Deck 23: Output and Prices in the Short Run

Question 1

All points on an economyʹs AD curve

A)correspond to a particular point on industry demand curves for a particular product.
B)relate a particular price level to the total demand for output at that price level.
C)show only changes in relative prices and quantities.
D)show the direct relationship between the price level and net exports.
E)show the direct relationship between the price level and the demand for consumer goods.

Answer 1

relate a particular price level to the total demand for output at that price level.

Question 2

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the domestic price level changes equilibrium real GDP

A)in the same direction.
B)in the opposite direction.
C)by the same amount in the same direction.
D)by the same amount in the opposite direction.
E)by a lesser amount in either direction.

Answer 2

in the opposite direction.

Question 3

Other things being equal,when the domestic price level falls exogenously,

A)Canadian goods become more expensive relative to foreign goods.
B)the net export function shifts upward.
C)the aggregate expenditure function shifts downward.
D)imports of foreign goods rise.
E)the net export function shifts downward.

Answer 3

the net export function shifts upward.

Question 4

Suppose there is an exogenous increase in the domestic price level.Which of the individuals listed below would experience an increase in wealth?

A)a person with a 25-year home mortgage
B)a person with cash under the mattress
C)a person with deposits in a bank savings account
D)a person with a government bond that promises to pay the holder $1000,5 years hence
E)a person with a corporate bond that promises to repay the face value of the bond in the future

Question 5

The AD curve relates the price level to which of the following?

A)desired aggregate expenditure
B)desired consumption
C)the level of real GDP where desired AE equals actual national income
D)the level of nominal GDP where desired AE equals actual national income
E)equilibrium savings and wealth.

Question 6

Which of the following events would cause the AE function to shift upwards in a parallel way?

A)an increase in the MPC
B)a decrease in the net tax rate
C)a decrease in the business confidence of firms
D)a decrease in foreign income
E)a decrease in the aggregate price level

Question 7

Consider a simple macro model with demand-determined output.Other things being equal,the price level and desired aggregate expenditure are related to each other

A)positively.
B)proportionally.
C)progressively.
D)exponentially.
E)negatively.

Question 8

Consider a simple macro-model with demand-determined output. An exogenous increase in the domestic price level will ________ the real value of the private sectorʹs wealth, which leads to ________ in autonomous consumption and thus ________ shift in the AE function.

A)increase; a decrease; a downward
B)increase; an increase; a downward
C)increase; an increase; an upward
D)reduce; a decrease; a downward
E)reduce; an increase; an upward

Question 9

Other things being equal,as the price level rises exogenously,the aggregate expenditure (AE)function shifts

A)down and the economy will move upward to the left along the AD curve.
B)down and the economy will move downward to the right along the AD curve.
C)upward and the economy moves upward to the left along the AD curve.
D)upward and the economy moves downward to the right along the AD curve.
E)to the right and the AD curve will also shift to the right.

Question 10

An exogenous fall in the domestic price level causes an increase in real wealth and

A)a fall in desired investment.
B)a rise in desired consumption.
C)a downward shift in the AE curve.
D)a downward shift of the net export function.
E)a fall in government purchases.

Question 11

Other things being equal,a rise in the domestic price level

A)causes a decrease in real saving.
B)lowers the real value of all assets denominated in money units.
C)makes domestic goods more attractive to foreigners.
D)makes foreign goods less attractive to domestic residents.
E)raises the real burden of repaying a fixed money value debt.

Question 12

Other things being equal,a fall in the domestic price level leads to a rise in private -sector wealth and thus

A)an increase in the average propensity to save.
B)an increase in autonomous desired consumption.
C)a downward shift in the AE curve.
D)a downward shift in net exports.
E)domestic goods appearing less attractive to foreigners.

Question 13

Other things being equal,as the price level falls exogenously,the aggregate expenditure (AE)function shifts

A)down and the economy will move upward along the AD curve.
B)down and the economy will move downward along the AD curve.
C)upward and the economy moves upward along the AD curve.
D)upward and the economy moves downward along the AD curve.
E)to the left,as does the AD curve.

Question 14

Other things being equal,an exogenous rise in the domestic price level will

A)have no effect on the level of desired real expenditure.
B)increase the level of desired real expenditure.
C)decrease desired real expenditure only if it is accompanied by a change in the current income of households.
D)decrease desired real expenditure because it will affect the real value of wealth.
E)cause net exports to rise.

