Deck 5: Aggregate Demand and Supply

Question 1

Which of the following is true regarding the aggregate demand curve?

A)It is upward-sloping because production costs rise as real output increases.
B)It is downward-sloping because production costs decline as real output increases.
C)It is upward-sloping because at higher output levels total spending is higher.
D)It is downward-sloping because a lower price means higher real wealth and therefore people will purchase more.
E)It is downward-sloping because at lower prices total incomes are higher.

Answer 1

It is downward-sloping because a lower price means higher real wealth and therefore people will purchase more.

Question 2

All of the following,except one,are possible causes of the business cycle.Which is the exception?

A)An increase in the economic growth rate.
B)A change in government spending.
C)A change in interest rates.
D)A change in the foreign demand for Canadian products.
E)A significant technological breakthrough.

Answer 2

An increase in the economic growth rate.

Question 3

What is the business cycle?

A)The expansionary and contractionary phases in the growth rate of Real GDP.
B)The expansionary and contractionary phases in the rate of unemployment.
C)The continuous rise in GDP that Canada has experienced throughout the Twentieth Century.
D)The rise and fall in the rate of inflation.

Answer 3

The expansionary and contractionary phases in the growth rate of Real GDP.

Question 4

Why is the AS curve upward-sloping?

A)Because,since nominal wages increase when production rises,then so too must the price level.
B)A higher price means higher total profits and therefore firms will produce more.
C)Higher prices mean higher real wages and therefore firms must produce more to in order to maintain profit levels.
D)Higher prices increase the demand and therefore the quantity supplied must also increase.

Question 5

At low levels of Real GDP,what is the result of a decrease in aggregate demand?

A)The price level will fall a lot and Real GDP will fall a little.
B)The price level will fall a little and Real GDP will fall a lot.
C)The price level will fall a little and Real GDP will rise a lot.
D)The price level will fall a little and Real GDP will rise a little.
E)Both the price level and Real GDP will fall about the same amount.

Question 6

What is Potential GDP?

A)The total amount of production an economy produces at equilibrium.
B)The total amount of production when all of an economy's resources are being fully utilized.
C)A prediction of what an economy will likely produce in the future.
D)The total amount of production by an economy,adjusted for inflation.

Question 7

What is aggregate supply?

A)The aggregate quantity produced by all sellers at equilibrium.
B)The aggregate quantity produced by all sellers at full employment.
C)The aggregate quantity produced by all sellers at various different prices.
D)The aggregate quantity produced by all sellers at the current price level.

Question 8

Which of the following statements is true about Canada's annual rate of economic growth from 1997 to 2012?

A)It was positive in every year.
B)There were more negative than positive years.
C)It was 5% or above in most years.
D)It averaged 2.6 percent.

Question 9

If the economy is close to full employment,what will be the result of an increase in aggregate demand?

A)The price level will increase only a little,and Real GDP will increase a lot.
B)The price level will increase a lot,and Real GDP will increase only a little.
C)Both the price level and Real GDP will increase only a little.
D)Both the price level and Real GDP will increase a lot.

Question 10

What does the LAS curve reflect?

A)The effect of a change in the price level.
B)A constant real wage level.
C)Various levels of employment.
D)Less than capacity output.

Question 11

All of the following,except one,refer to the total amount of production when all of an economy's resources are being fully utilized.Which is the exception?

A)Equilibrium GDP.
B)Full-employment GDP.
C)Potential GDP.
D)Economic capacity.

Question 12

Which of the following is true regarding the aggregate demand curve?

A)It is vertical at the full-employment level of GDP.
B)It is horizontal when there is considerable unemployment in the economy.
C)It is downward-sloping because of the interest-rate,real balances,and foreign-trade effects.
D)It is downward-sloping because production costs decrease as real output increases.
E)It is upward-sloping because as output increases,aggregate expenditures increase.

Question 13

Since the AS curve is upward sloping,as production increases,all of the following are true except:

A)productivity is likely to fall.
B)the firm will be forced to use less suitable resources.
C)the price of resources increases
D)the cost of production to rise.

Question 14

"The aggregate quantity of goods and services produced by all sellers at various prices".Of what is this a definition?

A)Aggregate expenditure.
B)Aggregate supply.
C)Aggregate demand.
D)Potential GDP.

Question 15

All of the following,except one,are sources of economic growth.Which is the exception?

A)The amount and quality of natural resources available.
B)The amount of human capital available.
C)High interest rates.
D)The amount of capital stock available.
E)It reflects the amount of resources devoted to research and development.

