The graph that shows the relationship between the aggregate quantity of output supplied by all the firms in an economy and the overall price level is:
A) the aggregate supply curve.
B) the aggregate production function.
C) the production possibilities fro
A) the aggregate supply curve.
2) The quantity of output supplied at different price levels is represented by the
A) production function.
B) aggregate demand curve.
C) aggregate supply curve.
D) aggregate expenditures curve.
C) aggregate supply curve.
3) The aggregate supply curve
A) is the sum of the individual supply curves in the economy.
B) is a market supply curve.
C) embodies the same logic that lies behind an individual firm's supply curve.
D) relates output with the price level.
D) relates output with the price level.
4) It is very important to distinguish between the short run and the long run when we are discussing
A) the aggregate demand.
B) the aggregate expenditures.
C) the aggregate supply.
D) changes in the price level.
C) the aggregate supply.
11) What determines the slope of the aggregate supply curve is
A) how fast the price of factors of production respond to changes in the price level.
B) how much more the economy can produce without any change in the price level.
C) how fast the output lev
A) how fast the price of factors of production respond to changes in the price level.
12) When the aggregate supply curve is horizontal,
A) the price of factors of production is fixed, with little or no upward pressure on price.
B) the economy is close to full capacity.
C) resources are being utilized at full capacity.
D) the prices level
A) the price of factors of production is fixed, with little or no upward pressure on price.
13) When the aggregate supply curve is vertical, which of the following is NOT true?
A) The economy is at capacity.
B) The economy is producing the maximum sustainable level of output.
C) Any increase in the price level will not cause an increase in aggre
D) The economy is expanding quickly.
14) If the economy is operating on the relatively vertical segment of the aggregate supply curve, an increase in aggregate demand causes a ________ change in the price level and a ________ change in output.
A) small; small
B) big; big
C) big; small
D) sma
C) big; small
15) If the economy is operating way below capacity, an increase in aggregate demand causes a ________ change in the price level and ________ change in output.
A) big; big
B) big; small
C) small; big
D) small; small
C) small; big
16) An increase in aggregate demand when the economy is operating at high levels of output is likely to result in
A) a large increase in both output and the overall price level.
B) an increase in the overall price level but little or no increase in output
B) an increase in the overall price level but little or no increase in output.
17) An increase in aggregate demand when the economy is operating at full capacity is likely to result in
A) an increase in both output and the overall price level.
B) an increase in output but no increase in the overall price level.
C) an increase in the
C) an increase in the overall price level but no increase in output.
18) An increase in the price level is likely to increase the aggregate amount of output supplied in the short run because
A) interest rate is high in the short-run.
B) wages and interest rates are relatively fixed in the short-run.
C) wages change in the
B) wages and interest rates are relatively fixed in the short-run.
19) When the economy is producing at full capacity, the aggregate supply curve becomes
A) horizontal.
B) downward sloping.
C) vertical.
D) upward sloping.
C) vertical.
20) If input prices changed at exactly the same rate as output prices, the aggregate supply curve would be
A) vertical.
B) upward sloping.
C) horizontal.
D) downward sloping.
A) vertical.
21) A movement down the aggregate supply curve is caused by a(n)
A) decrease in aggregate supply.
B) increase in aggregate supply.
C) decrease in the price level.
D) increase in the price level.
C) decrease in the price level.
22) If there is a decrease in the percentage of employees whose wages adjust automatically with changes in the price level, the aggregate supply curve will become
A) steeper.
B) flatter.
C) horizontal.
D) vertical.
B) flatter.
23) If there is an increase in the percentage of employees whose wages adjust automatically with changes in the price level, the aggregate supply curve will become
A) steeper.
B) flatter.
C) horizontal.
D) vertical.
A) steeper.
24) Coal is used as a source of energy in many manufacturing processes. Assume a long strike by coal miners reduced the supply of coal and increased the price of coal. This would cause
A) the short-run aggregate supply curve to shift to the right.
B) the
C) the short-run aggregate supply curve to shift to the left.
25) If the United States were to pass legislation that would make it easier 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
D) the short-run aggregate supply curve to shift to the right.
26) All of the following shift the short-run aggregate supply curve EXCEPT
A) a change in the price level.
B) a change in the price of oil.
C) a change in the price of raw material.
D) a change in wages as a result of a labor strike.
A) a change in the price level.
27) Which of the following would cause the short-run aggregate supply curve to shift to the right?
A) higher energy prices
B) an increase in taxes
C) increases in government regulation
D) retired workers reentering the labor force
D) retired workers reentering the labor force
37) The rationale underlying policies to deregulate the economy is that these policies would
A) increase the aggregate demand curve.
B) decrease the short-run aggregate supply curve.
C) decrease the aggregate demand curve.
