Deck 26: The Determination of Aggregate Output, the Price Level, and the Interest Rate

Question 1

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1
Refer to Figure 26.1. This economy reaches capacity at

A) $500 billion.
B) $1,000 billion.
C) $1,500 billion.
D) an output level that is indeterminate from this information because aggregate demand is not given.

Answer 1

C

Question 2

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 aggregate output.
D) The economy is expanding quickly.

Answer 2

D

Question 3

Refer to the information provided in Figure 26.2 below to answer the question(s) that follow. Figure 26.2
Refer to Figure 26.2. At $900 billion, this economy

A) is producing below its capacity.
B) is above its production capacity.
C) reaches its capacity.
D) Any of the above can be correct

Answer 3

C

Question 4

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.

Question 5

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1
Refer to Figure 26.1. This economy is most likely experiencing excess capacity at aggregate output levels

A) above $1,500 billion.
B) between $1,000 billion and $1,500 billion.
C) between $500 billion and $1,000 billion.
D) below $500 billion.

Question 6

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 frontier.
D) the aggregate demand curve.

Question 7

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1
Refer to Figure 26.1. This economy is most likely experiencing costs increasing as fast as output prices are increasing at aggregate output levels

A) above $1,500 billion.
B) between $1,000 billion and $1,500 billion.
C) between $500 billion and $1,000 billion.
D) below $500 billion.

Question 8

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.

Question 9

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) small; big

Question 10

Refer to the information provided in Figure 26.2 below to answer the question(s) that follow. Figure 26.2
Refer to Figure 26.2. Between the output levels of $600 billion and $900 billion, the relationship between the price level and output is

A) negative.
B) positive.
C) constant.
D) There is no relationship between the price level and output.

Question 11

When the aggregate supply curve is horizontal

A) many firms are likely to have excess capacity.
B) the economy is close to full capacity.
C) resources are being utilized at full capacity.
D) the prices level increases with additional production.

Question 12

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1
Refer to Figure 26.1. At aggregate output levels below $500 billion, this economy is most likely experiencing

A) rapid increases in the growth rate of the money supply.
B) a boom.
C) excess demand.
D) excess capacity.

Question 13

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1
Refer to Figure 26.1. At aggregate output levels above $1,500 billion, firms in this economy are most likely experiencing

A) costs increasing as fast as output prices.
B) costs lagging behind increases in output prices.
C) costs falling as prices output increase.
D) costs rising faster than output prices.

Question 14

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 level changes after a technological advance.
D) none of the above.

Question 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

Question 16

Refer to the information provided in Figure 26.2 below to answer the question(s) that follow. Figure 26.2
Refer to Figure 26.2. Between the output levels of $300 billion and $600 billion, the relationship between the price level and output is

A) negative.
B) positive.
C) constant.
D) There is no relationship between the price level and output.

Question 17

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1
Refer to Figure 26.1. Between the output levels of $1,000 billion and $1,500 billion, the relationship between the price level and output is

A) constant.
B) negative.
C) positive.
D) indeterminate.

Question 18

Refer to the information provided in Figure 26.2 below to answer the question(s) that follow. Figure 26.2
Refer to Figure 26.2. This economy reaches capacity at

A) $300 billion.
B) $600 billion.
C) $900 billion.
D) an output level that is indeterminate from this information because aggregate demand is not given.

Question 19

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1
Refer to Figure 26.1. At $1,500 billion, this economy

A) is producing below its capacity.
B) is above its production capacity.
C) reaches its capacity.
D) Any of the above can be correct.

Question 20

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1
Refer to Figure 26.1. Between the output levels of $500 billion and $1,000 billion, the relationship between the price level and output is

A) constant.
B) negative.
C) positive.
D) indeterminate.

Question 21

Refer to the information provided in Figure 26.3 below to answer the question(s) that follow. Figure 26.3
Refer to Figure 26.3. A shift from AS₁ to AS₀ represents a(n)

A) increase in aggregate supply.
B) decrease in aggregate supply.
C) increase in aggregate quantity supplied.
D) decrease in aggregate quantity supplied.

