and firms will produce less output. This will lead to higher unemployment and lower wages since there will be a surplus of labor. As a result, wages will be bid down and, eventually, short-run aggregate supply will shift right as firms adjust their expectations and lower their production costs to accommodate the new economic conditions. Hence, option D is the correct answer.

Question 16

Suppose the economy is in long-run equilibrium.If there is an increase in the supply of labor as well as an increase in the money supply,then we would expect that in the short-run,

Accepted Answer

An increase in the supply of labor would shift the short-run aggregate supply curve to the right, increasing real GDP. An increase in the money supply would shift the aggregate demand curve to the right, also increasing real GDP. However, the effect on the price level is ambiguous, as it depends on the relative sizes of the shifts and the slope of the aggregate supply and demand curves. Therefore, we would expect real GDP to rise in the short-run but the price level might rise, fall, or stay the same.

Question 17

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

Accepted Answer

An increase in the expected price level typically causes firms to anticipate higher costs, leading them to reduce output at any given price level, which shifts the short-run aggregate supply curve to the left.

Question 18

Which of the following would cause stagflation?

Accepted Answer

Stagflation is a combination of stagnant economic growth and high inflation. Rising oil prices can cause supply shocks which increase the cost of production, leading to higher prices for goods and services. This can reduce economic growth while also causing inflation, resulting in stagflation. The other choices - rising government expenditures, falling money supply, and technical progress - do not necessarily lead to stagflation.

Question 19

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

Accepted Answer

An increase in government expenditures would stimulate aggregate demand, causing an increase in the price level in both the short and long run.

Question 20

Suppose that the economy is at long-run equilibrium.If there is a sharp rise in the stock market combined with a significant increase in the minimum wage,then in the short run

Accepted Answer

A sharp rise in the stock market increases consumer wealth, boosting aggregate demand, which tends to increase the price level. A significant increase in the minimum wage raises production costs, potentially reducing aggregate supply. The net effect on real GDP is uncertain, but the price level is likely to rise.

Quiz 20: Aggregate Demand and Aggregate Supply: Two Causes of Economic Fluctuations