Deck 13: Aggregate Supply and Aggregate Demand

Question 1

Potential GDP

A) increases as the price level increases because firms supply more goods and services.
B) decreases as the price level increases because people demand fewer goods and services.
C) might either increase or decrease as the price level increases, depending on whether aggregate demand increases or decreases.
D) is independent of the price level.
E) never changes.

Answer 1

D

Question 2

Over a business cycle, the quantities of capital, human capital, and entrepreneurial talent

A) change gradually and do not fluctuate much.
B) cycle alongside real GDP.
C) are completely unpredictable and cannot be forecast.
D) cycle more than real GDP.
E) are constant and do not change.

Answer 2

A

Question 3

Moving along the aggregate supply curve when the price level rises, the

A) quantity supplied does not change because the aggregate supply curve is a vertical line.
B) the quantity supplied increases.
C) the quantity supplied decreases.
D) the aggregate demand curve shifts rightward.
E) the aggregate demand curve shifts leftward.

Answer 3

B

Question 4

Moving along the AS curve, when the price level increases the

A) real wage rate falls and there is an increase in the quantity of real GDP supplied.
B) real wage rate rises and there is an increase in the quantity of real GDP supplied.
C) nominal wage rate falls and there is an increase in the quantity of real GDP supplied.
D) nominal wage rate rises and there is a decrease in the quantity of real GDP supplied.
E) real wage rate rises and there is a decrease in the quantity of real GDP supplied.

Question 5

The slope of the aggregate supply curve shows that, all else the same, the

A) quantity of real GDP supplied increases as the price level increases.
B) quantity of real GDP supplied decreases as the price level increases.
C) quantity of real GDP supplied remains constant as the price level increases.
D) price level remains constant as real GDP increases.
E) price level remains constant as potential GDP increases.

Question 6

The line showing potential GDP is a vertical straight line because

A) there is only one level of full employment at any point in time.
B) economists are unsure about how to determine potential GDP
C) it represents the minimum level of real GDP in a recession.
D) when nothing else changes, a higher price level has no effect on real GDP.
E) the aggregate supply curve is upward sloping.

Question 7

The slope of the aggregate supply curve shows that the ________ the price level, the ________.

A) higher; greater is the quantity of real GDP supplied
B) higher; smaller is the quantity of real GDP supplied
C) lower; greater is the quantity of real GDP supplied
D) higher; is the quantity of potential GDP supplied
E) lower; is the quantity of potential GDP supplied

Question 8

The aggregate supply curve illustrates that the

A) higher the price level, the greater the quantity of real GDP supplied.
B) higher the price level, the smaller the quantity of real GDP supplied.
C) aggregate demand curve is not needed to determine the aggregate price level.
D) price level does not affect the quantity of real GDP supplied.
E) amount of potential GDP increases when the price level rises.

Question 9

Over the business cycle, factors such as the quantity of capital, human capital and technology

A) grow but do not fluctuate as much as the quantity of labor employed.
B) change drastically, fluctuating more than the quantity of labor employed.
C) fluctuate about the same amount as the quantity of labor employed.
D) do not grow and are therefore not the source of economic growth.
E) change randomly, sometimes growing, sometimes falling.

Question 10

Which of the following does NOT affect potential GDP?

A) the quantity of money
B) the quantity of labor employed
C) the quantity of capital and human capital
D) the amount of entrepreneurial talent available
E) the quantity of land and natural resources

Question 11

A fall in the real wage rate ________ firms' profits and leads to ________ in the quantity supplied.

A) raises; an increase
B) raises; a decrease
C) lowers; an increase
D) lowers; a decrease
E) does not change; no change

Question 12

A rise in the price level produces a ________ the potential GDP line.

A) rightward shift of
B) movement downward along
C) leftward shift of
D) movement upward along
E) neither a shift of the potential GDP line nor a movement along

Question 13

The ________ the ________ is the quantity of real GDP supplied.

A) lower the price level; greater
B) higher the price level; greater
C) greater the demand for labor; smaller
D) lower the supply of labor; greater
E) lower aggregate demand; greater

Question 14

The real wage rate definitely falls if the money wage rate ________ and the price level ________.

