Deck 26: Aggregate Supply and Aggregate Demand

Question 1

The short-run aggregate supply curve indicates

A)the relationship between the price level and real GDP demanded by consumers, investors, governments, and net exporters.
B)the relationship between the price level and the natural unemployment rate.
C)the relationship between the purchasing power of wages and the quantity of labour supplied by households.
D)the relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant.
E)the various quantities of real GDP producers supply at different income levels.

Answer 1

D

Question 2

The short-run aggregate supply curve is the relationship between the quantity of real GDP supplied and

A)the quantity of real GDP demanded.
B)real income.
C)the inflation rate.
D)the real interest rate.
E)the price level.

Answer 2

E

Question 3

Everything else remaining the same, the short-run aggregate supply curve shifts rightward if

A)the money wage rate increases.
B)aggregate demand increases.
C)the full-employment quantity of labour increases.
D)factor prices increase.
E)the quantity of capital decreases.

Answer 3

C

Question 4

Figure 26.1.1

Refer to Figure 26.1.1. Which graph illustrates what happens when factor prices decrease?

A)(a)
B)(b)
C)(c)
D)(d)
E)(a)and (b)

Question 5

Which one of the following newspaper quotations describes a shift of only the SAS curve?

A)"The decrease in consumer spending may lead to a recession."
B)"The increase in consumer spending is expected to lead to inflation, without any increase in real GDP."
C)"Recent higher wage settlements are expected to cause higher inflation this year."
D)"Growth has been unusually high the last few years due to more women entering the work force."
E)"The recent tornadoes destroyed many factories in Calgary and Edmonton."

Question 6

The long-run aggregate supply curve is

A)vertical.
B)negatively sloped.
C)positively sloped but extremely steep.
D)almost flat.
E)positively sloped at low levels of real GDP and vertical at high levels of real GDP.

Question 7

Which one, if any, of the following events shift the short-run aggregate supply curve but not the long-run aggregate supply curve?

A)a change in factor prices
B)a change in the quantity of capital
C)an advance in technology
D)an increase in the full-employment quantity of labour
E)none of the above

Question 8

Which one of the following newspaper quotations describes a leftward shift of the LAS curve?

A)"The decrease in consumer spending may lead to a recession."
B)"The increase in consumer spending is expected to lead to inflation, without any increase in real GDP."
C)"Recent higher wage settlements are expected to cause higher inflation this year."
D)"Growth has been unusually high the last few years due to more women entering the work force."
E)"The recent tornadoes destroyed many factories in Calgary and Edmonton."

Question 9

Which one of the following newspaper quotations describes a rightward shift of the LAS curve?

A)"The decrease in consumer spending may lead to a recession."
B)"The increase in consumer spending is expected to lead to inflation, without any increase in real GDP."
C)"Recent higher wage settlements are expected to cause higher inflation this year."
D)"Growth has been unusually high the last few years due to more women entering the work force."
E)"The recent tornadoes destroyed many factories in Calgary and Edmonton."

Question 10

Potential GDP is the level of real GDP at which

A)aggregate demand equals short-run aggregate supply.
B)there is full employment.
C)there is a recessionary gap.
D)there is over-full employment.
E)prices are sure to rise.

Question 11

An increase in oil prices to a country that is a net importer of oil shifts

A)both the short-run aggregate supply and long-run aggregate supply curves rightward.
B)both the short-run aggregate supply and long-run aggregate supply curves leftward.
C)the short-run aggregate supply curve leftward, but leaves the long-run aggregate supply curve unchanged.
D)the long-run aggregate supply curve rightward, but leaves the short-run aggregate supply curve unchanged.
E)the short-run aggregate supply curve leftward, but shifts the long-run aggregate supply curve rightward.

Question 12

Which one of the following newspaper quotations describes a movement along an LAS curve?