Question 15

In a macro model with a constant price level,an increase in autonomous desired consumption will cause the AE curve to shift

A)downward and the AD curve to shift to the left.
B)downward and the AD curve to shift to the right.
C)upward and the AD curve to shift to the left.
D)upward and the AD curve to shift to the right.
E)upward and a movement to the right along the AD curve.

Question 16

Other things being equal, a rise in the price level will imply ________ in wealth for the bondholder and ________ in the wealth of the issuer of the bond.

A)a decline; an increase
B)a decline; a decline
C)a decline; no change
D)an increase; a decline
E)an increase; an increase

Question 17

Other things being equal,an exogenous increase in the price level causes the aggregate wealth of holders and issuers of private-sector bonds to

A)decrease.
B)increase.
C)not change since the changes in the wealth of bondholders and bond issuers offset each other.
D)either increase or decrease depending on other factors.
E)rise in nominal terms,but fall in real terms.

Question 18

Consider a simple macro model with demand-determined output.An exogenous increase in the domestic price level will

A)shift both the net export function and the AE curve upward.
B)shift the net export function upward and the AE curve downward.
C)shift both the net export function and the AE curve downward.
D)shift the net export function downward and the AE curve upward.
E)pivot the net export function and the AE curve upward.

Question 19

Other things being equal,when the domestic price level rises exogenously,

A)Canadian goods become more expensive relative to foreign goods.
B)the net export function shifts upward.
C)the aggregate expenditure function shifts upward.
D)imports of foreign goods fall.
E)the desired investment function shifts upward.

Question 20

Other things being equal, when the price level rises, the real value of money holdings ________; when the domestic price level falls, the real value of money holdings ________.

A)rises; falls
B)falls; is not affected
C)falls; rises
D)is not affected; falls
E)is not affected; rises

Question 21

In a macro model with a constant price level,an increase in government purchases will cause the AE curve to shift

A)downward and the AD curve to shift to the right.
B)downward and the AD curve to shift to the left.
C)downward and a movement to the right along the AD curve.
D)upward and the AD curve to shift to the left.
E)upward and the AD curve to shift to the right.

Question 22

Consider the relationship between the AE curve and the AD curve.A fall in the amount of desired consumption,investment,government purchases,or net exports at any given level of national income

A)shifts the AD curve to the left.
B)shifts the AD curve to the right.
C)causes a movement along the AD curve.
D)causes a movement along the AE curve.
E)causes a shift of the AE curve but no movement of the AD curve.

Question 23

FIGURE 23-1

Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose the AE curve shifts to AE2 and we move to a new equilibrium level of GDP at Y2 and point C on AD0.A possible cause of this change in equilibrium is

A)an increase in autonomous consumption.
B)an increase in desired investment.
C)an exogenous fall in the price level.
D)an exogenous rise in the price level.
E)an increase in desired net exports.

Question 24

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the price level causes a

A)shift in both the AE and AD curves.
B)movement along the AE curve and a shift in the AD curve.
C)movement along both the AE and AD curves.
D)shift in the AE curve and a movement along the AD curve.
E)movement along AE but does not affect the AD curve.

Question 25

FIGURE 23-1

Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose the AE curve shifts to AE1 and we move to a new equilibrium level of GDP at Y1 and point F on AD1.A possible cause of this change in equilibrium is

A)an exogenous rise in the price level.
B)an exogenous fall in the price level.
C)an increase in autonomous consumption.
D)a decrease in desired net exports.
E)an increase in government purchases.

Question 26

A rightward shift in the aggregate demand ( AD)curve could result from a rise in

A)induced imports.
B)desired investment.
C)the net tax rate.
D)desired saving.
E)the price level.

Question 27

FIGURE 23-1

Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose there is an increase in desired investment and no change in the price level.Which of the following statements describes the likely macroeconomic effects?

A)The AE curve shifts up to AE2,the AD curve shifts to AD2,and a new equilibrium is established at point C,with real GDP at Y2.
B)The AE curve shifts down to AE1,the AD curve shifts to AD1,and a new equilibrium is established at point F,with real GDP at Y1.
C)The AE curve shifts to AE1,the AD curve shifts to AD1,and a new equilibrium is established at point E,with real GDP at Y2.
D)The AE curve shifts to AE2,the AD curve shifts to AD1,and a new equilibrium is established at point F,with real GDP at Y2.
E)The AE curve shifts to AE2,the AD curve shifts to AD2,and a new equilibrium is established at point E,with real GDP at Y2.

