Question 1

When the price level is below the level at which the aggregate demand curve crosses the long run aggregate supply curve
A)there will be no price level change.
B)there will be pressures that will lead to a shift of either the aggregate demand or the long run aggregate supply curves.
C)total planned real expenditures will exceed actual real GDP,and the price level will increase.
D)total planned real expenditure will be lower than actual real GDP,and the price level will increase.

Accepted Answer

When the price level is below the level at which the aggregate demand curve crosses the long-run aggregate supply curve, it indicates that the demand for goods and services is higher than what is being produced at current prices, leading to an increase in the price level as the economy moves towards equilibrium. This scenario is described by option C, where total planned real expenditures exceed actual real GDP, prompting an increase in the price level to balance demand with supply.

Question 2

Economic growth will be associated with a constant price level when
A)the increase in aggregate demand exactly equals the increase in long-run aggregate supply.
B)the increase in aggregate demand is more than the increase in long-run aggregate supply.
C)the increase in aggregate demand is less than the increase in long-run aggregate supply.
D)the increase in aggregate demand is accompanied by a reduction in short-run aggregate supply.

Accepted Answer

When the increase in aggregate demand exactly equals the increase in long-run aggregate supply, there will be no inflationary or deflationary pressures on the economy. This means that the price level will remain constant even as economic growth occurs. The other choices suggest either an increase or decrease in inflationary pressures, which would affect the price level in the economy.

Question 3

A persistently declining price level resulting from economic growth and unchanged aggregate demand is called
A)demand-side deflation.
B)supply-side deflation.
C)ozian deflation.
D)secular deflation.

Accepted Answer

Secular deflation occurs when there is a consistent and long-term decrease in the general price level. It is associated with economic growth and occurs due to a persistently increasing supply of goods and services without a corresponding increase in aggregate demand. Option A (demand-side deflation) suggests that a decrease in demand is causing deflation, which is not the case here. Option B (supply-side deflation) is somewhat related to secular deflation, but supply-side deflation refers to a decrease in the price level due to a decrease in the cost of production rather than economic growth. Option C (ozian deflation) is not a recognized term in economics.

Question 4

Secular deflation occurs when
A)there is no economic growth and aggregate demand falls.
B)aggregate demand increases at the same time there is no economic growth.
C)aggregate demand remains unchanged while economic growth increases long-run aggregate supply.
D)both aggregate demand and aggregate supply are shifting left.

Accepted Answer

Secular deflation occurs when the economy's long-run aggregate supply increases due to economic growth, while aggregate demand remains unchanged. This leads to a decrease in the general price level over time as the supply of goods and services increases relative to demand.

Question 5

Economic growth takes place
A)only when both aggregate demand and aggregate supply increase.
B)when aggregate supply increases.
C)when aggregate demand decreases.
D)only if the price level is constant or rising.

Accepted Answer

Economic growth can occur when aggregate supply increases, allowing for an expansion of output and potentially lower prices. Aggregate demand can also play a role, but it is not necessary for economic growth to occur. A constant or rising price level is not a requirement for growth, as long as output and productivity are increasing.

Question 6

When the price level is below the level at which the aggregate demand curve crosses the long run aggregate supply curve,
A)there will be no price level change.
B)there will be pressures that will lead to a shift of either the aggregate demand or the long run aggregate supply curves.
C)actual real GDP would be less than total planned real expenditures,and the price level will rise.
D)actual real GDP would exceed total planned real expenditures,and the price level will fall.

Accepted Answer

The answer of When the price level is below the...

Question 7

Which of the following will result in secular deflation?
A)A one-time rightward shift of the aggregate demand curve.
B)Continuous rightward shifts of the aggregate demand curve.
C)A one-time rightward shift of the long-run aggregate supply curve.
D)Continuous rightward shifts of the long-run aggregate supply curve.

Accepted Answer

Continuous rightward shifts of the long-run aggregate supply curve will result in secular deflation, as the increase in production capacity will lead to a decrease in prices over time.