A)"The decrease in consumer spending may lead to a recession."
B)"The increase in consumer spending is expected to lead to inflation, without any increase in real GDP."
C)"Recent higher wage settlements are expected to cause higher inflation this year."
D)"Growth has been unusually high the last few years due to more women entering the labour force."
E)"The recent tornadoes destroyed many factories in Calgary and Edmonton."

Question 13

A vertical long-run aggregate supply curve indicates that

A)an increase in the price level will not expand an economy's output in the long run.
B)output rates greater than the long-run output rate are unattainable.
C)an increase in the price level will permit the economy to achieve a higher level of output.
D)an increase in the price level will increase technological change and economic growth.
E)the long-run aggregate supply curve never shifts.

Question 14

Which of the following does not change short-run aggregate supply?

A)a change in the money wage rate
B)technological change
C)a change in the full-employment quantity of labour
D)an increase in the quantity of capital
E)a change in expected future profits

Question 15

A technological advance shifts

A)both SAS and AD rightward.
B)both SAS and LAS leftward.
C)SAS rightward but leaves LAS unchanged.
D)LAS rightward but leaves SAS unchanged.
E)both SAS and LAS rightward.

Question 16

Potential GDP

A)increases as the price level rises.
B)is the level of real GDP when unemployment is zero.
C)increases as the quantity of money in the economy increases.
D)does not vary with the price level.
E)never changes.

Question 17

Refer to Figure 26.1.1. Which graph illustrates what happens when factor prices rise?

A)(a)
B)(b)
C)(c)
D)(d)
E)(a)and (b)

Question 18

Suppose there is an increase in the quantity of capital. As a result, the SAS

A)and the LAS curves both shift leftward.
B)and the LAS curves both shift rightward.
C)curve does not shift but the LAS curve shifts rightward.
D)curve does not shift but the LAS curve shifts leftward.
E)curve shifts rightward, but the LAS curve does not shift.

Question 19

The long-run aggregate supply curve is vertical because

A)potential GDP is independent of the price level.
B)actual output can never exceed, even temporarily, the output rate implied by the economy's long-run aggregate supply curve.
C)a vertical long-run aggregate supply curve indicates the maximum output rate that an economy can ever reach.
D)a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real GDP, but not a larger nominal GDP.
E)potential GDP never changes.

Question 20

If the money wage rate falls, then

A)the AD curve shifts rightward.
B)firms hire less labour.
C)the LAS curve shifts rightward.
D)the SAS curve shifts rightward.
E)the LAS curve and the SAS curve shift rightward.

Question 21

The quantity of real GDP demanded is the sum of real consumption expenditure (C), investment (I),

A)government expenditure (G), exports (X), and imports (M).
B)government expenditure (G), and exports (X)minus imports (M).
C)exports (X), and imports (M).
D)and exports (X)minus imports (M).
E)and government expenditure (G).

Question 22

If the price level rises, then the wealth effect leads to

A)an increase in real wealth, an increase in current consumption expenditure, and an increase in saving.
B)an increase in real wealth, an increase in current consumption expenditure, and a decrease in saving.
C)a decrease in real wealth, an increase in current consumption expenditure, and an increase in saving.
D)a decrease in real wealth, an increase in current consumption expenditure, and a decrease in saving.
E)a decrease in real wealth, a decrease in current consumption expenditure, and an increase in saving.

Question 23

Which one of the following variables can change without creating a shift of the aggregate demand curve?

A)the interest rate
B)price level
C)the tax rate
D)expectations about inflation
E)monetary policy

Question 24

Everything else remaining the same, an increase in the quantity of money

A)shifts the aggregate demand curve rightward.
B)shifts the aggregate demand curve leftward.
C)shifts the aggregate supply curve leftward.
D)shifts the aggregate supply curve rightward.
E)creates a movement down along the aggregate demand curve.

Question 25

Which one of the following factors will not shift the aggregate demand curve?

A)an increase in the interest rate
B)an increase in the expected inflation rate
C)an increase in the price level
D)an increase in expected future profits
E)an increase in the quantity of money

Question 26

Everything else remaining the same, which one of the following increases aggregate demand?

