Question 1

The long-run aggregate supply curve
A)shows that at higher prices,potential real Gross Domestic Product (GDP)increases.
B)slopes up and to the right.
C)shows that long-run aggregate supply equals potential real Gross Domestic Product (GDP).
D)is very sensitive to changes in the price level.

Accepted Answer

The long-run aggregate supply curve depicts the relationship between the price level and potential real GDP in the long run. Potential real GDP is the level of output that an economy can produce when all its resources are fully employed. The long-run aggregate supply curve shows that at higher prices, potential real GDP remains constant, indicating that the economy's productive capacity is not affected by changes in the price level in the long run. Therefore, long-run aggregate supply equals potential real GDP. The curve is relatively less sensitive to changes in the price level compared to the short-run aggregate supply curve.

Question 2

Long-run aggregate supply reflects
A)total production in the economy at full employment.
B)total spending in the economy at full employment.
C)both production and spending in the economy.
D)only foreign production from U.S.subsidiaries.

Accepted Answer

Long-run aggregate supply reflects the total production in the economy at full employment, meaning the maximum amount of output that an economy can produce when all factors of production are fully utilized. It does not depend on total spending or foreign production from U.S. subsidiaries.

Question 3

Which of the following statements is TRUE?
A)The long-run aggregate supply curve is upward sloping.
B)The long-run aggregate demand curve is upward sloping.
C)The short-run aggregate supply curve is vertical.
D)The long-run aggregate supply curve is vertical.

Accepted Answer

The long-run aggregate supply curve is vertical because in the long run, factors of production can be adjusted to meet any level of demand. This means that the economy can produce its potential output without putting upward pressure on prices. The other statements are false. The long-run aggregate demand curve is horizontal or nearly so, reflecting the view that potential output depends mainly on the economy's productive resources and technology. The short-run aggregate supply curve is upward sloping because as output rises, firms have to pay higher prices for inputs, leading to higher costs of production and higher prices.

Question 4

A human resource such as ingenuity can be thought of as
A)a positive for imports.
B)part of a country's endowment.
C)part of government spending programs.
D)a causal factor for aggregate supply shifting left.

Accepted Answer

Human resource or ingenuity is considered part of a country's endowment, along with natural resources, capital, and technology. It refers to the abilities, knowledge, and skills of the workforce, which can contribute to a country's economic growth and development.

Question 5

The long-run aggregate supply curve is
A)upward sloping.
B)downward sloping.
C)vertical.
D)horizontal.

Accepted Answer

The long-run aggregate supply curve is vertical because it is based on the assumption that the economy has reached its full potential output and that prices and wages can adjust to any changes in aggregate demand. In the long run, changes in aggregate demand only affect prices, not output, since all resources are fully utilized. As a result, the long-run aggregate supply curve is vertical at the potential GDP level.

Question 6

As the capital stock grows and technology improves,we would expect the long-run aggregate supply curve to
A)shift right.
B)shift left.
C)remain the same.
D)first shift right,then shift left.

Accepted Answer

As capital stock grows and technology improves, the productivity of workers increases, leading to an increase in potential output. This results in the long-run aggregate supply curve shifting right.

Question 7

Which of the following will cause the long-run aggregate supply curve to shift? I.Changes in technology.
II.Changes in government spending.
III.Changes in the money supply.
A)I only
B)II only
C)I,II,and III
D)only I and II

Accepted Answer

Only changes in technology will cause the long-run aggregate supply curve to shift. Changes in government spending and the money supply may affect aggregate demand, but they do not affect the productive capacity of the economy in the long run.

Question 8

If a nation's production possibilities curve shifts outward,we should expect its long-run aggregate supply curve to
A)have an upward movement along the curve.
B)have a downward movement along the curve.
C)have a rightward shift.
D)have a leftward shift.

