Question 1

Suppose the actual price level is less than the expected price level reflected in long-term contracts.How will profits and output be affected, all things equal?

Accepted Answer

A)  Firms will find production more profitable than they had expected, and will increase the quantity of output supplied. 
B)  Firms will find production less profitable than they had expected, and will decrease the quantity of output supplied. 
C)  Firms, because they are making less profit than they had expected, will increase the quantity of output supplied. 
D)  Resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied. 
A)  Firms will find production more profitable than they had expected, and will increase the quantity of output supplied. 
B)  Firms will find production less profitable than they had expected, and will decrease the quantity of output supplied. 
C)  Firms, because they are making less profit than they had expected, will increase the quantity of output supplied. 
D)  Resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied.

Question 2

Suppose the economy is initially in long-run equilibrium.After an increase in aggregate demand, which of the following describes the state of the economy in the long run?

Accepted Answer

A)  Prices are higher, and output is higher. 
B)  Prices are lower, and output is lower. 
C)  Prices are higher, and output is the same. 
D)  Prices are the same, and output is lower. 
A)  Prices are higher, and output is higher. 
B)  Prices are lower, and output is lower. 
C)  Prices are higher, and output is the same. 
D)  Prices are the same, and output is lower.

Question 3

Given the aggregate demand curve, what effects would an adverse supply shock have on output and price level?

Accepted Answer

A)  Output would increase, and price level would increase. 
B)  Output would increase, and price level would decrease. 
C)  Output would decrease, and price level would decrease. 
D)  Output would decrease, and price level would increase. 
A)  Output would increase, and price level would increase. 
B)  Output would increase, and price level would decrease. 
C)  Output would decrease, and price level would decrease. 
D)  Output would decrease, and price level would increase.

Question 4

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

Accepted Answer

A)  an increase in the average workweek 
B)  an improvement in technology 
C)  a civil war 
D)  an acceleration of depreciation allowances to encourage capital formation 
A)  an increase in the average workweek 
B)  an improvement in technology 
C)  a civil war 
D)  an acceleration of depreciation allowances to encourage capital formation

Question 5

What is the main effect of a decrease in the stock of capital?

Accepted Answer

A)  a leftward shift of the aggregate demand curve 
B)  a rightward shift of the aggregate demand curve 
C)  a leftward shift of the long-run aggregate supply curve 
D)  a rightward shift of the short-run aggregate supply curve 
A)  a leftward shift of the aggregate demand curve 
B)  a rightward shift of the aggregate demand curve 
C)  a leftward shift of the long-run aggregate supply curve 
D)  a rightward shift of the short-run aggregate supply curve

Question 6

Some resource prices are assumed to be constant in the short run.How does this affect the shape of the short-run aggregate supply curve?

Accepted Answer

A)  The aggregate supply curve is horizontal in the short run. 
B)  The aggregate supply curve is vertical in the short run. 
C)  The aggregate supply curve slopes upward in the short run. 
D)  The aggregate supply curve slopes downward in the short run. 
A)  The aggregate supply curve is horizontal in the short run. 
B)  The aggregate supply curve is vertical in the short run. 
C)  The aggregate supply curve slopes upward in the short run. 
D)  The aggregate supply curve slopes downward in the short run.

Question 7

Other things constant, what relationship is expressed by aggregate supply?

Accepted Answer

A)  the relationship between the price level in the economy and the aggregate output that firms will produce 
B)  the relationship between the price level and the aggregate amount that people will buy at that price level 
C)  the relationship between the price level and the potential amount of output 
D)  the relationship between the quantity of output that will be produced and that which will be sold in a one-year period 
A)  the relationship between the price level in the economy and the aggregate output that firms will produce 
B)  the relationship between the price level and the aggregate amount that people will buy at that price level 
C)  the relationship between the price level and the potential amount of output 
D)  the relationship between the quantity of output that will be produced and that which will be sold in a one-year period

Question 8

-Refer to the graph in the exhibit.What does the graph illustrate regarding aggregate supply?

Accepted Answer

A)  an increase in short-run aggregate supply 
B)  an increase in long-run aggregate supply 
C)  a decrease in short-run aggregate supply 
D)  a decrease in long-run aggregate supply 
A)  an increase in short-run aggregate supply 
B)  an increase in long-run aggregate supply 
C)  a decrease in short-run aggregate supply 
D)  a decrease in long-run aggregate supply

Question 9

Suppose the price level rises by 5 percent and the nominal wage rises by 3 percent.How is the real wage affected?

Accepted Answer

A)  It falls by 8 percent. 
B)  It falls by 2 percent. 
C)  It rises by 8 percent. 
D)  It rises by 2 percent. 
A)  It falls by 8 percent. 
B)  It falls by 2 percent. 
C)  It rises by 8 percent. 
D)  It rises by 2 percent.