A)an increase in taxes
B)an increase in transfer payments
C)a decrease in government spending
D)a decrease in the price level
E)a decrease in the quantity of money

Question 27

Autoworkers agree to a cut in the nominal wage rate. This event ________ short-run aggregate supply and ________ long-run aggregate supply.

A)does not change; does not change
B)decreases; does not change;
C)increases; does not change;
D)increases; increases
E)decreases; does not change

Question 28

The Canadian price level rises. This event

A)increases short-run aggregate supply.
B)increases the quantity of real GDP supplied.
C)decreases the quantity of real GDP supplied.
D)increases long-run aggregate supply.
E)decreases short-run aggregate supply.

Question 29

Which one of the following variables is not held constant along a given aggregate demand curve?

A)fiscal policy
B)monetary policy
C)the exchange rate
D)expectations about inflation
E)the price level

Question 30

Long-run aggregate supply will increase for all of the following reasons except

A)a fall in the money wage rate.
B)an increase in human capital.
C)the introduction of new technology.
D)an increase in the full-employment quantity of labour.
E)an increase in the quantity of capital.

Question 31

An increase in the money wage rate shifts

A)both the SAS curve and the LAS curve rightward.
B)both the SAS curve and the LAS curve leftward.
C)the SAS curve leftward, but leaves the LAS curve unchanged.
D)the LAS curve rightward, but leaves the SAS curve unchanged.
E)the SAS curve rightward, but leaves the LAS curve unchanged.

Question 32

Aggregate demand

A)measures the amount of a nation's goods and services that people are willing to buy.
B)measures the amount of a nation's labour, capital, and technology that people are willing to buy.
C)is the relationship between the quantity of real GDP demanded and the price level.
D)increases when the price level falls.
E)increases when factor prices fall.

Question 33

If a change in wealth is induced by a change in the price level, then this would be shown as a

A)movement along the aggregate demand curve.
B)shift of the aggregate demand curve due to the substitution effects.
C)movement along the aggregate demand curve due to the substitution effects.
D)movement along the aggregate supply curve.
E)shift of the aggregate demand curve due to the wealth effect.

Question 34

Which of the following situations illustrates how monetary policy can influence aggregate demand?

A)The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a result, aggregate demand decreases.
B)Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As a result, aggregate demand decreases.
C)The government reduces the goods and services tax. As a result, consumption expenditure increases and aggregate demand increases.
D)The exchange rate value of the Canadian dollar rises. As a result, people living near the U.S.-Canada border increase their imports of goods and net exports decrease.
E)The government increases its expenditures. The demand for loanable funds increases, which raises the real interest rate. Investment increases.

Question 35

The quantity of real GDP demanded does not depend on decisions made by

A)foreigners.
B)households.
C)suppliers.
D)governments.
E)firms.

Question 36

Which of the following situations illustrates how fiscal policy can influence aggregate demand?

A)The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a result, aggregate demand decreases.
B)Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As a result, aggregate demand decreases.
C)The government reduces the goods and services tax. As a result, consumption expenditure increases and aggregate demand increases.
D)The exchange rate value of the Canadian dollar rises. As a result, people living near the U.S.-Canada border increase their imports of goods and net exports decrease.
E)The government increases its expenditures. The demand for loanable funds increases, which raises the real interest rate. Investment increases.

Question 37

Disposable income is aggregate income

A)minus taxes and benefits.
B)minus taxes plus transfer payments.
C)minus fixed expenses such as rent and utilities.
D)plus transfer payments.
E)minus taxes.

Question 38

Aggregate demand is the relationship between

A)real aggregate expenditure and real GDP.
B)real income and real GDP.
C)real prices and real GDP.
D)the price level and the quantity of real GDP demanded.
E)the price level and nominal GDP.

Question 39

Your total wealth is $1,000, which you are holding in your savings account. If the price level rises by 10 percent, your wealth

A)increases by an unknown amount.
B)is unchanged.
C)decreases to $990.
D)is worth 10 percent less than before the price level change.
E)increases to $1,100.