Question 22

Refer to the information provided in Figure 26.3 below to answer the question(s) that follow. Figure 26.3
Refer to Figure 26.3. Following the recession of 2008-2009, many firms in the United States eventually began investing in new capital. This increase in investment in new capital would cause

A) the short-run aggregate supply curve to shift from AS₁ to AS₀.
B) the short-run aggregate supply curve to shift from AS₁ to AS₂.
C) the economy to move from Point B to Point A along AS₁.
D) the economy to move from Point C to Point B along AS₁.

Question 23

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.

Question 24

Refer to the information provided in Figure 26.3 below to answer the question(s) that follow. Figure 26.3
Refer to Figure 26.3. An increase in aggregate supply is represented by

A) a movement from Point B to Point A along AS₁.
B) a movement from Point B to Point C along AS₁.
C) a shift from AS₁ to AS₂.
D) a shift from AS₁ to AS₀.

Question 25

Refer to the information provided in Figure 26.3 below to answer the question(s) that follow. Figure 26.3
Refer to Figure 26.3. The increased use of hydraulic fracturing, or fracking, in North Texas has significantly reduced energy prices across the country. This fracking would cause

A) the short-run aggregate supply curve to shift from AS₁ to AS₂.
B) the short-run aggregate supply curve to shift from AS₁ to AS₀.
C) the economy to move from Point B to Point A along AS₁.
D) the economy to move from Point C to Point B along AS₁.

Question 26

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

Question 27

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.
C) an increase in output but little or no increase in the overall price level.
D) little or no increase in either output or the overall price level.

Question 28

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.

Question 29

Refer to the information provided in Figure 26.3 below to answer the question(s) that follow. Figure 26.3
Refer to Figure 26.3. A shift from AS₁ to AS₂ represents a(n)

A) increase in aggregate supply.
B) decrease in aggregate supply.
C) increase in aggregate quantity supplied.
D) decrease in aggregate quantity supplied.

Question 30

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.

Question 31

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 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.

Question 32

Refer to the information provided in Figure 26.3 below to answer the question(s) that follow. Figure 26.3
Refer to Figure 26.3. A decrease in aggregate supply is represented by

A) a movement from Point B to Point A along AS₁.
B) a movement from Point B to Point C along AS₁.
C) a shift from AS₁ to AS₂.
D) a shift from AS₁ to AS₀.

Question 33

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 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.

Question 34

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.

Question 35

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 overall price level but no increase in output.
D) no increase in either output or the overall price level.

Question 36

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.

Question 37

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 are sticky in the short-run.
C) wages change in the short-run.
D) the aggregate supply curve is vertical in the short-run.

Question 38

Refer to the information provided in Figure 26.3 below to answer the question(s) that follow. Figure 26.3
Refer to Figure 26.3. Hurricane Katrina destroyed a large portion of the infrastructure along the Gulf of Mexico coast. This caused

A) the short-run aggregate supply curve to shift from AS₁ to AS₂.
B) the short-run aggregate supply curve to shift from AS₁ to AS₀.
C) the economy to move from Point B to Point A along AS₁.
D) the economy to move from Point C to Point B along AS₁.

Question 39

Refer to the information provided in Figure 26.3 below to answer the question(s) that follow. Figure 26.3
Refer to Figure 26.3. During the 1980s, many firms in the United States were not investing in new capital. This would have caused

A) the short-run aggregate supply curve to shift from AS₁ to AS₀.
B) the short-run aggregate supply curve to shift from AS₁ to AS₂.
C) the economy to move from Point B to Point A along AS₁.
D) the economy to move from Point C to Point B along AS₁.

Question 40

When the economy is producing at full capacity, the aggregate supply curve becomes

A) horizontal.
B) downward sloping.
C) vertical.
D) upward sloping.

Question 41

An increase in aggregate demand when the economy is operating at ________ is likely to result in an increase in the overall price level and ________ in output.