Accepted Answer

When a nation's production possibilities curve shifts outward, it means that the economy can produce more goods and services than before. This increased potential supply of goods and services results in a rightward shift of the long-run aggregate supply (LRAS) curve, indicating that at any given price level, the economy can produce a greater quantity of output in the long run. This is because the LRAS curve represents the full-employment level of output, which is influenced by factors such as technology, resources, and institutions that affect the economy's productive capacity. Therefore, an outward shift of the production possibilities curve represents an increase in the economy's potential output, which in turn leads to a rightward shift of the LRAS curve.

Question 9

All of the following would shift the LRAS curve to the right EXCEPT
A)an increase in the size of the labor force.
B)a net inflow of human capital.
C)an increase in the overall price level.
D)an improvement in technology.

Accepted Answer

An increase in the overall price level would shift the SRAS curve to the left, not the LRAS curve to the right. The LRAS curve represents the long-run potential for the economy, which is determined by factors such as technology, human capital, and the size of the labor force.

Question 10

What is measured on the vertical axis of the aggregate demand/aggregate supply model?
A)Real Gross Domestic Product (GDP)
B)Nominal income
C)The price level
D)The interest rate

Accepted Answer

The vertical axis of the aggregate demand/aggregate supply model measures the price level. This is represented by the overall level of prices for goods and services in the economy. Real GDP is measured on the horizontal axis, while nominal income and interest rates are not represented on either axis.

Question 11

The total of all planned production for the entire economy is known as
A)aggregate expenditures.
B)aggregate demand.
C)aggregate supply.
D)aggregate inflation.

Accepted Answer

The total of all planned production for the entire economy is known as aggregate supply. Aggregate expenditures refer to the total amount of money spent in an economy in a given period, while aggregate demand refers to the total demand for goods and services in an economy at a given price level. Aggregate inflation is not a commonly used term in economics.

Question 12

The aggregate supply curve
A)shows what each producer is willing and able to produce at each income level.
B)relates planned aggregate production to price level.
C)becomes vertical if there is excess production capacity within the economy.
D)shows a negative relationship between the price level and real Gross Domestic Product (GDP).

Accepted Answer

The aggregate supply curve relates planned aggregate production (or real GDP) to the price level, showing the level of output that producers are willing and able to offer at each price level. The curve slopes upwards in the short run but becomes more vertical in the long run as inputs become fully employed and prices adjust to changes in aggregate demand. The aggregate supply curve is not directly related to the income level of individual producers or the level of excess production capacity in the economy. Option D is incorrect because the relationship between the price level and real GDP is positive in the short run (i.e., as prices rise, firms increase output to meet higher demand) but becomes less positive or negative in the long run as output approaches potential GDP.

Question 13

Which of the following will NOT cause a leftward shift in the Long-Run Aggregate Supply curve?
A)a net outflow of human capital
B)a reduction in the amount of oil
C)a reduction in the amount of capital
D)a reduction in government spending

Accepted Answer

The answer of Which of the following will NOT cause...

Question 14

The full-employment and full-adjustment level of real Gross Domestic Product (GDP)in the economy is represented by
A)the LRAS curve.
B)the horizontal line at the price level.
C)the AD curve.
D)the distance between the LRAS curve and the AD curve.

Accepted Answer

The LRAS (Long-Run Aggregate Supply) curve represents the full-employment and full-adjustment level of real GDP in the economy. This is because in the long-run, all inputs are variable and the economy has had enough time to fully adjust to changes in the markets. At this point, the economy operates at potential output, producing at the maximum level possible with its resources. Therefore, the LRAS curve is the best representation of the full-employment and full-adjustment level of real GDP in the economy.

Question 15

Long-run aggregate supply is
A)the sum of planned expenditures by consumers and firms.
B)the level of output that occurs when the economy is operating on the production possibilities curve.
C)downward sloping.
D)upward sloping.

Accepted Answer

Long-run aggregate supply represents the total output an economy can produce when it is fully employing all available resources, and it is typically illustrated as a vertical line at the level of potential output. This corresponds to the economy operating at its production possibilities frontier, where it is not possible to produce more of one good without producing less of another, indicating full and efficient use of resources.