Question 10

Suppose the expected price level falls below the actual price level.In terms of production, how will firms react?

Accepted Answer

A)  They will increase production in the short run. 
B)  They will decrease production in the short run. 
C)  They will maintain production in the short run but will increase prices. 
D)  They will maintain production in the short run but will decrease prices. 
A)  They will increase production in the short run. 
B)  They will decrease production in the short run. 
C)  They will maintain production in the short run but will increase prices. 
D)  They will maintain production in the short run but will decrease prices.

Question 11

Which of the following best describes how an economy overcomes an expansionary gap in the long run if the government does NOT intervene?

Accepted Answer

A)  In the long run, this gap will be closed by an increase in aggregate demand. 
B)  In the long run, this gap will close when resource suppliers negotiate lower resource payments. 
C)  In the long run, this gap will close when the short-run aggregate supply curve shifts rightward. 
D)  In the long run, this gap will close when resource suppliers negotiate higher resource payments. 
A)  In the long run, this gap will be closed by an increase in aggregate demand. 
B)  In the long run, this gap will close when resource suppliers negotiate lower resource payments. 
C)  In the long run, this gap will close when the short-run aggregate supply curve shifts rightward. 
D)  In the long run, this gap will close when resource suppliers negotiate higher resource payments.

Question 12

-Refer to the graph in the exhibit.In this situation, how would long-run equilibrium be established?

Accepted Answer

A)  by a decrease of short-run aggregate supply in order to close the expansionary gap 
B)  by an increase of short-run aggregate supply in order to close the expansionary gap 
C)  by a decrease of short-run aggregate supply in order to close the contractionary gap 
D)  by an increase of short-run aggregate supply in order to close the contractionary gap 
A)  by a decrease of short-run aggregate supply in order to close the expansionary gap 
B)  by an increase of short-run aggregate supply in order to close the expansionary gap 
C)  by a decrease of short-run aggregate supply in order to close the contractionary gap 
D)  by an increase of short-run aggregate supply in order to close the contractionary gap

Question 13

Suppose nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year.How will real wages be affected?

Accepted Answer

A)  Real wages will increase by 5 percent per year. 
B)  Real wages will increase by 3 percent per year. 
C)  Real wages will decrease by 5 percent per year. 
D)  Real wages will decrease by 3 percent per year. 
A)  Real wages will increase by 5 percent per year. 
B)  Real wages will increase by 3 percent per year. 
C)  Real wages will decrease by 5 percent per year. 
D)  Real wages will decrease by 3 percent per year.

Question 14

Suppose the economy is at its potential output level.Which of the following best characterizes how the economy is producing?

Accepted Answer

A)  The economy is producing less than it is capable of producing. 
B)  The economy is producing the maximum it can produce given resource constraints. 
C)  The economy is producing beyond its productive capacity. 
D)  The economy is producing at its minimum capacity. 
A)  The economy is producing less than it is capable of producing. 
B)  The economy is producing the maximum it can produce given resource constraints. 
C)  The economy is producing beyond its productive capacity. 
D)  The economy is producing at its minimum capacity.

Question 15

For the purpose of aggregate supply analysis, what is the definition of the long run?

Accepted Answer

A)  the period of time during which aggregate supply adjusts to equal aggregate demand 
B)  the period of time during which excess aggregate demand is fulfilled 
C)  the period of time during which real wages are constant 
D)  the period of time during which all resource prices can be varied 
A)  the period of time during which aggregate supply adjusts to equal aggregate demand 
B)  the period of time during which excess aggregate demand is fulfilled 
C)  the period of time during which real wages are constant 
D)  the period of time during which all resource prices can be varied

Question 16

One economic theory states that the longer the unemployment rate remains above the natural rate, the higher will be the natural rate.What is this theory known as?

Accepted Answer

A)  hysteresis 
B)  hysterical analysis 
C)  historical analysis 
D)  histoplasmosis 
A)  hysteresis 
B)  hysterical analysis 
C)  historical analysis 
D)  histoplasmosis

Question 17

Which of the following does NOT influence the position of the long-run aggregate supply curve?

Accepted Answer

A)  the quantity of raw materials available for production 
B)  the quantity of capital 
C)  the actual price level 
D)  the size of the labour force 
A)  the quantity of raw materials available for production 
B)  the quantity of capital 
C)  the actual price level 
D)  the size of the labour force

Question 18

In constructing the short-run aggregate supply curve, how would an economist define the short run?

Accepted Answer

A)  a period during which the price level is constant 
B)  a period during which output is fixed 
C)  a period during which profit is constant 
D)  a period during which the costs of some resources are fixed 
A)  a period during which the price level is constant 
B)  a period during which output is fixed 
C)  a period during which profit is constant 
D)  a period during which the costs of some resources are fixed

Question 19

Suppose resource suppliers and demanders find out that their price expectations were wrong.What will occur when they take corrective actions?