A) high levels of output; a large increase
B) high levels of output; little or no increase
C) low levels of output; a decrease
D) low levels of output; no change

Question 42

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. During the 2008-2009 recession, many firms in the United States reduced investment in new capital. If the economy was originally at Point A, this would have caused a movement to Point

A) E.
B) B.
C) C.
D) D.

Question 43

When the aggregate supply curve is ________ any increase in the price level will not cause an increase in aggregate output.

A) horizontal
B) vertical
C) upward sloping
D) downward sloping

Question 44

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. Suppose the economy is at Point A, a decrease in aggregate demand moves the economy to Point

A) E.
B) B.
C) C.
D) D.

Question 45

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. Which of the following causes the economy to move from Point E to Point A?

A) an oil embargo that increases the price of oil
B) technological progress
C) stricter immigration enforcement
D) an increase in the price level

Question 46

An increase in aggregate demand when the economy is operating ________ is likely to result in an increase in the overall price level and ________ in output.

A) below full capacity; a decrease
B) below full capacity; no increase
C) at full capacity; a decrease
D) at full capacity; no increase

Question 47

If the economy is operating on the relatively vertical segment of the aggregate supply curve, an increase in aggregate demand causes a small change in the ________ and a big change in ________.

A) aggregate demand; aggregate supply
B) aggregate supply; aggregate demand
C) output; price level
D) price level; output

Question 48

The rationale underlying policies to deregulate the economy is that these policies would

A) increase aggregate demand.
B) decrease short-run aggregate supply.
C) decrease aggregate demand.
D) increase short-run aggregate supply.

Question 49

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. Suppose the economy is at Point A, an oil price increase could move the economy to Point

A) E.
B) B.
C) C.
D) D.

Question 50

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. Suppose the economy is at Point A, an oil price decrease could move the economy to Point

A) E.
B) B.
C) C.
D) D.

Question 51

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. During the 1990s, many firms in the United States were investing in new capital. If the economy was originally at Point A, this would have caused a movement to Point

A) E.
B) B.
C) C.
D) D.

Question 52

If the economy is operating way below capacity, an increase in aggregate demand causes a big change in the ________ and small change in ________.

A) aggregate demand; aggregate supply
B) aggregate supply; aggregate demand
C) output; price level
D) price level; output

Question 53

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. Suppose the economy is at Point A, a decrease in the price level moves the economy to Point

A) E.
B) B.
C) C.
D) D.

Question 54

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. Suppose the economy is at Point A, an increase in aggregate demand moves the economy to Point

A) E.
B) B.
C) C.
D) D.

Question 55

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. Suppose the economy is at Point A, an increase in the price level moves the economy to Point

A) E.
B) B.
C) C.
D) D.

Question 56

The aggregate supply curve shows the relationship between the aggregate quantity of output supplied by ________ and ________.

A) all the firms in an economy; the overall price level
B) the government; aggregate demand
C) domestically owned firms in the economy; the interest rate
D) the world; the money supply

Question 57

When the aggregate supply curve is ________ the price of factors of production is fixed, with little or no upward pressure on price.

A) horizontal
B) vertical
C) upward sloping
D) downward sloping

Question 58

The quantity of output supplied at ________ is represented by the aggregate supply curve.

A) varying interest rates
B) a constant money supply
C) different price levels
D) various levels of GDP

Question 59

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4
Refer to Figure 26.4. Which of the following causes the economy to move from Point A to Point E?

A) an oil embargo that increases the price of oil
B) technological progress
C) an influx of immigrants
D) an increase in the price level

Question 60

An oil price increase would

A) increase aggregate demand.
B) decrease short-run aggregate supply.
C) decrease aggregate demand.
D) increase short-run aggregate supply.

Question 61

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.

Question 62

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.

Question 63

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

Question 64

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.

Question 65

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.

Question 66

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

Question 67

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.

Question 68

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

Question 69

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

Question 70

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

Question 71

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

Question 72

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

Question 73

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.

Question 74

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

Question 75

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

Question 76

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

Question 77

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.

Question 78

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

Question 79

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

Question 80

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.