Question 16

The long-run aggregate supply curve
A)shifts to the right when there is a tax increase.
B)indicates the level of output (GDP)that occurs when resources are fully employed.
C)indicates that an increase in the overall price level will cause an increase in production.
D)shifts to the right when the Federal Reserve increases the money supply.

Accepted Answer

The long-run aggregate supply curve shows the potential output of an economy when all of its factors of production are utilized. Therefore, it indicates the level of output (GDP) that occurs when resources are fully employed. It is not affected by taxes, changes in the price level, or monetary policy.

Question 17

The long-run aggregate supply curve of an economy corresponds to
A)a point inside the production possibilities curve.
B)a point outside the production possibilities curve.
C)a point on the production possibilities curve.
D)none of the above: there is no relationship between the long-run aggregate supply curve and the production possibilities curve.

Accepted Answer

The long-run aggregate supply curve of an economy corresponds to a point on the production possibilities curve. This is because in the long run, the economy can produce at its maximum potential, given its available resources and technology, which is represented by the production possibilities curve. The long-run aggregate supply curve shows the quantity of goods and services that will be supplied at various price levels once all inputs are fully adjusted. Therefore, it corresponds to a point on the production possibilities curve.

Question 18

The long-run aggregate supply curve is
A)horizontal at the full-employment level of real Gross Domestic Product (GDP).
B)vertical at the full-employment level of real Gross Domestic Product (GDP).
C)sloping upward due to the effects of price level changes on real Gross Domestic Product (GDP).
D)the same as the short run aggregate supply (SRAS)curve.

Accepted Answer

The long-run aggregate supply curve is vertical because in the long run, the economy operates at its potential output level, i.e., the full-employment level of real GDP. In the long run, changes in the price level do not affect the level of output, and the economy always returns to its potential output level. Thus, the LRAS curve is independent of changes in the price level and is vertical at the potential output level.

Question 19

The long run aggregate supply curve (LRAS)also represents
A)the full-information level of output.
B)the full-employment level of output.
C)the full-adjustment level of output.
D)all of the above.

Accepted Answer

The long run aggregate supply curve (LRAS) represents the full-information, full-employment, and full-adjustment levels of output, where all prices and wages have adjusted to their equilibrium levels, and the economy is producing at its potential output.

Question 20

The long-run aggregate supply curve is vertical because
A)the economy has yet to use all its available resources.
B)the economy has reached its potential real Gross Domestic Product (GDP)and is at full employment.
C)the economy has contracted.
D)the economy has large numbers of unemployed.

Accepted Answer

The vertical long-run aggregate supply curve indicates that the economy has reached its potential real Gross Domestic Product (GDP) and is at full employment. It means that the economy has utilized all available resources efficiently and cannot produce more output in the long run, irrespective of any increase or decrease in the price level. Therefore, the long-run aggregate supply curve is vertical. The other options (A, C, and D) are not correct because they do not explain the reason for the vertical shape of the long-run aggregate supply curve.

Quiz 10: Real GDP and the Price Level in the Long Run

The long-run aggregate supply curve

Long-run aggregate supply reflects

Which of the following statements is TRUE?

A human resource such as ingenuity can be thought of as

The long-run aggregate supply curve is

As the capital stock grows and technology improves,we would expect the long-run aggregate supply curve to

Which of the following will cause the long-run aggregate supply curve to shift? I.Changes in technology. II.Changes in government spending. III.Changes in the money supply.

If a nation's production possibilities curve shifts outward,we should expect its long-run aggregate supply curve to

All of the following would shift the LRAS curve to the right EXCEPT

What is measured on the vertical axis of the aggregate demand/aggregate supply model?

The total of all planned production for the entire economy is known as

The aggregate supply curve

Which of the following will NOT cause a leftward shift in the Long-Run Aggregate Supply curve?

The full-employment and full-adjustment level of real Gross Domestic Product (GDP) in the economy is represented by

Long-run aggregate supply is

The long-run aggregate supply curve

The long-run aggregate supply curve of an economy corresponds to

The long-run aggregate supply curve is

The long run aggregate supply curve (LRAS) also represents

The long-run aggregate supply curve is vertical because