D) increase the short-run aggreg
D) increase the short-run aggregate supply curve.
38) An oil price increase would
A) increase the aggregate demand curve.
B) decrease the short-run aggregate supply curve.
C) decrease the aggregate demand curve.
D) increase the short-run aggregate supply curve.
B) decrease the short-run aggregate supply curve.
1) If input prices change at exactly the same rate as output prices, the aggregate supply curve will be vertical.
true
2) If the price level falls, the aggregate supply decreases as a result of the aggregate demand curve shifting left.
false
3) An increase in the price of a key input in production, like oil, increases aggregate supply.
false
4) An increase in the price level will cause a decrease in the aggregate amount of output supplied.
false
5) A decrease in taxes on business investments will increase aggregate supply.
true
6) To increase the price level the government could adopt policies that
A) increase aggregate supply and aggregate demand.
B) decrease aggregate supply and aggregate demand.
C) increase aggregate supply and decrease aggregate demand.
D) decrease aggregate
D) decrease aggregate supply and increase aggregate demand.
7) To increase output the government could adopt policies that
A) increase aggregate supply and aggregate demand.
B) decrease aggregate supply and aggregate demand.
C) increase aggregate supply and decrease aggregate demand.
D) decrease aggregate supply a
A) increase aggregate supply and aggregate demand.
8) To decrease the price level the government could
A) encourage education and increase government spending.
B) adopt policies that increase input prices and increase net taxes.
C) lower the corporate profits tax and have the Fed raise the discount rate.
C) lower the corporate profits tax and have the Fed raise the discount rate.
9) To decrease output the government could
A) encourage education and increase government spending.
B) adopt policies that increase input prices and increase net taxes.
C) lower the corporate profits tax and have the Fed raise the discount rate.
D) raise
B) adopt policies that increase input prices and increase net taxes.
10) To increase output the government could
A) encourage education and decrease net taxes.
B) lower payroll taxes and increase government spending.
C) lower the corporate profits tax and have the Fed buy bonds in the open market.
D) all of the above
D) all of the above
1) Whenever the aggregate supply curve intercepts the aggregate demand curve, the economy is producing full employment output.
false
2) An increase in the price of inputs will most likely lead to a higher price level.
true
3) If the Fed sells securities on the open market, the price level will rise.
false
4) Decreasing government expenditures and decreasing taxes on corporate profits are two policies that both work to decrease the price level.
true
5) Raising net taxes and and an oil embargo will both have an effect towards increasing the price level.
false
4) The level of aggregate output that can be sustained in the long run without inflation is known as
A) nominal output.
B) real output.
C) money output.
D) potential output.
D) potential output.
5) If ________ equilibrium output ________ , the price level rises.
A) actual; is below potential GDP
B) potential; is equal to actual GDP
C) potential; exceeds actual GDP
D) actual; exceeds potential GDP
D) actual; exceeds potential GDP
6) When the ________ increases, then potential output increases.
A) long-run aggregate supply
B) short-run aggregate supply
C) long-run aggregate demand
D) short-run aggregate demand
A) long-run aggregate supply
7) Potential output is equal to
A) long run aggregate demand.
B) short-run aggregate demand.
C) short-run aggregate supply.
D) long-run aggregate supply.
D) long-run aggregate supply.
8) The long-run aggregate supply curve is vertical, if
A) wages and other costs fully adjust to changes in prices in the long-run.
B) the government follows optimal fiscal policy.
C) technology is fixed.
D) the Fed follows optimal monetary policy.
A) wages and other costs fully adjust to changes in prices in the long-run.
1) If the economy produces full employment output, an expansionary monetary policy increases output but not the price level.
false
2) A recessionary gap means that aggregate planned expenditures are less than potential output.
true
3) An inflationary gap happens when aggregate planned expenditure is greater than full capacity.
true
4) Keynes believed that fiscal policy and monetary policy are effective.
true
5) Potential output is the most that can be produced in an economy at a particular point in time.
false
6) If wages do not fully adjust to changes in prices, the aggregate supply curve is vertical.
false
1) If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level, then the U.S. economy must have been
A) on the very steep part of the short-run aggregate supply curve.
B) on the very flat part of the short-run aggregate supply curve.
2) If a decrease in the U.S. money supply resulted in a very large change in the price level and a very small change in aggregate output,
A) then in the U.S. economy investment demand must not be sensitive to the interest rate.
B) then the U.S. economy mu
B) then the U.S. economy must have been on the very steep part of its short-run aggregate supply curve.
3) An increase in government spending will completely crowd out investment if
A) money supply is increased at the same time.
B) money demand is not sensitive to the interest rate.
C) the economy is operating at capacity.
D) the economy is operating well b
C) the economy is operating at capacity.