Question 16

All of the following,except,one are correct statements about labour productivity.Which is the exception?

A)It depends on physical capital.
B)It depends on human capital.
C)It is an integral part of what is considered labour quality.
D)It is the basis for measuring economic growth.
E)It reflects the amount of resources devoted to research and development.

Question 17

What is true of a movement up the aggregate supply curve?

A)The nominal wage remains constant but the real wage declines.
B)The real wage remains constant but the nominal wage declines.
C)The real wage remains constant but the nominal wage increases.
D)Both the nominal and real wages decline.

Question 18

What is the slope of the AS curve?

A)Horizontal.
B)Upward-sloping.
C)Vertical.
D)Downward-sloping.
E)The same slope as the LAS curve.

Question 19

What is the slope of the LAS curve?

A)Horizontal.
B)Upward-sloping.
C)Vertical.
D)Downward-sloping.
E)It is the same slope as the SAS curve.

Question 20

What does it mean to say that the economy is in a contractionary phase of the business cycle?

A)That Real GDP is declining.
B)That the rate of growth of Real GDP is falling.
C)That Real GDP is increasing
D)That the rate of growth of Real GDP is positive.
E)That inflation is declining.

Question 21

Assume that the present price level is P1.

Refer to the above graph to answer this question.Which graph illustrates an inflationary gap?

A)A
B)B
C)C
D)D

Question 22

Refer to the above graph to answer this question.What will happen in the long run if the price level is currently P1?

A)The price level will decrease but the nominal wage will increase.
B)The price level will increase but the nominal wage will decrease.
C)Both the price level and the nominal wage will decrease.
D)Both the price level and the nominal wage will increase.

Question 23

What does the interest-rate effect mean?

A)That an increase in the money supply will increase the rate of interest and cause investment to fall.
B)That a decrease in prices will reduce the rate of interest which will cause investment to increase.
C)That an increase in the price level will decrease interest rates,and decrease consumption and investment spending.
D)That an increase in the price level will decrease the demand for money and spending.
E)That an increase in Real GDP will increase the price level.

Question 24

What does the foreign-trade effect explain?

A)The shape of the aggregate demand curve.
B)The shape of the aggregate supply curve.
C)The change in the aggregate demand curve.
D)The change in the aggregate supply curve.
E)The change in economic growth.

Question 25

Assume that the present price level is P1.

Refer to the above graph to answer this question.Which graph illustrates a recessionary gap?

A)A
B)B
C)C
D)D

Question 26

What does macroeconomic equilibrium imply?

A)AS = LAS
B)AD = AS
C)AD = LAS
D)AD = AS = LAS

Question 27

All of the following,except one,is another way of thinking of full-employment GDP.Which is the exception?

A)It is the level of GDP at the natural rate of unemployment.
B)It is often referred to as long-run aggregate supply.
C)It is the level of GDP when cyclical unemployment is zero.
D)It is the same as Potential GDP.
E)It is the level of GDP when frictional and structural unemployment is zero.

Question 28

What is a recessionary gap?

A)The difference between nominal and Real GDP.
B)The difference between actual and potential Real GDP when the economy is below its potential.
C)The difference between the quantity of goods and services demanded and supplied.
D)The difference between actual and potential Real GDP when the economy is above full employment.

Question 29

What does the foreign-trade effect suggest will happen if there is a decrease in the Canadian price level relative to other countries?

A)It will increase the volume of both Canadian exports and imports.
B)It will decrease the volume of both Canadian exports and imports.
C)It will increase the volume of Canadian exports but decrease the volume of imports.
D)It will decrease the volume of Canadian exports but increase the volume of imports.

Question 30

What does macroeconomic equilibrium imply?

A)The point where Real GDP is at capacity.
B)The point where the quantity of Real GDP demanded equals the quantity of Real GDP supplied.
C)It is where the aggregate demand curve intersects the LAS curve.
D)It is possible only at various price levels.
E)Full employment GDP.

Question 31

Assume that the present price level is P1.

Refer to the above graph to answer this question.Which graph illustrates a surplus of goods and services?

A)A
B)B
C)C
D)D

Question 32

What is an inflationary gap?

A)The difference between nominal and Real GDP.
B)The difference between actual and potential Real GDP when the economy is below its potential.
C)The difference between the quantity of goods and services demanded and supplied.
D)The difference between actual and potential Real GDP when the economy is above full employment.