Question 40

Toyota and Honda build additional plants in Canada. This event ________ short-run aggregate supply and ________ long-run aggregate supply.

A)does not change; increases
B)increases; increases
C)increases; does not change
D)does not change; does not change
E)decreases; increases

Question 41

Canada's exports to the European Union boom. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of real GDP demanded or to aggregate demand.

Question 42

Everything else remaining the same, an increase in the interest rate increases saving and

A)increases aggregate demand through the international substitution effect.
B)decreases aggregate demand through the international substitution effect.
C)increases aggregate demand through the intertemporal substitution effect.
D)decreases aggregate demand through the intertemporal substitution effect.
E)increases aggregate demand through the wealth effect.

Question 43

Which one of the following is a reason for the negative slope of the aggregate demand curve?

A)the real wage effect
B)the substitution effect
C)the expected inflation effect
D)the nominal balance effect
E)the income effect

Question 44

Which one of the following newspaper quotations describes a movement along an SAS curve?

A)"The decrease in consumer spending may lead to a recession."
B)"The increase in consumer spending is expected to lead to inflation, without any increase in real GDP."
C)"Recent higher wage settlements are expected to cause higher inflation this year."
D)"Growth has been unusually high the last few years due to more women entering the labour force."
E)"The recent tornadoes destroyed many factories in Calgary and Edmonton."

Question 45

Figure 26.2.1

Refer to Figure 26.2.1. Which graph illustrates what happens when government expenditure decreases?

A)(a)only
B)(b)only
C)(c)only
D)(d)only
E)Both (a)and (d)

Question 46

Everything else remaining the same, an increase in foreign income

A)increases Canada's aggregate supply.
B)increases Canada's aggregate demand.
C)decreases Canada's aggregate demand.
D)creates a movement downward along Canada's aggregate demand curve.
E)decreases Canada's aggregate supply.

Question 47

Which one of the following shifts the aggregate demand curve leftward?

A)a decrease in the interest rate
B)an increase in expected inflation
C)an increase in taxes
D)an increase in the price level
E)an increase in the money wage rate

Question 48

Canadian firms build new pipelines across the nation. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of real GDP demanded or to aggregate demand.

Question 49

Figure 26.2.1

Refer to Figure 26.2.1. Which graph illustrates what happens when the quantity of money increases?

A)(a)only
B)(b)only
C)(c)only
D)(d)only
E)Both (b)and (c)

Question 50

When the actual unemployment rate is equal to the natural unemployment rate, then the

A)inflation rate must be zero.
B)long-run aggregate supply curve is upward sloping.
C)short-run aggregate supply curve is vertical.
D)economy is operating at potential GDP.
E)the money wage rate will rise.

Question 51

A recessionary gap is the amount by which

A)potential GDP exceeds real GDP.
B)demand will increase to achieve full employment at a given price level.
C)the supply curve must increase to achieve full employment at a given price level.
D)the price level must adjust to achieve full employment.
E)real GDP exceeds potential GDP.

Question 52

Which of the following does not change aggregate demand?

A)an increase in expected future income
B)a change in fiscal policy
C)a change in monetary policy
D)an advance in technology
E)a rise in the exchange rate

Question 53

Figure 26.2.1

Refer to Figure 26.2.1. Which graph illustrates what happens when the quantity of money decreases?

A)(a)only
B)(b)only
C)(c)only
D)(d)only
E)Both (b)and (d)

Question 54

An inflationary gap is the amount by which

A)potential GDP exceeds real GDP.
B)demand must increase to achieve full employment at a given price level.
C)supply must increase to achieve full employment at a given price level.
D)the price level must adjust to achieve full employment.
E)real GDP exceeds potential GDP.

Question 55

The Canadian price level rises. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of real GDP demanded or to aggregate demand.

Question 56

Figure 26.2.1

Refer to Figure 26.2.1. Which graph illustrates what happens when government expenditure increases?