Accepted Answer

A)  The corrective actions will cause the economy to move away from the potential output level. 
B)  The corrective actions will raise the unemployment level above the natural rate of unemployment. 
C)  The corrective actions will shift the aggregate demand curve. 
D)  The corrective actions will shift the short-run aggregate supply curve. 
A)  The corrective actions will cause the economy to move away from the potential output level. 
B)  The corrective actions will raise the unemployment level above the natural rate of unemployment. 
C)  The corrective actions will shift the aggregate demand curve. 
D)  The corrective actions will shift the short-run aggregate supply curve.

Question 20

During a recession, how does output relate to its potential and unemployment relate to the natural rate?

Accepted Answer

A)  Output is above potential, and unemployment is below the natural rate. 
B)  Output is above potential, and unemployment is above the natural rate. 
C)  Output is below potential, and unemployment is below the natural rate. 
D)  Output is below potential, and unemployment is above the natural rate. 
A)  Output is above potential, and unemployment is below the natural rate. 
B)  Output is above potential, and unemployment is above the natural rate. 
C)  Output is below potential, and unemployment is below the natural rate. 
D)  Output is below potential, and unemployment is above the natural rate.

Suppose the actual price level is less than the expected price level reflected in long-term contracts.How will profits and output be affected, all things equal?

Suppose the economy is initially in long-run equilibrium.After an increase in aggregate demand, which of the following describes the state of the economy in the long run?

Given the aggregate demand curve, what effects would an adverse supply shock have on output and price level?

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

What is the main effect of a decrease in the stock of capital?

Some resource prices are assumed to be constant in the short run.How does this affect the shape of the short-run aggregate supply curve?

Other things constant, what relationship is expressed by aggregate supply?

-Refer to the graph in the exhibit.What does the graph illustrate regarding aggregate supply?

Suppose the price level rises by 5 percent and the nominal wage rises by 3 percent.How is the real wage affected?

Suppose the expected price level falls below the actual price level.In terms of production, how will firms react?

Which of the following best describes how an economy overcomes an expansionary gap in the long run if the government does NOT intervene?

-Refer to the graph in the exhibit.In this situation, how would long-run equilibrium be established?

Suppose nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year.How will real wages be affected?

Suppose the economy is at its potential output level.Which of the following best characterizes how the economy is producing?

For the purpose of aggregate supply analysis, what is the definition of the long run?

One economic theory states that the longer the unemployment rate remains above the natural rate, the higher will be the natural rate.What is this theory known as?

Which of the following does NOT influence the position of the long-run aggregate supply curve?

In constructing the short-run aggregate supply curve, how would an economist define the short run?

Suppose resource suppliers and demanders find out that their price expectations were wrong.What will occur when they take corrective actions?

During a recession, how does output relate to its potential and unemployment relate to the natural rate?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy in an Open Economy

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

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Exam 11: Aggregate Supply

Suppose the actual price level is less than the expected price level reflected in long-term contracts.How will profits and output be affected, all things equal?

Suppose the economy is initially in long-run equilibrium.After an increase in aggregate demand, which of the following describes the state of the economy in the long run?

Given the aggregate demand curve, what effects would an adverse supply shock have on output and price level?

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

What is the main effect of a decrease in the stock of capital?

Some resource prices are assumed to be constant in the short run.How does this affect the shape of the short-run aggregate supply curve?

Other things constant, what relationship is expressed by aggregate supply?

-Refer to the graph in the exhibit.What does the graph illustrate regarding aggregate supply?

Suppose the price level rises by 5 percent and the nominal wage rises by 3 percent.How is the real wage affected?

Suppose the expected price level falls below the actual price level.In terms of production, how will firms react?

Which of the following best describes how an economy overcomes an expansionary gap in the long run if the government does NOT intervene?

-Refer to the graph in the exhibit.In this situation, how would long-run equilibrium be established?

Suppose nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year.How will real wages be affected?

Suppose the economy is at its potential output level.Which of the following best characterizes how the economy is producing?

For the purpose of aggregate supply analysis, what is the definition of the long run?

One economic theory states that the longer the unemployment rate remains above the natural rate, the higher will be the natural rate.What is this theory known as?

Which of the following does NOT influence the position of the long-run aggregate supply curve?

In constructing the short-run aggregate supply curve, how would an economist define the short run?

Suppose resource suppliers and demanders find out that their price expectations were wrong.What will occur when they take corrective actions?

During a recession, how does output relate to its potential and unemployment relate to the natural rate?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy in an Open Economy

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

Filters