Question 28

FIGURE 23-1

Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose the AE curve shifts to AE2 and we move to a new equilibrium level of GDP at Y2 and point E on AD2.A possible cause of this change in equilibrium is

A)an increase in government purchases.
B)an increase in the net tax rate.
C)a decrease in desired investment.
D)a decrease in desired net exports.
E)an exogenous fall in the price level.

Question 29

A leftward shift of the aggregate demand (AD)curve could result from a fall in

A)autonomous government purchases.
B)induced imports.
C)the net tax rate.
D)autonomous desired saving.
E)the price level.

Question 30

A leftward shift in the aggregate demand (AD)curve could result from a rise in

A)autonomous exports.
B)autonomous government purchases.
C)government transfer payments to households.
D)desired investment.
E)autonomous desired savings.

Question 31

FIGURE 23-1

Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose the AE curve shifts to AE1 and we move to a new equilibrium level of GDP at Y1 and point A on AD0.A possible cause of this change in equilibrium is

A)an exogenous rise in the price level.
B)a decrease in desired investment.
C)a decrease in autonomous consumption.
D)a decrease in desired net exports.
E)an increase in government purchases.

Question 32

Which of the following would likely cause an upward parallel shift in the AE curve and a rightward shift in the AD curve?

A)an increase in the business confidence of firms
B)a reduction in government purchases
C)an increase in the MPC
D)a decrease in the price level
E)an increase in the price level

Question 33

Which of the following would likely cause a downward shift in the AE curve and a movement upward along the AD curve?

A)a decrease in the business confidence of firms
B)a reduction in government purchases
C)a decrease in the MPC
D)a decrease in the price level
E)an increase in the price level

Question 34

FIGURE 23-1

Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Other things being equal,exogenous changes in the price level will cause

A)movement along the aggregate expenditure curve AE0 and shifts of the AD curve.
B)movement along the aggregate expenditure curve AE0 and movement along the aggregate demand curve AD0.
C)shifts of the AE curve and shifts of the AD curve.
D)shifts of the AE curve and movement along the aggregate demand curve AD0.
E)no change in either the AE curve or the AD curve.

Question 35

On a graph that shows the derivation of the AD curve,an exogenous change in the price level causes

A)a shift in the AE curve and a movement along the AD curve.
B)a shift in both the AE and AD curves.
C)a movement along the AE curve and a shift in the AD curve.
D)a movement along the AE curve but not along the AD curve.
E)a movement along both the AE and AD curves.

Question 36

Which of the following would likely cause a downward parallel shift in the AE curve and a leftward shift in the AD curve?

A)an increase in the business confidence of firms
B)a reduction in government purchases
C)an decrease in the MPC
D)a decrease in the price level
E)an increase in the price level

Question 37

A leftward shift of the aggregate demand (AD)curve could result from a rise in

A)desired exports.
B)government purchases.
C)government transfer payments to households.
D)the net tax rate.
E)desired investment.

Question 38

FIGURE 23-1

Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose there is an exogenous rise in the price level to P1.Which of the following statements describes the likely macroeconomic effects?

A)The AE curve shifts to AE1,a new equilibrium is established at point U,and the AD curve shifts from AD0 to AD1,and equilibrium from point B to point D.
B)The AE curve shifts to AE2,a new equilibrium is established at point W,and the economy moves from point B to point C along AD0.
C)The AE curve shifts to AE1,a new equilibrium is established at point U,and the economy moves from point B to point A along AD0.
D)The AE curve shifts to AE2,a new equilibrium is established at point W,and the AD curve shifts from AD0 to AD1,and equilibrium moves from point B to point D.

Question 39

FIGURE 23-1

Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.The corresponding point on the aggregate demand curve is point

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

Question 40

Consider the relationship between the AE curve and the AD curve.A rise in the amount of desired consumption,investment,government purchases,or net exports at any given level of national income

A)shifts the AD curve to the left.
B)shifts the AD curve to the right.
C)causes a movement along the AD curve.
D)causes a movement along the AE curve.
E)causes a shift of the AE curve but no movement of the AD curve.