A)(a)only
B)(b)only
C)(c)only
D)(d)only
E)Both (a)and (c)

Question 57

Everything else remaining the same, an increase in the expected inflation rate

A)shifts the aggregate demand curve rightward.
B)shifts the aggregate demand curve leftward.
C)shifts the short-run aggregate supply curve leftward.
D)shifts the long-run aggregate supply curve rightward.
E)creates a movement up along the aggregate demand curve.

Question 58

Figure 26.2.1

Refer to Figure 26.2.1. Which graph illustrates what happens when expected future income increases?

A)(a)only
B)(b)only
C)(c)only
D)(d)only
E)Both (a)and (c)

Question 59

Foreign exchange dealers expect the Canadian dollar next year to appreciate against all currencies. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of real GDP demanded or to aggregate demand.

Question 60

Full-employment equilibrium occurs when

A)aggregate demand equals short-run aggregate supply.
B)all who are willing and able to work, are working.
C)real GDP equals potential GDP.
D)real GDP equals potential GDP and the wage level is set so that the GDP deflator equals 100.
E)all who are willing and able to work are working, and the wage level is set so that the GDP deflator equals 100.

Question 61

Figure 26.3.2

Refer to Figure 26.3.2. In Mythlo there is a difference between the ________ equilibrium real GDP and potential GDP of ________ billion.

A)above full-employment; $50
B)above full-employment; $25
C)below full-employment; $50
D)below full-employment; $25
E)full employment; 0

Question 62

Figure 26.3.2

Refer to Figure 26.3.2. When the economy of Mythlo is in short-run macroeconomic equilibrium, the price level is

A)65.
B)95.
C)70.
D)75.
E)80.

Question 63

Figure 26.3.2

Refer to Figure 26.3.2. Consider statements (1)and (2)and select the correct answer. (1) The economy of Mythlo is experiencing an above full-employment equilibrium.
(2) SAS will automatically shift rightward as the economy adjusts to long-run equilibrium.

A)(1)is true; (2)is false.
B)(2)is true; (1)is false.
C)(1)and (2)are false.
D)(1)and (2)are true.
E)(1)is true; (2)is true only if the LAS curve shifts rightward at the same time.

Question 64

Figure 26.3.3

Refer to Figure 26.3.3. Which one of the graphs illustrates a below full-employment equilibrium?

A)(a)only
B)(b)only
C)(c)only
D)(d)only
E)both (c)and (d)

Question 65

Figure 26.3.1

Refer to Figure 26.3.1. If Econoworld automatically adjusts to a long-run equilibrium, then in the long-run macroeconomic equilibrium,

A)the price level is 70.
B)real GDP is $440 billion.
C)actual unemployment exceeds the natural unemployment rate.
D)potential GDP is greater than in the short run.
E)Both A and B

Question 66

Figure 26.3.2

Refer to Figure 26.3.2. If the economy of Mythlo automatically adjusts to long-run equilibrium, then

A)the price level rises to 90.
B)real GDP is $600 billion.
C)the actual unemployment rate exceeds the natural unemployment rate.
D)potential GDP decreases.
E)the SAS curve shifts rightward.

Question 67

Figure 26.3.2

Refer to Figure 26.3.2. Consider statements (1)and (2)and select the correct answer. (1) The actual unemployment rate exceeds the natural unemployment rate in the short run.
(2) SAS automatically shifts rightward as the economy adjusts to long-run equilibrium.

A)(1)is true; (2)is false.
B)(2)is true; (1)is false.
C)(1)and (2)are false.
D)(1)and (2)are true.
E)(1)is false; (2)is true if the LAS curve shifts rightward at the same time.

Question 68

When an economy is operating on its long-run aggregate supply curve,

A)the actual inflation rate is greater than the anticipated inflation rate.
B)the actual unemployment rate equals the natural unemployment rate.
C)unemployment will fall to an unusually low rate that is not likely to last into the future.
D)real GDP demanded exceeds real GDP supplied.
E)inflation must be positive.