Question 33

If at a certain price level the AS exceeds the AD then what are the implications?

A)There is a shortage of goods and services,and eventually prices will increase.
B)There is a surplus of goods and services,and eventually prices will increase.
C)There is a shortage of goods and services,and eventually prices will decrease.
D)There is a surplus of goods and services,and eventually prices will decrease.

Question 34

Refer to the information above to answer this question.What is the equilibrium level of prices?

A)200.
B)190.
C)180.
D)210.
E)220.

Question 35

Assume that the present price level is P1.

Refer to the above graph to answer this question.Which graph illustrates full-employment equilibrium?

A)A
B)B
C)C
D)D

Question 36

Refer to the information above to answer this question.Which of the following would be true if the price level was 190?

A)There would be a surplus of goods and services of 200.
B)There would be a shortage of goods and services of 200.
C)Prices would fall.
D)Equilibrium exists.
E)Aggregate supply will rise.

Question 37

When does macroeconomic equilibrium occur?

A)When exports equal imports.
B)When the aggregate supply equals the long-run Aggregate Supply.
C)When the aggregate quantity demanded is equal to the aggregate quantity supplied.
D)When the aggregate demand equals the long-run Aggregate Supply.

Question 38

Refer to the above graph to answer this question.What are the implications if the price level is currently P1?

A)There is a surplus of goods and services and there is a recessionary gap.
B)There is a shortage of goods and services and there is a recessionary gap.
C)There is a surplus of goods and services and there is an inflationary gap.
D)There is a shortage of goods and services and there is an inflationary gap.

Question 39

Why are the interest-rate,foreign-trade and real balances effects important?

A)They help explain the shape of the aggregate supply curve.
B)They help explain why demand-management policies are ineffective in fighting stagflation.
C)They help explain shifts in the aggregate supply curve.
D)They help explain the shape of the aggregate demand curve.
E)They help explain shifts in the aggregate demand curve.

Question 40

What does the interest-rate effect explain?

A)The shape of the aggregate demand curve.
B)The shape of the aggregate supply curve.
C)The change in the aggregate demand curve.
D)The change in the aggregate supply shifts.
E)The change in economic growth.

Question 41

Refer to the above graph to answer this question.What could cause the movement from point B to point A?

A)A decrease in government spending.
B)A decrease in labour productivity.
C)The discovery of new oil fields.
D)An increase in wage rates.

Question 42

Which of the following will cause a decrease in aggregate supply?

A)A decrease in tax rates.
B)An increase in human capital.
C)An increase in the labour force participation rate.
D)An increase in factor prices.

Question 43

Refer to the graph above to answer this question.What could cause the change in aggregate supply from AS₁ to AS₂?

A)An increase in resource prices.
B)An increase in business taxes.
C)An improvement in technology.
D)The real balances,interest-rate,and foreign-trade effects.
E)A decrease in the price level.

Question 44

All of the following,except one,will cause a decrease in aggregate demand.Which is the exception?

A)An increase in the money supply.
B)An increase in taxes.
C)An increase in the price of capital goods.
D)An increase in the exchange rate of the Canadian dollar.

Question 45

The following are an aggregate demand and supply schedules for a hypothetical economy.All figures in $ billions.

Refer to the information above to answer this question.What is the equilibrium level of output?

A)800.
B)900.
C)1,000.
D)1,100.
E)1,050.

Question 46

Which of the following will cause an increase in aggregate supply?

A)An increase in government spending.
B)An increase in exchange rates.
C)An increase in the labour force participation rate.
D)An increase in factor prices.

Question 47

Which of the following will cause an increase in both aggregate supply and long-run aggregate supply?

A)An increase in factor prices.
B)A decrease in factor prices.
C)A decrease in the labour participation rate.
D)An increase in productivity.

Question 48

Which of the following will lead to an increase in aggregate demand?

A)A decrease in stock prices.
B)An increase in the price level.
C)An increase in interest rates.
D)A decrease in the price of capital goods.
E)A decrease in the price level.

Question 49

Assuming that the price level remains unchanged,what will an increase in money wages do?

A)It will not affect price or output levels.
B)It will affect the LAS curve.
C)It will mean higher profits and production levels.
D)It will mean lower profits and production levels.
E)It will mean lower profits and no change in production levels.

Question 50

What could cause the aggregate demand curve to shift to the right?

A)A fall in the price level.
B)A fall in people's real balances.
C)An increase in income levels abroad.
D)An increase in interest rates.