Question 41

Consider the basic AD/AS model in the short run.When there is a change in autonomous desired expenditure,the simple multiplier is equal to the

A)product of the horizontal shift of the AD curve times the change in autonomous expenditure.
B)product of the vertical movement along the AD curve times the change in autonomous expenditure.
C)ratio of the horizontal shift of the AD curve to the change in autonomous expenditure.
D)ratio of the vertical movement along the AD curve to the change in autonomous expenditure.
E)ratio of the vertical shift of the AD curve to the change in autonomous expenditure.

Question 42

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.1 and a marginal propensity to import of 0.1.Economy B has a marginal propensity to consume of 0.6,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is a decrease in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

A)The AD curve shifts farther to the left in Economy A than Economy B.
B)The AD curve shifts farther to the right in Economy A than Economy B.
C)The AD curve shifts to the left the same amount in both economies.
D)The AD curve shifts to the right the same amount in both economies.
E)The simple multiplier is larger in Economy B.

Question 43

Consider the relationship between the AE curve and the AD curve.A decline in the amount of desired net exports at each level of national income

A)shifts the AD curve to the right.
B)shifts the AD curve to the left.
C)causes a movement up along the AD curve.
D)causes a movement down along the AD curve.
E)causes an upward shift of the AE curve but no movement of the AD curve.

Question 44

Consider the basic AD/AS macro model.The simple multiplier is reflected by the

A)horizontal distance between initial macroeconomic equilibrium and the new intersection of AD and AS in response to a change in autonomous expenditure.
B)downward movement along the AD curve in response to a change in autonomous expenditure.
C)size of the rightward shift of the AD curve in response to a change in autonomous expenditure.
D)upward movement along the AD curve in response to a change in autonomous expenditure.
E)size of the leftward shift of the AD curve in response to a rise in autonomous expenditure.

Question 45

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.3 and a marginal propensity to import of 0.3.Economy B has a marginal propensity to consume of 0.9,a net tax rate of 0.1 and a marginal propensity to import of 0.3.Suppose there is an increase in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

A)There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment.
B)There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment.
C)There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment.
D)There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment.
E)There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment.

Question 46

Other things being equal, a closed economy will have a ________ marginal propensity to spend and thus a________ AD curve compared to an open economy with foreign trade.

A)lower; flatter
B)higher; flatter
C)higher; steeper
D)lower; rightward shift of the
E)lower; leftward shift of the

Question 47

Consider the simple multiplier when the price level is constant. We can say that national income is ________and that the simple multiplier measures the horizontal shift in ________ in response to a change in autonomous desired expenditure

A)demand determined; the AS curve
B)unit-cost determined; the AD curve
C)constant; the AD curve
D)demand determined; the AD curve
E)constant; the AE curve

Question 48

The AD curve shows the relationship between

A)the price level and the equilibrium level of demand-determined national income.
B)AS and real national income.
C)real national income and AE.
D)AS and AE.
E)the price level and desired consumption.

Question 49

Other things being equal, a higher marginal propensity to spend will lead to a ________ AD curve.

A)flatter
B)steeper
C)rightward shift of the
D)leftward shift of the

Question 50

The economyʹs aggregate supply (AS)curve shows the relationship between the

A)equilibrium real GDP and marginal cost.
B)equilibrium real GDP and desired consumption.
C)price level and the marginal propensity to consume (MPC).
D)price level and the total output that firms wish to produce and sell,with technology and input prices held constant.
E)price level and the total output that firms wish to produce and sell,as technology and input prices vary.

Question 51

Consider the AD/AS model.Suppose there is an increase in autonomous desired consumption at a given price level.The result is

A)the AE curve shifts downward and the AD curve shifts to the left.
B)the AE curve shifts downward and the AD curve shifts to the right.
C)the AE curve shifts upward and the AD curve shifts to the left.
D)the AE curve shifts upward and the AD curve shifts to the right.
E)no change in either the AE or the AD curve.

Question 52

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.3 and a marginal propensity to import of 0.3.Economy B has a marginal propensity to consume of 0.9,a net tax rate of 0.1 and a marginal propensity to import of 0.3.Suppose there is an increase in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

A)The AD curve shifts farther to the left in Economy B than Economy A.
B)The AD curve shifts farther to the right in Economy B than Economy A.
C)The AD curve shifts to the left the same amount in both economies.
D)The AD curve shifts to the right the same amount in both economies.
E)The simple multiplier is larger in Economy A.

