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 the purchasing power of money, leading to a decrease in aggregate demand. As a result, output decreases and prices rise in the short run, leading to stagflation. Therefore, option B, a lower level of output and a higher price level, is the correct choice.

Question 2

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short run
A) real GDP will rise and the price level might rise, fall, or stay the same.
B) real GDP will fall and the price level might rise, fall, or stay the same.
C) the price level will rise, and real GDP might rise, fall, or stay the same.
D) the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

The answer of Suppose that the economy is at long-run...

Question 3

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...

Question 4

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

In the short-run, an increase in the costs of production will lead to a decrease in the supply of goods, as it becomes more expensive for firms to produce them. This decrease in supply will cause prices to rise, and the higher costs will also cause a decrease in output. Therefore, option C is the correct answer.

Question 5

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, droughts, or a decrease in the availability of raw materials would negatively impact production and increase input costs, leading to a decrease in output in the short run. However, it would not affect the aggregate supply curve directly (as it is determined by factors such as technology, labor force, and capital stock). Prices may also increase in response to the decrease in output caused by the supply shocks.

Question 6

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, the value of the dollar falls. In the short-run
A) real GDP will rise and the price level might rise, fall, or stay the same.
B) real GDP will fall and the price level might rise, fall, or stay the same.
C) the price level will rise, and real GDP might rise, fall, or stay the same.
D) the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

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

Question 7

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 refers to a situation of high inflation coupled with low economic growth and high unemployment. This scenario can occur when there is a decrease in aggregate supply, causing prices to rise, while the decrease in production leads to higher unemployment and slower economic growth. Therefore, only a leftward shift in aggregate supply, as represented by choice D, would cause stagflation.

Question 8

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...

Question 9

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

In the short run, an increase in the expected price level leads to an increase in the cost of production, causing firms to increase prices. However, this also reduces aggregate demand, leading to a decrease in real GDP. Increases in capital stock or quantity of labor available can increase productive capacity and potential output, leading to increases in real GDP and potentially lower prices in the long run.

Question 10

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

When costs of production increase and short-run aggregate supply shifts left, it leads to higher prices and lower output. This results in higher unemployment and lower wages because firms are producing less and require fewer workers. Therefore, unemployment is high and wages will be bid down, shifting short-run aggregate supply rightward to restore the equilibrium.

Question 11

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 would reduce the output of agricultural goods, leading to a decrease in aggregate supply. This, in turn, would lead to an increase in the price level and a reduction in output, as the economy moves up along the aggregate demand curve. The other options do not necessarily lead to both an increase in the price level and a reduction in output.

Question 12

Imagine the U.S. economy is in long-run equilibrium. Then suppose the value of the U.S. dollar increases. At the same time, people in the U.S. revise their expectations so that the expected price level falls. We would expect that in the short-run
A) real GDP will rise and the price level might rise, fall, or stay the same.
B) real GDP will fall and the price level might rise, fall, or stay the same.
C) the price level will rise, and real GDP might rise, fall, or stay the same.
D) the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

An increase in the value of the U.S. dollar will cause a decrease in net exports and aggregate demand, leading to a decrease in real GDP. However, if people revise their expectations so that the expected price level falls, firms may reduce their prices and adjust their production to maintain profitability. This will lead to a decrease in the price level. The combination of falling GDP and falling prices results in a scenario of stagflation, where the economy experiences a decrease in output and an increase in unemployment, coupled with a decrease in the price level. Therefore, the best answer choice is D.

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 characterized by rising prices and falling output, which is the combination of inflation and recession. Choice A and C are incorrect because they both suggest that output rises, which does not align with the definition of stagflation. Choice D suggests that both prices and output fall, which is not specific to the concept of stagflation.

Question 14

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

The answer of Which of the following will reduce the...

Question 15

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 cause a reduction in output as businesses and households are negatively impacted by the event. Additionally, the destruction and damage caused by the disaster could increase the cost of goods and services, leading to an increase in the price level.

Question 16

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

Stagflation occurs when there is a combination of high inflation and stagnant economic growth. Rising oil prices can lead to higher production costs, which can lead to higher prices and ultimately inflation.

Question 17

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 can lead to an increase in demand in the economy, which can lead to an increase in prices in both the short and long run. Option A, an increase in taxes would decrease aggregate demand, thus reducing prices in the short and long run. Option C, a decrease in minimum wages would cause prices to decrease, reducing the cost of production for firms. Option D, an increase in capital stock, would increase the supply of goods and services, lowering prices in both the short and long run.

Question 18

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 increase the cost of production for firms, leading to a decrease in aggregate supply. As a result, the aggregate supply curve will shift to the left.

Question 19

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, then we would expect that in the short-run,
A) real GDP will rise and the price level might rise, fall, or stay the same.
B) real GDP will fall and the price level might rise, fall, or stay the same.
C) the price level will rise, and real GDP might rise, fall, or stay the same.
D) the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

A sharp increase in the minimum wage will increase the cost of production, leading to a leftward shift in the short-run aggregate supply (SRAS) curve. This will cause real GDP to fall. Additionally, an increase in pessimism about future business conditions will decrease aggregate demand, shifting the aggregate demand (AD) curve to the left. This will further depress real GDP. The combined effect of a leftward shift in SRAS and AD will cause the price level to fall, rise or stay the same, depending on the relative magnitudes of the shifts. Hence, the correct choice is B.

Question 20

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil are discovered in the country, then in the short-run
A) real GDP will rise and the price level might rise, fall, or stay the same.
B) real GDP will fall and the price level might rise, fall, or stay the same.
C) the price level will rise, and real GDP might rise, fall, or stay the same.
D) the price level will fall, and real GDP might rise, fall, or stay the same.

Accepted Answer

The tax cut will initially increase aggregate demand, causing real GDP to rise in the short-run. The discovery of new sources of oil will decrease the cost of production, causing a rightward shift in the aggregate supply curve. This will lead to lower prices and potentially higher real GDP. However, the overall effect on the price level is uncertain, as the tax cut may increase demand and lead to higher prices, while the new oil supply may decrease prices. Therefore, the price level might rise, fall, or stay the same.

Quiz 15: Aggregate Demand and Aggregate Supply

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

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short run

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

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

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

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, the value of the dollar falls. In the short-run

Which of the following would cause stagflation?

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

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

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

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

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

Stagflation exists when prices

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

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

Which of the following would cause stagflation?

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

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

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, then we would expect that in the short-run,

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil are discovered in the country, then in the short-run