Deck 11: Aggregate Supply and Aggregate Demand

Question 1

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

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

Answer 1

B

Question 2

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

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

Answer 2

B

Question 3

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

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

Answer 3

C

Question 4

An increase in the price level leads to

A)neither a movement along the aggregate supply curve nor a shift of 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)an upward movement along the aggregate supply curve.

Question 5

The line showing potential GDP is a vertical straight line because

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

Question 6

Suppose the price level rises leading to a decrease in the real wage and increasing employment and real GDP.Which of the following are ways in which this occurs?
I)Firms employ more labour and increase output.
Ii)Firms shut down.
Iii)Firms start up a new business.

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

Question 7

The aggregate supply curve is a(n)________ curve because it represents the relationship between price level and the quantity of real GDP supplied,two items that are ________ correlated.

A)downward-sloping;negatively
B)vertical;not
C)upward-sloping;negatively
D)downward-sloping;positively
E)upward-sloping;positively

Question 8

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

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

Question 9

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

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

Question 10

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

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

Question 11

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

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

Question 12

If the price of widgets is $2 and the real wage is $20 per hour then the firm must sell 10 widgets to cover the cost of an hour of labour.If the price of widgets rises to $4,how many widgets must the firms sell to cover the cost of an hour of labour?

A)15
B)5
C)12
D)10
E)20

Question 13

The aggregate supply curve shows the relationship between

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

Question 14

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

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

Question 15

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

Question 16

If the price of widgets is $2 and the real wage is $20 per hour then the firm must sell 10 widgets to cover the cost of an hour of labour.If the price of widgets falls to $1,how many widgets must the firms sell to cover the cost of an hour of labour?

A)15
B)30
C)40
D)10
E)20

Question 17

Which of the following does NOT affect potential GDP?

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

Question 18

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

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

Question 19

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

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

Question 20

Potential GDP

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

Question 21

If profits are high because the price level rose,

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

Question 22

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

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

Question 23

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

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

Question 24

During 2012,a country reports that its price level fell and the money wage rate did not change.These changes led to a(n)________ because the country experienced a(n)________.

A)increase in the quantity of real GDP supplied;higher real wage rate and lower profits for firms
B)decrease in the quantity of real GDP supplied;higher real wage rate and lower profits for firms
C)decrease in the quantity of real GDP supplied;lower real wage rate and lower profits for firms
D)decrease in aggregate demand;economic expansion
E)increase in the quantity of real GDP supplied;lower real wage rate and higher profits for firms

Question 25

If the money wage rate and the price level both rise by the same proportion,then,in the figure above,the potential GDP line ________,and the aggregate supply curve ________.

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

Question 26

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

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

Question 27

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 28

When the price level rises,the quantity of real GDP supplied ________ because ________.

A)increases;the AS curve shifts rightward
B)increases;new businesses open
C)decreases;businesses fail and have to shut their doors
D)increases;businesses fail and have to shut their doors
E)decreases;new businesses open

Question 29

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

Question 30

If the costs of production decrease,there is

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

Question 31

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

Question 32

During 2014,a country reports that its price level fell and the money wage rate did not change.These changes led to

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

Question 33

If the costs of production increase,there is

A)a decrease 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 rightward.

Question 34

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

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

Question 35

Based on the figure above,the aggregate supply curve shifts rightward and the potential GDP line does NOT change when

A)both the price level and money wage rate rise by the same proportion.
B)the price level falls.
C)the money wage rate falls.
D)the money wage rate rises.
E)the price level rises.

Question 36

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 37

If potential GDP increases,then,in the figure above,the potential GDP line ________,and the aggregate supply curve ________.

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

Question 38

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

A)existing businesses do not change their level of output.
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)the quantity of real GDP supplied increases as more businesses start up and potential GDP does not change.
E)the quantity of potential GDP increases because the quantity of real GDP supplied increases.

Question 39

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 40

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 41

Which of the following shifts the aggregate supply curve rightward?

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

Question 42

If potential GDP increases,then the

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

Question 43

A rise in the price level

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

Question 44

The aggregate demand curve illustrates the relationship between

A)the price level and the potential quantity demanded of real GDP.
B)the price level and the quantity of goods demanded by households,firms,government and foreigners.
C)the real wage rate and the hours of labour demanded by firms.
D)the price level and the potential demand for real GDP.
E)the price level and the quantity of goods supplied by firms.

Question 45

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

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

Question 46

Which of the following shifts the aggregate supply curve leftward?

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

Question 47

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

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

Question 48

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

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

Question 49

Which of the following shifts the aggregate supply curve leftward?

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

Question 50

The aggregate supply curve shifts rightward when

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

Question 51

The government passes a law which doubles the wages of all workers.Aggregate supply will ________,real GDP will ________,and the price level will ________.

A)increase;increase;remain the same
B)decrease;decrease;increase
C)decrease;increase;increase
D)remain the same;increase;increase
E)increase;remain the same;increase

Question 52

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

Question 53

Which of the following produces a movement along the aggregate demand curve and does not shift the aggregate demand curve?

A)A change in expectations about the future
B)A change in monetary policy
C)A change in the price level
D)A change in foreign incomes
E)A change in government expenditures on goods and services

Question 54

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

Question 55

A technological advance ________ aggregate supply,shifting the aggregate supply curve ________ and potentially bringing the ________ phase of the business cycle.