A) remains constant; rises
B) remains constant; falls
C) rises; falls
D) rises; rises
E) falls; falls

Question 15

The aggregate supply curve shows the relationship between

A) potential GDP and the price level.
B) potential GDP and real GDP.
C) the quantity of real GDP supplied and the price level.
D) the quantity of real GDP supplied and the interest rate.
E) potential GDP and the aggregate demand curve.

Question 16

Other things remaining the same, an increase in the price level

A) increases aggregate supply.
B) decreases aggregate supply.
C) increases the quantity of real GDP supplied.
D) decreases the quantity of real GDP supplied.
E) neither change aggregate supply nor changes the quantity of real GDP supplied.

Question 17

Moving along the potential GDP line, when the price level changes, the i. real wage rate stays at the full-employment equilibrium level.
Ii) money wage rate changes by the same percentage.
Iii) money prices of non-labor resources change by the same percentage.

A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii

Question 18

Which of the following is true?

A) Aggregate supply is another name for potential GDP.
B) Potential GDP increases as the price level increases.
C) At full employment, aggregate supply is equal to potential GDP.
D) Potential GDP decreases as the price level increases.
E) The potential GDP line has a negative slope.

Question 19

________ increases the quantity of real GDP supplied and is shown as a movement along the AS curve.

A) A decrease in the quantity of money
B) A decrease in consumption expenditure
C) A fall in the expected rate of profit
D) A rise in the price level
E) An increase in potential GDP

Question 20

An increase in the price level leads to

A) an upward movement along the aggregate supply curve.
B) a downward movement along the aggregate supply curve.
C) a leftward shift of the aggregate supply curve.
D) a rightward shift of the aggregate supply curve.
E) neither a movement along the aggregate supply curve nor a shift of the aggregate supply curve.

Question 21

It is profitable to hire more labor if the price level ________ and the money wage rate ________.

A) rises; falls
B) falls; rises
C) falls; does not change
D) does not change; rises
E) rises; rises by the same percentage

Question 22

During 2010, a country reports that its price level fell and the money wage rate did not change.These changes lead to

A) a higher real wage rate, lower profits, and a decrease in the quantity of real GDP supplied.
B) a higher real wage rate, higher profits, and an increase in the quantity of real GDP supplied.
C) a lower real wage rate, lower profits, and a decrease in the quantity of real GDP supplied.
D) a lower real wage rate, higher profits, and an increase in the quantity of real GDP supplied.
E) no change in the real wage rate and an increase in aggregate demand.

Question 23

If there is a rise in the price level, there is ________ in the quantity of real GDP supplied and a movement ________ along the AS curve.

A) a decrease; downward
B) an increase; upward
C) an increase; downward
D) a decrease; upward
E) no change; upward

Question 24

The quantity of real GDP supplied increases when the price level increases because

A) investment increases.
B) the quantity of money increases.
C) the real wage rate falls.
D) the real wage rate rises.
E) aggregate demand increases.

Question 25

The aggregate supply curve slopes ________ because a ________ in the price level brings a ________ in the real wage rate.

A) upward; rise; rise
B) downward; fall; rise
C) upward; rise; fall
D) upward; fall; fall
E) downward; rise; rise

Question 26

A fall in the price level produces a ________ the aggregate supply curve.

A) rightward shift of
B) movement downward along
C) leftward shift of
D) movement upward along
E) rightward shift of the aggregate supply curve and a movement downward along

Question 27

A fall in the price level brings a ________ in the real wage rate that ________ profits and can lead to ________.

A) rise; reduces; firms going out of business
B) rise; reduces; new firms entering business
C) fall; increases; firms going out of business
D) rise; increases; new firms entering business
E) fall; decreases; new firms entering business

Question 28

Along the aggregate supply curve, the quantity of real GDP supplied increases when the price level rises because

A) profits decrease.
B) the real wage rate falls.
C) the real wage rate rises.
D) the real wage rate and profits both fall.
E) the demand for the goods and services increases.

Question 29

A change in the price level

A) shifts the aggregate supply curve rightward.
B) shifts the potential GDP line.
C) shifts the aggregate supply curve leftward.
D) changes the quantity of real GDP supplied.
E) shifts the aggregate demand curve leftward.

Question 30

A rise in the price level produces a ________ the aggregate supply curve.