Question 8

If you have $1,000 and the Gross Domestic Product (GDP)deflator increases from 100 to 120,then
A)the $1,000 will buy 20 percent less of the goods and services produced by society.
B)the $1,000 will buy 20 percent more of the goods and services produced by society.
C)the value of the $1,000 increases.
D)you will be able to buy fewer goods,but the real value of those goods will increase.

Accepted Answer

The increase in the GDP deflator from 100 to 120 implies that there has been a 20% increase in the prices of goods and services produced by society. Therefore, the same amount of money ($1,000) can now buy 20% less of those goods and services.

Question 9

The U.S.economy has had persistent inflation in recent decades.A possible explanation for the inflation is that
A)there have been decreases in the growth rate while aggregate demand has remained unchanged.
B)there have been increases in the growth rate while aggregate demand has remained unchanged.
C)there have been decreases in aggregate demand while aggregate supply has remained unchanged.
D)growth in aggregate demand has been greater than growth in aggregate supply.

Accepted Answer

Persistent inflation occurs when the growth in aggregate demand exceeds the growth in aggregate supply, leading to an imbalance in the economy and a rise in prices. This is the most likely explanation for the persistent inflation seen in recent decades in the U.S. economy. Option A and B are incorrect because both refer to unchanged aggregate demand, while inflation is a result of aggregate demand exceeding supply. Option C is incorrect because inflation occurs when demand exceeds supply, not the other way around.

Question 10

-Refer to the above figure.If the price level is 80,
A)the total planned real expenditures by individuals,businesses,and the government are less than total planned production by firms.
B)the total planned real expenditures by individuals,businesses,and the government exceed total planned production by firms.
C)the economy will have economic growth and the new equilibrium price level will be 80.
D)the aggregate demand curve will automatically shift leading to a stable equilibrium.

Accepted Answer

The answer of 
-Refer to the above figure.If the price...

Question 11

Suppose total planned expenditures equal $14.4 trillion when the value of the price level is 95.If the price level dropped to 90,total planned real expenditures will equal
A)less than $14.4 trillion but more than $1 trillion.
B)less than $14.4 trillion.
C)more than $14.4 trillion.
D)$14.4 trillion.

Accepted Answer

The answer of Suppose total planned expenditures equal $14.4 trillion...

Question 12

An increase in the amount of physical capital will cause
A)an increase in both aggregate demand and real GDP,but have no effect on the price level.
B)aggregate demand and aggregate supply to increase by the same amounts,causing real GDP to increase and the price level to remain constant.
C)an increase in both aggregate supply and real GDP,but have no effect on the price level.
D)an increase in both aggregate supply and real GDP and a reduction in the price level.

Accepted Answer

An increase in the amount of physical capital increases aggregate supply because more goods and services can be produced with more capital. This increase in aggregate supply leads to an increase in real GDP as more goods and services are available. Additionally, the increase in supply, with demand remaining constant, puts downward pressure on prices, leading to a reduction in the price level.

Question 13

Over the last twenty years,real GDP in the U.S.economy has increased and there has been inflation.This indicates that
A)aggregate demand has increased while aggregate supply has been constant.
B)aggregate demand has been constant while aggregate supply has increased.
C)aggregate demand has increased more than aggregate supply.
D)aggregate demand has increased less than aggregate supply.

Accepted Answer

The increase in real GDP along with inflation suggest that aggregate demand has increased more than aggregate supply, leading to higher prices and output.

Question 14

How is economic growth graphically depicted?
A)The aggregate demand curve shifts to the left.
B)Aggregate demand shifts to the right.
C)Short-run aggregate supply shifts left.
D)The long-run aggregate supply curve shifts right.

Accepted Answer

Economic growth is graphically depicted by a rightward shift of the long-run aggregate supply curve, indicating an increase in the productive capacity of the economy.

Question 15

If the economy grows steadily over several years and at the same time maintains the aggregate demand curve in its present position,then the economy will experience which of the following?
A)inflation
B)a stable price level
C)secular deflation
D)The price level cannot be determined without more information.