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

Question 56

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

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

Question 57

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

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

Question 58

An increase in the price of oil ________ aggregate supply,shifting the aggregate supply curve ________ and potentially bringing the ________ phase of the business cycle.

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

Question 59

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

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

Question 60

A rise in the money wage rate shifts the

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

Question 61

Aggregate demand ________ if the expected inflation rate increases because ________.

A)does not change;inflation does not affect the aggregate demand curve
B)decreases;people wait for the exchange rates to change before making purchases
C)increases;people want to make purchases now before the price of goods and services begin to increase
D)increases;people expect to experience increases in the cost of living as the inflation begins
E)decreases;people want to wait for the price of goods and services begin to decrease

Question 62

Which of the following does NOT shift the aggregate demand curve?

A)A change in foreign income
B)A change in the money wage
C)A change in monetary policy
D)A change in fiscal policy
E)A change in expectations about the future

Question 63

In the short run,a rise in the price level brings a ________ in the real interest rate that ________ investment,bringing ________ in the quantity of real GDP demanded.

A)rise;decreases;an increase
B)fall;decreases ;a decrease
C)rise;decreases;a decrease
D)fall;increases ;an increase
E)rise;increases ;an increase

Question 64

If the price level increases,there is ________ the AD curve and the quantity of real GDP demanded ________.

A)no change in;does not change
B)a movement upward along;increases
C)a movement upward along;decreases
D)a leftward shift in;decreases
E)a movement downward along;increases

Question 65

A change in the price level produces a ________ the aggregate demand curve. i.shift in
Ii)change in the slope of
Iii)movement along

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

Question 66

The aggregate demand curve shifts when any of the following factors change EXCEPT

A)foreign income.
B)expectations about the future.
C)the price level.
D)fiscal policy.
E)monetary policy.

Question 67

An increase in the price level leads to

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

Question 68

If there is an increase in expected future income,then

A)the aggregate demand curve shifts rightward.
B)there is an upward movement along the aggregate demand curve.
C)the aggregate demand curve shifts leftward.
D)there is a downward movement along the aggregate demand curve.
E)the aggregate demand curve becomes steeper.

Question 69

When the price level increases there is ________ movement along the aggregate demand curve because the buying power of money ________.

A)a downward;increases
B)an upward;decreases
C)an upward;increases
D)a downward;decreases
E)no;does not change

Question 70

When the domestic price level increases,exports decrease and imports increase.Other things the same,this change is illustrated by a

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

Question 71

Sherri lives in Canada and is considering buying a new sofa.If the price level in Canada falls and the price level in the United States does not change,Canadian manufactured sofas are relatively

A)less expensive,so Sherri will likely purchase a Canadian manufactured sofa.
B)less expensive,so Sherri will likely purchase a U.S.manufactured sofa.
C)more expensive,so Sherri will likely purchase a U.S.manufactured sofa.
D)more expensive,so Sherri will likely purchase a Canadian manufactured sofa.
E)Both answers B and D could be correct depending on whether U.S.manufactured sofas were initially more expensive or less expensive than Canadian sofas.

Question 72

When the Australian price level rises relative to other nations' price levels,then

A)Australian exports decrease,Australian imports increase,and the aggregate demand curve shifts rightward.
B)Australian firms' profits increase and the aggregate demand curve shifts rightward.
C)Australian exports increase and the aggregate demand curve shifts rightward.
D)Australian exports decrease,Australian imports increase,and the aggregate demand curve shifts leftward.
E)Australian exports decrease,Australian imports increase,and there is a movement upward along the aggregate demand curve.

Question 73

A reason why an increase in the price level decreases the quantity of real GDP demanded is that

A)potential GDP decreases.
B)the real interest rate falls.
C)the inflation rate decreases.
D)the buying power of money increases.
E)the price of domestic goods and services increases relative to foreign goods and services.

Question 74

If the price level doubles,it will

A)increase potential GDP.
B)decrease potential GDP.
C)increase the quantity of money.
D)decrease the buying power of money.
E)have no effect on the buying power of money.

Question 75

A rise in the price level ________ the buying power of money and ________ the quantity of real GDP demanded.

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

Question 76

Last year the price level increased from 118 to 122.The increase in the price level leads to a decrease in

A)potential GDP.
B)the buying power of money.
C)the real interest rate.
D)the money wage rate.
E)the price of domestic goods and services relative to foreign goods and services.

Question 77

At a price level of 100,John has savings equal to $20,000.If the price level increases to 130,the buying power of John's savings is approximately

A)$15,400.
B)$12,780.
C)$26,000.
D)$30,000.
E)$20,000.

Question 78

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

A)movement upward along
B)rightward shift of
C)movement downward along
D)change in the slope of
E)leftward shift of

Question 79

When the price level rises and increases the demand for money,the nominal interest rate ________ and the real interest rate ________.

A)rises;rises
B)falls;falls
C)does not change;does not change
D)falls;rises
E)rises;falls

Question 80

All of the following shift the aggregate demand curve to the right EXCEPT

A)an increase in taxes.
B)an increase in expected future profit.
C)an expansion of the global economy.
D)an increase in government expenditure.
E)an increase in foreign income.