Deck 23: Real Gdp and the Price Level in the Short Run

Question 1

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.

Answer 1

shift in the AE curve and a movement along the AD curve.

Question 2

Consider the net export function and the AE curve in a simple macro model with demand-determined output.What is the effect of an exogenous increase in the domestic price level?

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

Answer 2

The net export function and the AE curve both shift downward.

Question 3

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

Answer 3

a person with a 25-year home mortgage

Question 4

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 5

Which of the following statements about the economy's aggregate demand curve is correct? All points on the 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.

Question 6

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 7

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 8

Other things being equal,an exogenous fall in the domestic price level leads to a rise in private-sector wealth.As a result,there is

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 9

Consider a simple macro-model with demand-determined output.An exogenous increase in the domestic price level will ________ the real value of the private sector's 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 10

Other things being equal,what is the effect of an exogenous fall in the domestic price level?

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.

Question 11

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 12

Other things being equal,what is the effect of an exogenous rise in the domestic price level?

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 13

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.

Question 14

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 15

Other things being equal,what is the effect of an exogenous rise in the domestic price level? There will be

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

Question 16

Other things being equal,what is the effect of an exogenous rise in the domestic price level?

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

Question 17

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 18

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 19

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 20

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 21

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 22

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 23

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 24

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 25

Which of the following could cause a rightward shift in the aggregate demand (AD)curve?

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

Question 26

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 27

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)a decrease in the MPC
D)a decrease in the price level
E)an increase in the price level

Question 28

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

Question 29

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 30

Which of the following could cause a leftward shift of the aggregate demand (AD)curve?

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

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.The corresponding point on the aggregate demand curve is point

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

Question 32

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 33

Which of the following could cause a leftward shift of the aggregate demand (AD)curve?

A)a decrease in autonomous government purchases
B)a decrease in induced imports
C)a decrease in the net tax rate
D)a decrease in autonomous desired saving
E)a decrease 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.Now,suppose there is an exogenous rise in the price level to .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 35

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 36

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

Question 37

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 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 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 39

Which of the following could cause a leftward shift in the aggregate demand (AD)curve?

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

Question 40

Which of the following would likely cause a downward parallel 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 41

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 42

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 43

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

Question 44

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 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

The economy's 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 47

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

Question 48

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 49

Consider the AD curve in the simple macro 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 50

Which of the following correctly describes one reason why the aggregate demand (AD)curve slopes downward?

A)Aggregate expenditure increases as the price level rises,which leads to a rise in real GDP.
B)Decreases in the price level cause increases in privatE-sector wealth which lead to increases in desired consumption.
C)The increase in total output associated with the fall in the price level 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 51

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 52

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 53

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)economy's 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 54

The economy's 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 55

Consider the AD curve in the simple macro model.The simple multiplier is reflected by the

A)horizontal distance between initial macroeconomic equilibrium and the new intersection of the AD and AE curves 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 56

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 57

Which of the following correctly describes one reason why the aggregate demand (AD)curve slopes downward?

A)Aggregate expenditure increases as the price level rises,which leads to a rise in real GDP.
B)Increases in the price level cause consumers to substitute foreign goods for domestic goods,which leads to a rise in real GDP.
C)The increase in total output associated with the fall in the price level 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 58

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 59

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 60

Consider the AD curve in the simple macro model.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 61

Suppose there is a drop in the price of an important factor input.What will be the effect on the aggregate supply curve?

A)There will be movement to the left,along the AS curve.
B)The AS curve will shift to the left.
C)There will be movement to the right,along the AS curve.
D)The AS curve will shift to the right.
E)There will be no change in the AS curve.

Question 62

Consider the economy's aggregate supply curve.Other things being equal,firms' unit costs will tend to increase if

A)there is a reduction 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 63

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 64

Which of the following could cause the economy's AS curve to shift upward in the short run?

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 65

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 66

The economy's aggregate supply curve is drawn under two main assumptions.They are

A)firms' unit costs are constant; prices of all factors of production are constant.
B)firms' 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 67

Consider the basic AD/AS model.Suppose that high-school graduates have better computing skills than did graduates in the past,resulting in an increase in average labour productivity.This change will

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

Question 68

Which of the following is implied by a leftward shift in the economy's AS curve?

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

Question 69

Which of the following could cause the economy's AS curve to shift upward in the short run?

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 70

Which of the following is implied by a rightward shift in the economy's AS curve?

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 71

The economy's 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 72

Which of the following could cause a movement along the economy's AS curve?

A)a change in labour productivity
B)a change in the cost of capital
C)a change in the price level
D)a change in technology
E)a change in the wage rate

Question 73

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 74

Consider the economy's aggregate supply curve.Other things being equal,firms' unit costs will tend to fall if

A)there is a rise 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.

Question 75

Consider the basic AD/AS model.Suppose that a rising percentage of high-school graduates are illiterate,resulting in a decrease in average labour productivity.This change will

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 right along the AS curve.

Question 76

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 77

Which of the following could cause the economy's AS curve to shift downward in the short run?

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

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)all firms are price takers.
B)all firms are price setters.
C)the state of technology is constant.
D)the prices of all factors of production are constant.
E)both C and D

Question 79

Which of the following explains why we assume that the economy's aggregate supply (AS)curve has a positive slope?

A)Inputs become more expensive at higher levels of output.
B)Inputs become less expensive at higher levels of output.
C)Firms' unit costs rise as output increases.
D)Firms' unit costs fall as output increases.
E)Aggregate demand increases at higher levels of national income.

Question 80

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.