4) Economic policies are ineffective concerning quantities of output directly when
A) the aggregate supply curve is flat.
B) the aggregate demand is flat.
C) the aggregate supply is vertical.
D) the economy is not producing at capacity.
C) the aggregate supply is vertical.
5) Economic policies are effective at changing output when
A) the economy is not producing at capacity.
B) the economy is producing at its potential output.
C) the unemployment rate is at the natural rate.
D) the aggregate supply curve is vertical.
A) the economy is not producing at capacity.
6) If the long-run aggregate supply curve is vertical, the multiplier effect of a change in net taxes on aggregate output in the long run
A) depends on the price level.
B) is one.
C) is zero.
D) is infinitely large.
C) is zero.
7) A sustained increase in the overall price level is
A) stagflation.
B) a recession.
C) a price index.
D) inflation.
D) inflation.
13) Related to the Economics in Practice on p. 243 [555]: In the simple "Keynesian" view, maximum output is NOT defined by the
A) existing labor force.
B) current capital stock.
C) existing state of technology.
D) level of consumption.
D) level of consumption.
14) Related to the Economics in Practice on p. 243 [555]: In the simple "Keynesian" view, the aggregate supply curve
A) is downward sloping.
B) is completely horizontal.
C) is completely vertical.
D) is horizontal in part, and vertical in part.
D) is horizontal in part, and vertical in part.
1) Expansionary economic policies are things the government can do to decrease aggregate demand or aggregate supply.
false
2) If the economy is on the steep part of its aggregate supply curve, expansionary policy will mostly increase the price level.
true
3) Decrease in net taxes, increase in the money supply and increase in government spending are contractionary policies.
false
4) An earth quake and a foreign oil embargo would be contractionary policies.
false
5) If the aggregate supply curve is vertical in the long-run, then neither monetary nor fiscal policy will affect aggregate output in the long-run.
true
5) A rightward shift in the aggregate demand curve generates a ________ inflation and ________ output.
A) demand-pull; lower
B) cost-push; higher
C) demand-pull; higher
D) cost-push; lower
C) demand-pull; higher
6) A sudden increase in the price of oil causes a ________ inflation and ________ output.
A) demand-pull; lower
B) cost-push; higher
C) demand-pull; higher
D) cost-push; lower
D) cost-push; lower
7) An earthquake destroyed 50% of the Moldovian manufacturing base. The Moldovian government decided to use a contractionary fiscal policy to counter the effects of the earthquake on the economy. The use of the contractionary fiscal policy would have caus
C) both the price level and output level to be lower than what they would have been without the policy action.
8) For an economy to experience both a recession and inflation at the same time,
A) the aggregate supply curve must shift to the right.
B) the aggregate supply curve must shift to the left.
C) the aggregate demand curve must shift to the left.
D) the aggr
B) the aggregate supply curve must shift to the left.
9) A(n) ________ in inflationary expectations that causes firms to decrease their prices shifts the aggregate supply curve to the ________.
A) increase; right
B) increase; left
C) decrease; right
D) decrease; left
C) decrease; right
10) An increase in inflationary expectations that causes firms to increase their prices shifts the
A) aggregate supply curve to the left.
B) aggregate demand curve to the left.
C) aggregate supply curve to the right.
D) aggregate demand curve to the right
A) aggregate supply curve to the left.
11) During the fall of 1993, prices were increasing by 1% an hour in Bosnia. This is an example of
A) an expectations inflation.
B) natural inflation.
C) hyperinflation.
D) monetary inflation.
C) hyperinflation.
12) During the early 1980s, prices were increasing by approximately 2,000% a year in Argentina. This is an example of
A) hyperinflation.
B) monetary inflation.
C) an expectations inflation.
D) moderate inflation.
A) hyperinflation.
13) Economists generally agree that for a sustained inflation to occur,
A) the government must be accommodating it by increasing government spending.
B) the Federal Reserve must be accommodating it by increasing the money supply.
C) the government must be
B) the Federal Reserve must be accommodating it by increasing the money supply.
14) For the Fed to keep the interest rate unchanged as the government increases spending, the Fed must continue to
A) increase the money supply.
B) decrease the money supply.
C) decrease the demand for money.
D) increase the demand for money.
A) increase the money supply.
15) Many economists believe that sustained inflation is accommodated by a(n)
A) expansionary fiscal policy.
B) expansionary monetary policy.
C) contractionary fiscal policy.
D) contractionary monetary policy.
B) expansionary monetary policy.
16) According to the "simple" Keynesian view, the aggregate supply curve is
A) vertical until it reaches full capacity and then becomes horizontal.
B) downward sloping over all levels of output.
C) upward sloping over all levels of output.
D) horizontal u
D) horizontal until it reaches full capacity and then becomes vertical.