A) rightward shift of
B) movement downward along
C) leftward shift of
D) movement upward along
E) rightward shift of the aggregate supply curve and a movement downward along

Question 31

When the price level rises and the money wage rate does not change,

A) the quantity of real GDP supplied increases as more businesses start up and potential GDP does not change.
B) the quantity of real GDP supplied decreases as more businesses fail and potential GDP does not change.
C) profits fall and more businesses fail.
D) existing businesses do not change their level of output.
E) the quantity of potential GDP increases because the quantity of real GDP supplied increases.

Question 32

If the price level rises but the money wage rate does not, then firms will hire ________ labor and the quantity of real GDP supplied will ________.

A) more; increase
B) the same amount of; not change
C) less; decrease
D) more; not change
E) less; increase

Question 33

Moving along the aggregate supply curve,

A) the quantity of capital used increases.
B) only the price level changes.
C) technology advances.
D) the stock of human capital increases.
E) the real wage rate is constant.

Question 34

Because there is a ________ relationship between the price level and the quantity of real GDP supplied, the aggregate supply curve is ________ curve.

A) negative; an upward-sloping
B) positive; a downward-sloping
C) positive; an upward-sloping
D) negative; a downward-sloping
E) positive; a vertical

Question 35

If the price level increases from 110.0 to 115.0, the quantity of

A) real GDP supplied will increase.
B) real GDP supplied will decrease.
C) potential GDP will decrease.
D) real GDP demanded will increase.
E) potential GDP will increase.

Question 36

The money wage rate is constant when moving along

A) only the aggregate supply curve.
B) only the aggregate supply curve and the potential GDP line.
C) only the potential GDP line.
D) neither the aggregate supply curve nor the potential GDP line.
E) the aggregate supply curve, the potential GDP line, and the aggregate demand curve.

Question 37

The quantity of real GDP supplied decreases if the price level ________ because it ________ profits.

A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
E) None of the above answers are correct because the AS curve is vertical so that the quantity of real GDP supplied does not change when the price level changes.

Question 38

If the price level falls and the money wage rate does not change, some firms ________ and there is ________.

A) shut down; a leftward shift of the aggregate supply curve
B) start up; a rightward shift of the aggregate supply curve
C) shut down; a decrease in the quantity of real GDP supplied
D) shut down; a decrease in potential GDP
E) start up; an increase in potential GDP

Question 39

If profits are high because the price level rose,

A) it is likely the result of an increase in the real wage rate.
B) new businesses open and the quantity of real GDP supplied increases.
C) business failures rise and the quantity of real GDP supplied increases.
D) potential GDP must be decreasing.
E) the AS curve shifts leftward.

Question 40

If the money wage rate does not change, a decrease in the price level will ________ the real wage rate and ________ firms' profit.

A) raise; decrease
B) raise; increase
C) lower; decrease
D) lower; increase
E) lower; not change

Question 41

If the costs of production increase, there is

A) an increase in aggregate supply and the AS curve shifts rightward.
B) a decrease in aggregate supply and the AS curve shifts leftward.
C) an increase in the quantity of real GDP supplied and a movement up along the AS curve.
D) a decrease in the quantity of real GDP supplied and a movement down along the AS curve.
E) a decrease in aggregate supply and the AS curve shifts rightward.

Question 42

Changes in which of the following shifts the aggregate supply curve?
I) the price level.
Ii) the money wage rate.
Iii) potential GDP.

A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii

Question 43

A change in the price level brings a ________ the aggregate supply curve, NOT a ________ the aggregate supply curve.

A) shift in; movement along
B) vertical displacement of; change in the slope of
C) movement along; shift in
D) change in the slope of; horizontal displacement of
E) shift in; change in the slope of

Question 44

If the money wage rate increases, then the

A) aggregate supply curve shifts rightward.
B) potential GDP increases.
C) potential GDP decreases.
D) aggregate supply curve shifts leftward.
E) aggregate demand curve shifts leftward.

Question 45

A rise in the price level brings a ________ in the real wage rate that ________ profits which leads to ________ production.

A) rise; reduces; decreasing
B) rise; reduces; increasing
C) fall; increases; increasing
D) rise; increases; decreasing
E) fall; decreases; decreasing

Question 46

The aggregate supply curve shifts

A) rightward if potential GDP decreases.
B) rightward if the money wage rate falls.
C) rightward if the money wage rate rises.
D) leftward if potential GDP increases.
E) leftward if the aggregate demand curve shifts leftward.

