Question 1

The aggregate supply curve is probably better thought of as a price/output response curve.

Accepted Answer

The aggregate supply curve shows the relationship between the price level and the quantity of output that firms are willing to produce. Therefore, it is better understood as a price/output response curve.

Question 2

A movement up the aggregate supply curve is caused by a(n)
A) increase in aggregate supply.
B) decrease in aggregate supply.
C) increase in the price level.
D) decrease in the price level.

Accepted Answer

An increase in the price level causes a movement up along the aggregate supply curve, reflecting how producers are willing to supply more at higher prices.

Question 3

Sticky wages are one reason for the upward slope of the short-run aggregate supply curve.

Accepted Answer

Sticky wages refer to the idea that wages do not adjust immediately to changes in the overall price level. This can result in firms being willing to produce more output at higher prices in the short run, as they do not have to immediately increase wages. As a result, the short-run aggregate supply curve slopes upward.

Question 4

In an economy, when the price level falls, consumers and firms buy more goods and services. This relationship is represented by the
A) aggregate expenditures curve.
B) aggregate demand curve.
C) short-run aggregate supply curve.
D) long-run aggregate supply curve.

Accepted Answer

The inverse relationship between price level and quantity of goods and services demanded by consumers and firms is represented by the aggregate demand curve. As prices fall, consumers and firms are able to purchase more goods and services, leading to an increase in aggregate demand.

Question 5

If input prices change at exactly the same rate as output prices, the aggregate supply curve will be vertical.

Accepted Answer

If input prices change at exactly the same rate as output prices, the aggregate supply curve will be vertical because the change in input prices will not affect the quantity of output supplied.

Question 6

Which of the following equations represents equilibrium in the goods market?
A) AE = I(r)
B) Y = AD + AS
C) Y = S + I
D) AE = C + I + G

Accepted Answer

Equilibrium in the goods market occurs when aggregate expenditure (AE) equals the total output or income (Y), and AE is composed of consumption (C), investment (I), and government spending (G). Thus, AE = C + I + G represents this equilibrium.

Question 7

Which of the following shifts the short-run aggregate supply curve?
A) a change in the price level
B) a change in the price of oil
C) a change in short-run aggregate demand
D) all of the above

Accepted Answer

A change in the price of oil can shift the short-run aggregate supply curve because it affects the production costs for many businesses. Changes in the price level or in short-run aggregate demand affect the position on the curve, not the position of the curve itself.

Question 8

If the price level falls, the aggregate supply decreases as a result of the aggregate demand curve shifting left.

Accepted Answer

If the price level falls, it typically results in an increase in aggregate supply, as firms are willing and able to produce more goods and services at lower prices. This causes the aggregate supply curve to shift right, not the aggregate demand curve to shift left.

Question 9

An oil price decrease would
A) increase aggregate demand.
B) decrease short-run aggregate supply.
C) decrease aggregate demand.
D) increase short-run aggregate supply.

Accepted Answer

A decrease in oil prices will lower production costs for businesses, leading to an increase in short-run aggregate supply. This is because the cost of inputs, such as oil, is a major determinant of production costs, so a decrease in oil prices will result in lower production costs and therefore an increase in output.

Question 10

Since aggregate supply is the total supply of all goods and services in the economy, the aggregate supply curve is the sum of the individual supply curves for each of these goods and services.

Accepted Answer

The aggregate supply curve represents the total quantity of goods and services that firms are willing and able to produce at different price levels, but it is not simply the sum of individual supply curves because it also considers the interactions and dynamics of the entire economy, including changes in productivity, technology, and the costs of inputs.

Question 11

An increase in the price of a key input in production, like oil, increases aggregate supply.

Accepted Answer

An increase in the price of a key input in production, like oil, decreases aggregate supply. When input costs increase, firms are less willing to supply the same quantity of goods or services at any given price level, leading to a leftward shift in the aggregate supply curve.

Question 12

An increase in the price level will cause a decrease in the aggregate amount of output supplied.

Accepted Answer

An increase in the price level typically leads to an increase in the aggregate amount of output supplied, as higher prices can make production more profitable, encouraging firms to increase output.

Question 13

Which of the following would cause the short-run aggregate supply curve to shift to the left?
A) lower energy prices
B) a decrease in taxes
C) increases in government regulation
D) retired workers reentering the labor force

Accepted Answer

Increases in government regulation would cause the short-run aggregate supply curve to shift to the left as it would increase the cost of production for firms, decrease their profitability, and reduce their willingness to supply output at any given price level.