17) According to the "simple" Keynesian view, if the economy is at capacity, an expansionary policy will
A) increase output, but not the price level.
B) increase the price level, but not output.
C) increase both the price level and output.
D) increase nei
B) increase the price level, but not output.
18) According to the "simple" Keynesian view, if the economy has excess capacity, an expansionary policy will ________, given that the economy continues to have excess capacity even after the policy.
A) increase output , but not the price level
B) increas
A) increase output , but not the price level
19) A(n) ________ gap occurs when planned aggregate expenditure is ________ capacity output.
A) recessionary; greater than
B) recessionary; equal to
C) inflationary; greater than
D) inflationary; equal to
C) inflationary; greater than
20) According to the "simple" Keynesian view, if the economy is below full capacity, an increase in aggregate demand will cause
A) output to fall and the price level to increase in the short run.
B) the level of output to rise, but no change in the price
B) the level of output to rise, but no change in the price level will occur in the short run.
1) Inflation due to a decrease in aggregate demand is called demand pull inflation.
false
2) Inflation is an increase in the overall price level.
true
3) Supply-side inflation is caused by increases in the aggregate supply curve.
false
4) Rising output coupled with falling prices is called stagflation.
false
5) Expectations of higher future prices cause firms to lower prices today to sell their product before prices rise.
false
1) ________ in government spending and ________ in taxes will cause the deficit to decrease.
A) A decrease; an increase
B) An increase; a decrease
C) A decrease; a decrease
D) An increase; an increase
A) A decrease; an increase
2) A decrease in government spending and an increase in taxes will cause the
A) deficit to decrease.
B) deficit to remain unchanged.
C) deficit to increase.
D) surplus to increase slightly.
A) deficit to decrease.
3) If the numerical value of the government spending multiplier is greater than the numerical value of the tax multiplier, then unequal increases in spending and taxes will
A) decrease GDP.
B) not change GDP.
C) increase GDP.
D) cannot be determined from
D) cannot be determined from the given information
4) If the numerical value of the government spending multiplier is greater than the numerical value of the tax multiplier, then equal decreases in spending and taxes will
A) increase GDP.
B) decrease GDP.
C) increase GDP slightly.
D) not change GDP.
B) decrease GDP.
5) If the numerical value of the government spending multiplier is greater than the numerical value of the tax multiplier, then equal increases in spending and taxes will
A) increase GDP.
B) decrease GDP.
C) be contractionary.
D) not change GDP.
A) increase GDP.
11) When there is stagflation, the policy choices facing the FED are
A) increasing monetary growth to increase GDP but that will make inflation worse.
B) increasing monetary growth to increase GDP and reduce inflation.
C) reducing monetary growth to reduc
D) A and C
14) The Federal Reserve's policy to "lean against the wind" means that
A) interest rates are decreased as the economy expands.
B) reserve requirements are decreased as the economy expands.
C) reserve requirements are decreased significantly during an econ
D) interest rates are increased gradually as the economy expands.
15) The Federal Reserve's policy to "lean against the wind" means that
A) the FED increases money growth as the economy slows.
B) the FED slows money growth as the economy slows.
C) the FED lowers taxes as the economy slows.
D) the FED raises required res
A) the FED increases money growth as the economy slows.
16) An economic condition characterized by high unemployment and excessive inflation is called
A) stagflation.
B) recessionary downturn.
C) expansionary growth.
D) depression.
A) stagflation.
17) During periods of stagflation, a decrease in the money supply will
A) decrease prices.
B) increase output.
C) increase exports.
D) increase prices.
A) decrease prices.
18) During periods of stagflation, a decrease in the money supply will
A) lower inflation and the level of output.
B) increase inflation and the level of output.
C) increase inflation and lower the level of output.
D) increase exports.
A) lower inflation and the level of output.
19) Related to the Economics in Practice on p. 255 [567]: Central bankers from around the globe are concerned about the risks that ________ food prices present for the global ________ outlook.
A) rising; inflation
B) rising; deflation
C) falling; deflatio
A) rising; inflation
20) Related to the Economics in Practice on p. 255 [567}: One way to control rising food prices and global inflation concerns is with
A) expansionary fiscal policy.
B) contractionary monetary policy.
C) a combination of expansionary monetary policy and ex
B) contractionary monetary policy.
1) When it decreases the money supply during an inflation the Fed is "leaning against the wind.
true
2) An increase in aggregate demand causes stagflation.
false
3) The FED is most likely to increase the money supply when there is excess capacity in the economy.
true
4) The danger with expansionary FED policy is that it may bring on an inflation.
true
5) Contractionary FED policy increases aggregate demand.
false
6) The FED is leaning against the wind when it raises the discount rate during a recession.
false
7) A decrease in money supply is an expansionary policy.
false