Question 47

Which of the following shifts the aggregate supply curve leftward?

A) increase in potential GDP
B) increase in the money wage rate
C) increase in real GDP
D) decrease in the money price of oil
E) a fall in the price level

Question 48

The aggregate supply curve shifts rightward when

A) potential GDP decreases.
B) the money wage rate falls.
C) income taxes increase.
D) government purchases increase.
E) the money wage rate rises.

Question 49

An increase in the money wage rate leads to

A) an upward movement along the aggregate supply curve.
B) a downward movement along the aggregate supply curve.
C) a leftward shift of the aggregate supply curve.
D) a rightward shift of the aggregate supply curve.
E) a leftward shift of the aggregate demand curve.

Question 50

Which of the following statements is true?

A) An increase in potential GDP increases aggregate supply and shifts the AS curve leftward.
B) A decrease in potential GDP decreases aggregate supply and shifts the AS curve leftward.
C) An increase in the money wage rate shifts the AS curve rightward.
D) A fall in the price level shifts the AS curve leftward.
E) An increase in the money wage rate increases potential GDP.

Question 51

A fall in the money wage rate ________ aggregate supply and ________.

A) decreases; shifts the AS curve rightward
B) increases; shifts the AS curve leftward
C) increases; shifts the AS curve rightward
D) decreases; shifts the AS curve leftward
E) does not change; does not shift the AS curve

Question 52

________ decreases aggregate supply.

A) An increase in potential GDP
B) An increase the quantity of capital
C) A rise in the price level
D) A rise in the money wage rate
E) A fall in the money wage rate

Question 53

Which of the following changes aggregate supply and shifts the AS curve?
I) a change in the price of a major resource
Ii) increases in the amount of capital
Iii) a change in the money income of consumers

A) i only.
B) ii only.
C) iii only.
D) i and ii.
E) i, ii, and iii.

Question 54

Changes in which of the following do NOT shift the AS curve?
I) the price level
Ii) potential GDP
Iii) the money wage rate

A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii

Question 55

Which of the following changes aggregate supply and shifts the aggregate supply curve?
I) change in the price level
Ii) change in potential GDP
Iii) change in the money wage rate

A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii

Question 56

A fall in the price level brings a ________ in the real wage rate that ________ profits which leads to ________.

A) rise; reduces; firms restarting production
B) rise; reduces; firms temporarily shutting down
C) fall; increases; firms temporarily shutting down
D) rise; increases; firms restarting production
E) rise; increases; firms temporarily shutting down

Question 57

A rise in the money wage rate shifts the

A) AD curve rightward.
B) AD curve leftward.
C) AS curve rightward.
D) AS curve leftward.
E) potential GDP curve rightward.

Question 58

Which of the following shifts the aggregate supply curve rightward?
I) the money wage rate rises
Ii) potential GDP increases
Iii) government expenditure on goods and services increases

A) i only.
B) ii only.
C) iii only.
D) ii and iii.
E) i, ii, and iii

Question 59

Which of the following best describes the effect on the aggregate supply curve if political negotiations result in a substantial decrease in the price of oil.

A) The AS curve shifts rightward.
B) There is no change to the AS curve.
C) The AS curve does not shift but there is an upward movement along it.
D) The AS curve does not shift but there is a downward movement along it.
E) The AS curve shifts leftward.

Question 60

If the costs of production decrease, there is

A) an increase in aggregate supply and the AS curve shifts rightward.
B) a decrease in aggregate supply and the AS curve shifts leftward.
C) an increase in the quantity of real GDP supplied and a movement up along the AS curve.
D) a decrease in the quantity of real GDP supplied and a movement down along the AS curve.
E) an increase in aggregate supply and the AS curve shifts leftward.

Question 61

Moving along the potential GDP line, the money wage rate changes by the same percentage as the change in the price level so that the real wage rate

A) increases.
B) decreases.
C) stays at the full-employment equilibrium level.
D) might either increase or decrease.
E) stays the same, though not necessarily at the full-employment equilibrium level.

Question 62

An increase in technology ________ potential GDP and ________ aggregate supply.