Question 14

When the economy is producing ________, the aggregate supply curve becomes vertical.
A) below full capacity
B) beyond full capacity
C) at full capacity
D) at negative capacity

Accepted Answer

When the economy is producing at full capacity, the aggregate supply curve becomes vertical because any increase in production beyond the full capacity would require an increase in factors of production such as labor and capital, which are limited resources. Therefore, the economy cannot produce beyond full capacity in the short run, resulting in a vertical AS curve.

Question 15

If the United States were to pass legislation that would make it harder for people to emigrate to the United States, this would cause
A) the short-run aggregate supply curve to become nearly vertical at all levels of output.
B) the short-run aggregate supply curve to shift to the left.
C) the short-run aggregate supply curve to become flatter.
D) the short-run aggregate supply curve to shift to the right.

Accepted Answer

If it becomes more difficult for people to emigrate to the United States, the labor pool will shrink, leading to a shift to the left in the short-run aggregate supply curve. This is because there will be fewer workers available to produce goods and services, which will likely lead to higher wages and thus higher production costs.

Question 16

A decrease in the price level is likely to decrease the aggregate amount of output supplied in the short run because
A) interest rate is high in the short run.
B) wages are sticky in the short run.
C) wages change in the short run.
D) the aggregate supply curve is vertical in the short run.

Accepted Answer

In the short run, wages are sticky or inflexible, which means that they do not adjust immediately in response to changes in the price level. Therefore, a decrease in the price level will reduce the revenue for firms, and they may reduce their output supplied in response. This is captured by a movement up the aggregate supply curve. As wages become more flexible over time, the aggregate supply curve becomes flatter, and changes in the price level have a smaller effect on output in the long run.

Question 17

A decrease in taxes on business investments will increase aggregate supply.

Accepted Answer

When taxes on business investments are decreased, businesses will have more after-tax income, which can lead to increased investment in capital and technology. This results in increased productivity, and therefore increased aggregate supply in the economy.

Question 18

A leftward shift of the short-run aggregate supply curve means that society can get a larger aggregate output at any price level.

Accepted Answer

A leftward shift of the short-run aggregate supply curve means that there is a decrease in the aggregate output that can be produced at any given price level, not an increase.

Question 19

Natural gas is used as a source of energy in many manufacturing processes. Assume large new deposits of natural gas are discovered in Nebraska, which increase the supply of natural gas and decreased the price of natural gas. This would cause
A) the short-run aggregate supply curve to shift to the right.
B) the short-run aggregate supply curve to become flatter.
C) the short-run aggregate supply curve to shift to the left.
D) the short-run aggregate supply curve to become nearly vertical at all levels of output.

Accepted Answer

An increase in the supply of natural gas will decrease the cost of energy for manufacturers, making it cheaper for them to produce goods. This will shift the short-run aggregate supply curve to the right, as there will be lower costs of production, allowing for more output to be produced at any given price level.

Question 20

Increases in pollution regulations would
A) increase aggregate demand.
B) decrease short-run aggregate supply.
C) decrease aggregate demand.
D) increase short-run aggregate supply.

Accepted Answer

Increases in pollution regulations typically increase the costs of production for businesses as they have to invest in cleaner technologies or pay for emissions credits. This increase in production costs can lead to a decrease in short-run aggregate supply, as it becomes more expensive for companies to produce goods and services at the same level.

Quiz 11: The Determination of Aggregate Output, the Price Level, and the Interest Rate

The aggregate supply curve is probably better thought of as a price/output response curve.

A movement up the aggregate supply curve is caused by a(n)

Sticky wages are one reason for the upward slope of the short-run aggregate supply curve.

In an economy, when the price level falls, consumers and firms buy more goods and services. This relationship is represented by the

If input prices change at exactly the same rate as output prices, the aggregate supply curve will be vertical.

Which of the following equations represents equilibrium in the goods market?

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

If the price level falls, the aggregate supply decreases as a result of the aggregate demand curve shifting left.

An oil price decrease would

Since aggregate supply is the total supply of all goods and services in the economy, the aggregate supply curve is the sum of the individual supply curves for each of these goods and services.

An increase in the price of a key input in production, like oil, increases aggregate supply.

An increase in the price level will cause a decrease in the aggregate amount of output supplied.

Which of the following would cause the short-run aggregate supply curve to shift to the left?

When the economy is producing ________, the aggregate supply curve becomes vertical.

If the United States were to pass legislation that would make it harder for people to emigrate to the United States, this would cause

A decrease in the price level is likely to decrease the aggregate amount of output supplied in the short run because

A decrease in taxes on business investments will increase aggregate supply.

A leftward shift of the short-run aggregate supply curve means that society can get a larger aggregate output at any price level.

Natural gas is used as a source of energy in many manufacturing processes. Assume large new deposits of natural gas are discovered in Nebraska, which increase the supply of natural gas and decreased the price of natural gas. This would cause

Increases in pollution regulations would