Question 51

All of the following,except one,will cause an increase in aggregate demand.Which is the exception?

A)An increase in consumption.
B)An increase in imports.
C)An increase in investment.
D)An increase in government spending.

Question 52

Which of the following is true of a rightward shift in the LAS curve?

A)The AS will not shift.
B)The AS will shift right.
C)It could not be caused by an improvement in technology.
D)It will raise the level of prices.
E)It would result if the aggregate demand curve shifted to the right.

Question 53

Refer to the above graph to answer this question.What could cause the movement from point A to point B?

A)A decrease in labour costs.
B)A decrease in labour productivity.
C)A decrease in the interest rate.
D)An increase in productivity.
E)A decrease in government spending.

Question 54

What will cause the AS curve to shift?

A)A rise in money wages.
B)A change in the capital stock.
C)The introduction of technological change.
D)A rise in money wages,a change in the capital stock and the introduction of technological change.

Question 55

All of the following,except one,will cause an increase in aggregate demand.Which is the exception?

A)An decrease in stock prices.
B)An decrease in interest rates.
C)A decrease in the price of capital goods.
D)A decrease in the exchange rate.

Question 56

Which of the following will shift the aggregate demand curve left?

A)An increase in wealth holdings.
B)A decrease in labour productivity.
C)An increase in government spending.
D)A rise in the exchange rate.
E)An increase in the incomes of our major trading partners.

Question 57

The following are an aggregate demand and supply schedules for a hypothetical economy.All figures in $ billions.

Refer to the information above to answer this question.What are the implications if the price level is 120?

A)The price level is above equilibrium.
B)There is a shortage of real output of 300.
C)There is a surplus of real output of 300.
D)There is a surplus of real output of 150.

Question 58

What will be the effect of a leftward shift in the AS curve?

A)It will shift the LAS curve left.
B)It will cause a rise in the price level.
C)It might be caused by a decrease in resource prices.
D)It will not affect output levels.

Question 59

Which of the following will cause the aggregate demand curve to shift to the right?

A)The discovery of new oil fields.
B)A decrease in the money supply.
C)A decrease in the interest rate.
D)An increase in the exchange rate.
E)A decrease in the incomes of our major trading partners.

Question 60

All of the following,except one,will cause an increase in both aggregate supply and long-run aggregate supply.Which is the exception?

A)An increase in human capital.
B)Technological improvement.
C)A decrease in factor prices.
D)An increase in the capital stock.

Question 61

What could cause the level of Real GDP to rise but the price level to fall?

A)A rightward shift in the aggregate demand curve.
B)A leftward shift in the aggregate demand curve.
C)A rightward shift in the aggregate supply curve.
D)A leftward shift in the aggregate supply curve.

Question 62

What is the result of a decrease in the LAS curve?

A)It will raise the price level and raise Real GDP.
B)It will raise the price level and decrease Real GDP.
C)It will lower the price level and raise Real GDP.
D)It will lower the price level and decrease Real GDP.
E)It will leave the price level unchanged and decrease Real GDP.

Question 63

The following are aggregate demand and supply schedules for a hypothetical economy.All figures are in $ billions.
Note: Potential GDP is 3,000.
Refer to the information above to answer this question.What will equilibrium price level and GDP be?

A)150 and 2,600
B)150 and 3,000
C)170 and 3,600
D)170 and 3,000

Question 64

The following are an aggregate demand and supply schedules for a hypothetical economy.All figures in $ billions.

Refer to the information above to answer this question.At what level of real output will full employment occur?

A)900.
B)950.
C)1,000.
D)1,100.
E)It cannot be determined.

Question 65

If the economy is at full employment and the LAS curve shifts to the right because of,say,an increase in labour force participation rate,then which of the following will result?

A)The AS curve will also shift to the right and full employment will be maintained.
B)The AS curve will also shift to the right but a recessionary gap will result.
C)The AS curve will shift to the left and full employment will be maintained.
D)The AS curve will not be affected.
E)The AS curve may or may not shift depending on what happens to the wage rate.

Question 66

If the economy is at full employment and both the AS curve and the LAS curve shift right,why might the economy experience a recessionary gap?

A)Because prices are inflexible downwards.
B)Because the LAS curve will always shift more than the AS curve.
C)Because a new equilibrium price level may be established that is above the price level needed to maintain full employment
D)Because a new equilibrium price level may be established that is below the price level needed to maintain full employment
E)Because there is no reason to assume that the aggregate demand curve will shift.