Question 69

Figure 26.3.1

Refer to Figure 26.3.1. When the economy of Econoworld is in short-run macroeconomic equilibrium, the price level is

A)100.
B)90.
C)75.
D)70.
E)85.

Question 70

Figure 26.3.2

Refer to Figure 26.3.2. Short-run macroeconomic equilibrium real GDP in Mythlo is ________ billion.

A)$500
B)$650
C)$550
D)$600
E)$475

Question 71

Figure 26.3.3

Refer to Figure 26.3.3. Which of the graphs illustrates an above full-employment equilibrium?

A)(a)only
B)(b)only
C)(c)only
D)(d)only
E)both (c)and (d)

Question 72

Figure 26.3.1

Refer to Figure 26.3.1. As Econoworld automatically adjusts to long-run equilibrium, the

A)SAS curve shifts rightward.
B)AD curve shifts rightward.
C)SAS curve shifts leftward.
D)AD curve shifts leftward.
E)LAS curve shifts leftward.

Question 73

Short-run macroeconomic equilibrium always occurs when the

A)economy is at full employment.
B)economy is below full employment.
C)economy is above full employment.
D)quantity of real GDP demanded equals the quantity of real GDP supplied.
E)AD curve intersects the LAS curve.

Question 74

Figure 26.3.1

Refer to Figure 26.3.1. Econoworld is at its short-run macroeconomic equilibrium. There is a difference between ________ real GDP and potential GDP of $________ billion.

A)above full-employment equilibrium; 40
B)above full-employment equilibrium; 20
C)below full-employment equilibrium; 40
D)below full-employment equilibrium; 20
E)full-employment equilibrium; 0

Question 75

Figure 26.3.1

Refer to Figure 26.3.1. Short-run macroeconomic equilibrium real GDP in Econoworld is

A)$360 billion.
B)$400 billion.
C)$440 billion.
D)$480 billion.
E)$520 billion.

Question 76

Figure 26.3.1

Refer to Figure 26.3.1. Consider statements (1)and (2)and select the correct answer. (1) The actual unemployment rate exceeds the natural unemployment rate.
(2) Short-run aggregate supply will automatically shift leftward as the economy adjusts to long-run equilibrium.

A)(1)is true; (2)is false.
B)(2)is true; (1)is false.
C)(1)and (2)are false.
D)(1)and (2)are true.
E)(1)is true; (2)is true if the money wage rate falls.

Question 77

Figure 26.3.1

Refer to Figure 26.3.1. Consider statements (1)and (2)and select the correct answer. (1) The economy of Econoworld is experiencing a below full-employment equilibrium.
(2) The actual unemployment rate equals the natural unemployment rate.

A)(1)is true; (2)is false.
B)(2)is true; (1)is false.
C)(1)and (2)are false.
D)(1)and (2)are true.
E)(1)is true; (2)is true if the natural unemployment rate is too high.

Question 78

Figure 26.3.1

Refer to Figure 26.3.1. Consider statements (1)and (2)and select the correct answer. (1) The economy of Econoworld is experiencing an above full-employment equilibrium.
(2) SAS will automatically shift rightward as the economy adjusts to long-run equilibrium.

A)(1)is true; (2)is false.
B)(2)is true; (1)is false.
C)(1)and (2)are false.
D)(1)and (2)are true.
E)(1)is true; (2)is true if unemployment is below the natural rate.

Question 79

Figure 26.3.2

Refer to Figure 26.3.2. As the economy of Mythlo automatically adjusts to long-run equilibrium, the

A)SAS curve shifts rightward.
B)AD curve shifts rightward.
C)SAS curve shifts leftward.
D)AD curve shifts leftward.
E)LAS curve shifts rightward.

Question 80

Figure 26.3.2

Refer to Figure 26.3.2. Currently in Mythlo

A)there is a below full-employment equilibrium.
B)the actual unemployment rate is less than the natural unemployment rate.
C)potential GDP is greater than equilibrium GDP.
D)the actual unemployment rate is equal to the natural unemployment rate.
E)there is a recessionary gap.