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

Question 63

If potential GDP increases,

A) aggregate supply does not change.
B) the quantity of aggregate supply decreases.
C) aggregate supply increases.
D) the price level rises.
E) the money wage rate must have fallen.

Question 64

An increase in ________ increases potential GDP and ________ aggregate supply.

A) technology; increases
B) technology; decreases
C) the money wage rate; increases
D) the money price of oil; decreases
E) the money wage rate; decreases

Question 65

If the money wage rate rises,

A) the AS curve shifts rightward.
B) there is a movement up along the AS curve.
C) the AS curve shifts leftward.
D) there is a movement down along the AS curve.
E) there is neither a movement along or a shift in the AS curve.

Question 66

As the price level rises relative to costs and the real wage rate falls, profits ________ and the number of firms in business ________.

A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
E) do not change; do not change

Question 67

The change in potential real GDP and aggregate supply shown in the graph above can be a result of

A) an increase in the real wage rate.
B) an increase in the quantity of capital.
C) a decrease in the money wage rate.
D) a decrease in the money price of oil.
E) a fall in the price level.

Question 68

When the price level falls,

A) the AS curve shifts rightward but the potential GDP line does not shift.
B) there is a movement upward along the AS curve.
C) the AS curve shifts leftward but the potential GDP line does not shift.
D) there is a movement downward along the AS curve.
E) both the potential GDP line and the AS curve shift leftward.

Question 69

When potential GDP increases,

A) the AS curve shifts rightward.
B) there is a movement up along the AS curve.
C) the AS curve shifts leftward.
D) there is a movement down along the AS curve.
E) there is neither a movement along nor a shift in the AS curve.

Question 70

A technological advance ________ potential GDP, ________ aggregate supply, and shifts the aggregate supply curve ________.

A) increases; increases; leftward
B) decreases; decreases; leftward
C) increases; increases; rightward
D) decreases; increases; rightward
E) increases; decreases; leftward

Question 71

Which of the following shifts the aggregate supply curve rightward?

A) increase in potential GDP
B) increase in the money wage rate
C) increase in real GDP
D) increase in the money price of oil
E) increase in consumers' incomes

Question 72

If potential GDP increases, then the

A) aggregate supply curve shifts leftward.
B) aggregate supply curve shifts rightward.
C) real wage rate increases.
D) real wage rate falls.
E) aggregate demand curve shifts rightward.

Question 73

The aggregate supply curve is

A) upward sloping.
B) downward sloping.
C) a vertical line.
D) a horizontal line.
E) U-shaped.

Question 74

An increase in potential GDP ________ aggregate supply and ________.

A) decreases; shifts the AS curve rightward
B) increases; shifts the AS curve leftward
C) increases; shifts the AS curve rightward
D) decreases; shifts the AS curve leftward
E) has no effect on; does not shift the AS curve

Question 75

When potential GDP increases the potential GDP line ________ and the aggregate supply curve ________.

A) shifts rightward; shifts rightward
B) shifts rightward; shifts leftward
C) shifts leftward; shifts rightward
D) shifts leftward; shifts leftward
E) shifts rightward; does not shift

Question 76

A rise in the price level

A) decreases aggregate demand.
B) increases aggregate demand.
C) decreases the quantity of real GDP demanded.
D) increases the quantity of real GDP demanded.
E) has no effect on aggregate demand or on the quantity of real GDP demanded.

Question 77

As the money wage rate increases,

A) potential GDP increases.
B) potential GDP decreases.
C) aggregate supply increases.
D) aggregate supply decreases.
E) aggregate supply and potential GDP do not change.

Question 78

The change reflected in the above figure might be a result of

A) a decrease in the quantity of capital.
B) an increase in the quantity of labor.
C) a rise in the money wage rate.
D) a decrease in the money prices of resources other than labor.
E) a fall in the price level.

Question 79

Which of the following shifts the aggregate supply curve leftward?

A) a decrease in potential GDP
B) a fall in the money wage rate
C) a decrease in the price level
D) a fall in the real wage rate
E) an increase in potential GDP

Question 80

The change reflected in the above figure might be a result of

A) a decrease in the money wage rate.
B) a decrease in the real wage rate.
C) an increase in the money wage rate.
D) an increase in the real wage rate.
E) a rise in the price level.