Question 53

One of the reasons why the aggregate demand (AD)curve slopes downward is that

A)aggregate expenditure increases as the price level rises.
B)increases in the price level cause consumers to substitute foreign goods for domestic goods.
C)increased production results in lower production costs.
D)when the price level falls firms must be more competitive when output increases.
E)when the price level falls consumers increase their saving rate.

Question 54

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Economy B has a marginal propensity to consume of 0.7,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is an increase in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

A)The AD curve shifts farther to the left in Economy B than Economy A.
B)The AD curve shifts farther to the right in Economy A than Economy B.
C)The AD curve shifts to the left the same amount in both economies.
D)The AD curve shifts to the right the same amount in both economies.
E)The simple multiplier is larger in Economy A.

Question 55

The economyʹs aggregate supply (AS)curve shows the relationship between the price level and the total

A)investment that firms wish to make,with input prices given.
B)investment that firms wish to make,as input prices vary.
C)output that firms wish to produce and sell,with input prices given.
D)output that firms wish to produce and sell,as input prices vary.
E)wealth accumulated by households,with national income given.

Question 56

Aggregate supply refers to the

A)decisions of firms to decrease inputs in order to produce outputs.
B)effects of increases in input prices on output.
C)economyʹs potential output at each possible labour force.
D)supply of labour inputs in the economy.
E)total output of goods and services that firms would like to produce and sell.

Question 57

Consider the relationship between the AE curve and the AD curve.A rise in the amount of desired investment expenditure at each level of national income

A)shifts the AD curve to the left.
B)shifts the AD curve to the right.
C)causes a movement along the AD curve.
D)causes a movement along the AE curve.
E)causes a shift of the AE curve but no movement of the AD curve.

Question 58

Other things being equal, an economy with a higher net tax rate will have a ________ marginal propensity to spend and thus a ________ AD curve compared to an economy with a lower net tax rate.

A)lower; steeper
B)higher; flatter
C)higher; steeper
D)lower; rightward shift of the
E)lower; leftward shift of the

Question 59

One of the reasons why the aggregate demand (AD)curve slopes downward is that

A)aggregate expenditure increases as the price level rises.
B)decreases in the price level cause increases in private-sector wealth which lead to increases in desired consumption.
C)increased production results in lower production costs.
D)when the price level falls firms must be more competitive when output increases.
E)when the price level falls consumers increase their saving rate.

Question 60

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Economy B has a marginal propensity to consume of 0.7,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is an increase in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

A)There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment.
B)There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment.
C)There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment.
D)There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment.
E)There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment.

Question 61

A decrease in aggregate supply in the short run is

A)reflected in a movement to the left along the AS curve.
B)reflected in a shift to the right in the AS curve.
C)interpreted to mean that less total output will be supplied at any given price level.
D)caused by a decrease in the price level.
E)caused by an increase in the price level.

Question 62

The economyʹs AS curve will shift upward in the short run if there is

A)an improvement in technology.
B)a decrease in the cost of capital.
C)an increase in the price level.
D)a decrease in nominal wages.
E)an increase in nominal wages.

Question 63

A leftward shift in the economyʹs AS curve implies that

A)at any given price level,a lower level of output will be supplied.
B)at any given price level,a higher level of output will be supplied.
C)there is an increase in aggregate supply.
D)there is a demand shock.
E)the same output will be produced in equilibrium,but at a lower price level.

Question 64

A rightward shift in the economyʹs AS curve implies that

A)at any given price level,a lower level of output will be supplied.
B)at any given price level,a higher level of output will be supplied.
C)there is a decrease in aggregate supply.
D)there is a demand shock.
E)the same output will be produced,but only at a higher price level.

Question 65

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell,given the assumption that

A)technology and the prices of all factors of production remain constant.
B)unit costs remain constant.
C)all firms are price takers.
D)all firms are price setters.
E)technology and the prices of all factors of production do not remain constant.

Question 66

Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift

A)downward (to the right),reducing the price level.
B)downward (to the right)and then return immediately to its original position.
C)upward (to the left)and then return immediately to its original position.
D)upward (to the left),increasing the price level.
E)None of the above; there will no effect on the AS curve.