Accepted Answer

The answer of If the economy grows steadily over several...

Question 16

Suppose the Federal Reserve implements expansionary monetary policy where the money supply increases.Which of the following will tend to occur in the long run as a result of this monetary policy action?
A)Output and the price level will both increase.
B)Output will increase with no change in the price level.
C)An increase in the price level and no change in output.
D)No change in either the price level or output.

Accepted Answer

In the long run, according to the quantity theory of money, an increase in the money supply leads to an increase in the price level. However, there is no permanent effect on real output in the long run, as the long-run aggregate supply curve is vertical. Therefore, the most likely outcome of an expansionary monetary policy in the long run is an increase in the price level and no change in output.

Question 17

The intersection of aggregate demand and long-run aggregate supply identify the price level at which total planned
A)real expenditures equal actual nominal GDP.
B)real expenditures equal total planned production.
C)export spending equals total planned import spending.
D)government spending equals total planned tax revenues.

Accepted Answer

The intersection of aggregate demand and long-run aggregate supply identifies the price level at which total planned real expenditures equal total planned production, indicating an equilibrium state in the economy where aggregate demand equals aggregate supply.

Question 18

In the long run,an increase in government spending,other things equal,generates
A)a higher real GDP in the long run.
B)a lower real GDP in the short run.
C)a higher price level.
D)both a higher real GDP and a lower price level.

Accepted Answer

The answer of In the long run,an increase in government...

Question 19

Supply-side inflation is caused by
A)a decrease in aggregate supply and no change in aggregate demand.
B)a decrease in aggregate demand and no change in aggregate supply.
C)an increase in aggregate supply and no change in aggregate demand.
D)an increase in aggregate demand and no change in aggregate supply.

Accepted Answer

Supply-side inflation is caused by a decrease in aggregate supply and no change in aggregate demand, meaning that there is less output available for purchase at the same price level. This causes producers to raise prices in order to maintain their profit margins.

Question 20

The U.S.has experienced inflation every year since 1959 due to
A)a sustained decrease in aggregate demand.
B)a sustained increase in aggregate demand accompanied by an even larger decrease in LRAS.
C)a sustained decrease in aggregate supply.
D)a sustained increase in aggregate supply accompanied by an even larger increase in aggregate demand.

Accepted Answer

Inflation typically occurs when there is a sustained increase in aggregate demand that outpaces the increase in aggregate supply. This scenario leads to higher prices as demand for goods and services exceeds the available supply.

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

When the price level is below the level at which the aggregate demand curve crosses the long run aggregate supply curve

Economic growth will be associated with a constant price level when

A persistently declining price level resulting from economic growth and unchanged aggregate demand is called

Secular deflation occurs when

Economic growth takes place

When the price level is below the level at which the aggregate demand curve crosses the long run aggregate supply curve,

Which of the following will result in secular deflation?

If you have $1,000 and the Gross Domestic Product (GDP) deflator increases from 100 to 120,then

The U.S.economy has had persistent inflation in recent decades.A possible explanation for the inflation is that

-Refer to the above figure.If the price level is 80,

Suppose total planned expenditures equal $14.4 trillion when the value of the price level is 95.If the price level dropped to 90,total planned real expenditures will equal

An increase in the amount of physical capital will cause

Over the last twenty years,real GDP in the U.S.economy has increased and there has been inflation.This indicates that

How is economic growth graphically depicted?

If the economy grows steadily over several years and at the same time maintains the aggregate demand curve in its present position,then the economy will experience which of the following?

Suppose the Federal Reserve implements expansionary monetary policy where the money supply increases.Which of the following will tend to occur in the long run as a result of this monetary policy action?

The intersection of aggregate demand and long-run aggregate supply identify the price level at which total planned

In the long run,an increase in government spending,other things equal,generates

Supply-side inflation is caused by

The U.S.has experienced inflation every year since 1959 due to