Question 67

What is the multiplier?

A)It is the effect on income of a change in autonomous spending.
B)It is the effect on autonomous spending of a change in income.
C)It is the effect on the level of investment of a change in income.
D)It is the effect on aggregate demand of a change in income.

Question 68

Answer the question(s)on the basis of the following table:

Refer to the above information to answer this question.What will happen if the labour participation rate increases?

A)1 and A
B)2 and B
C)2 and C
D)3 and A

Question 69

What would result if the AS curve shifts to the left?

A)Equilibrium GDP will fall and prices will rise.
B)Equilibrium GDP will fall and prices will also fall.
C)Equilibrium GDP will rise and prices will fall.
D)Equilibrium GDP will rise and prices will also rise.

Question 70

The following is a list of economic events:
1.A big cut in the price of imported oil.
2.An increase in the money supply.
3.An increase in labour productivity.
4.A decline in the GDP of the USA
5.A big rise in nominal wages.
Refer to the information above to answer this question.Which of the listed economic events will cause an increase in both the aggregate supply and in the LAS curve?

A)1 only
B)2 only
C)3 only
D)5 only

Question 71

The following are aggregate demand and supply schedules for a hypothetical economy.All figures are in $ billions.
Note: Potential GDP is 3,000.
Refer to the information above to answer this question.Assume that reduced investment spending lowers aggregate demand by 600.What would the new equilibrium price level and Real GDP be?

A)170 and 2,400.
B)130 and 2,400.
C)130 and 3,000.
D)150 and 2,600.

Question 72

The following is a list of economic events:
1.A big cut in the price of imported oil.
2.An increase in the money supply.
3.An increase in labour productivity.
4.A decline in the GDP of the USA
5.A big rise in nominal wages.
Refer to the information above to answer this question.Which of the listed economic events will cause an increase in aggregate demand?

A)1 only.
B)2 only.
C)1 and 2.
D)1,2 and 5.

Question 73

Answer the question(s)on the basis of the following table:

Refer to the above information to answer this question.What will happen if there is a decrease in productivity?

A)1 and A
B)2 and B
C)2 and C
D)3 and A

Question 74

Answer the question(s)on the basis of the following table:

Refer to the above information to answer this question.What will happen if resource prices increase?

A)1 and A
B)2 and B
C)2 and C
D)3 and B

Question 75

The following are aggregate demand and supply schedules for a hypothetical economy.All figures are in $ billions.
Note: Potential GDP is 3,000.
Refer to the information above to answer this question.Assume that technological change increases aggregate supply by 340.What would be the result?

A)A new full employment level of Real GDP of 3,340 and lower prices.
B)An inflationary gap of 340.
C)A recessionary gap of 240.
D)A new equilibrium of Real GDP of some indeterminate level depending on how much prices fell.
E)A new full-employment level of Real GDP of 3,340 with no change in prices.

Question 76

The following are aggregate demand and supply schedules for a hypothetical economy.All figures are in $ billions.
Note: Potential GDP is 3,000.
Refer to the information above to answer this question.Assume that technological change increases aggregate supply by 340.What will the equilibrium price and quantity be?

A)160 and 3,100.
B)160 and 3,440.
C)170 and 3,440.
D)140 and 2,760.
E)140 and 2,820.

Question 77

Under what circumstances will the multiplier effect have a big impact on Real GDP?

A)When the AS curve is vertical.
B)When the AD curve is vertical.
C)When the AS is horizontal.
D)When the economy is booming.

Question 78

The following are an aggregate demand and supply schedules for a hypothetical economy.All figures in $ billions.

Refer to the information above to answer this question.If the aggregate quantity demanded falls by 150,what will be the equilibrium price level and real output respectively?

A)$120 and 900.
B)$130 and 950.
C)$140 and 950.
D)$150 and 1,050.
E)$160 and 1,050.

Question 79

What is the result of a decrease in the AS curve?

A)It will decrease the price level and decrease Real GDP.
B)It will decrease the price level and raise Real GDP.
C)It will raise the price level and decrease Real GDP.
D)It will raise the price level and raise Real GDP.
E)It will decrease the price level and may or may not change Real GDP depending on the shape of the SAS curve.

Question 80

What happens if the aggregate demand curve shifts to the right?

A)The price level will rise.
B)Real GDP will increase.
C)Both A and B will occur.
D)Aggregate supply will also rise.