Question 67

A movement along the economyʹs AS curve could be caused by a change in

A)labour productivity.
B)the cost of capital.
C)the price level,caused in turn by an AD shock.
D)technology.
E)the wage rate.

Question 68

In building a macro model with an AS curve,it is assumed that producers will

A)increase prices without changing their output.
B)decrease their prices without changing output.
C)decrease their prices when they expand output.
D)produce as much as possible at the existing price level.
E)produce more output only if prices rise.

Question 69

A decrease in aggregate supply in the short run is

A)shown by a shift to the left of the AS curve.
B)shown by a shift to the right of the AS curve.
C)interpreted to mean that more national output will be supplied at any given price level.
D)caused by a decrease in the price level.
E)caused by an increase in the price level.

Question 70

The economyʹs AS curve is often assumed to be relatively flat at low levels of real GDP.The underlying reasoning is that

A)consumer demand for most goods tends to be non -responsive to price when output is low.
B)consumer demand for most goods tends to be very responsive to price when output is low.
C)at low levels of output,firms are faced with unused capacity and thus can increase output without significantly increasing their costs.
D)the price level is constant.
E)profits are normally high in this section of the AS curve,so firms are willing to expand output.

Question 71

Other things being equal,the economyʹs AS curve will shift upward in the short run if there is

A)an increase in the cost of capital.
B)a decrease in the cost of capital.
C)a decrease in nominal wages.
D)a decrease in the price level.
E)an improvement in technology.

Question 72

The aggregate supply (AS)curve is drawn with which variables on the axes of the graph?

A)the price level on the vertical axis and MPC on the horizontal axis
B)national income on the vertical axis and total desired consumption on the horizontal axis
C)the price level on the vertical axis and real GDP on the horizontal axis
D)national income on the vertical axis and marginal cost on the horizontal axis
E)the price level on the vertical axis and real disposable income on the horizontal axis

Question 73

In the short run,the aggregate supply curve has a positive slope because,as the price level rises,producers can

A)accumulate inventories.
B)charge a higher price sufficient to cover their higher unit costs.
C)experience rising factor prices.
D)produce less in response to falling profits.
E)increase output at unchanged unit costs.

Question 74

The economyʹs aggregate supply (AS)curve is assumed to slope upward because

A)inputs become more expensive at higher levels of output.
B)inputs become less expensive at higher levels of output.
C)firmsʹ unit costs rise as output increases.
D)firmsʹ unit costs fall as output increases.
E)aggregate demand increases at higher levels of national income.

Question 75

Consider the basic AD/AS model.If there is a decrease in the cost of non-labour inputs to production,the result will be to

A)shift the AD curve to the left.
B)shift the AD curve to the right.
C)shift the AS curve to the left.
D)shift the AS curve to the right.
E)cause a movement to the left along the AS curve.

Question 76

The economyʹs aggregate supply curve is drawn under two main assumptions.They are

A)firmsʹ unit costs are constant; prices of all factors of production are constant.
B)firmsʹ unit costs are constant; the state of technology is constant.
C)firms will produce more output only if prices rise; technology improves only if prices rise.
D)the prices of all factors of production are constant; the state of technology is constant.
E)the prices of all factors of production are constant; productivity improves as the price level rises.

Question 77

Other things being equal,the economyʹs AS curve will shift downward if there is

A)a decrease in labour productivity.
B)a decrease in the cost of capital inputs.
C)a decrease in the price level.
D)an increase in the price level.
E)an increase in nominal wages.

Question 78

Consider the economyʹs aggregate supply curve.Other things being equal,unit costs will tend to increase if

A)there is a rise in the price of oil.
B)the government reduces payroll taxes.
C)wage increases exceed productivity increases.
D)wages rise.
E)wage and price controls are in effect.

Question 79

Consider the basic AD/AS model.When wage rates rise faster than the increase in labour productivity,the

A)AD curve shifts left.
B)AS curve shifts upward.
C)output gap falls.
D)output gap increases.
E)AS curve shifts downward.

Question 80

Consider the economyʹs aggregate supply curve.Other things being equal,unit costs will tend to fall if

A)there is a fall in the price of oil.
B)the government increases payroll taxes.
C)wages fall.
D)wage and price controls are in effect.
E)wage increases are less than productivity increases.