Foundations of Macroeconomics, 7e (Bade/Parkin)
Chapter 13 Aggregate Supply and Aggregate Demand
13.1 Aggregate Supply
1) Over the business cycle, factors such as the quantity of capital, human capital and
technology
A) grow but do not luctuate as much as the quantity of labor employed.
B) change drastically, luctuating more than the quantity of labor employed.
C) luctuate 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
2) Over a business cycle, the quantities of capital, human capital, and entrepreneurial
talent
A) change gradually and do not luctuate 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.
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
3) Which of the following does NOT afect 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
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
1
4) Potential GDP
A) increases as the price level increases because irms 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.
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
5) 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 efect on real GDP.
E) the aggregate supply curve is upward sloping.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
6) A rise in the price level produces ________ the potential GDP line.
A) a rightward shift of
B) a movement downward along
C) a leftward shift of
D) a movement upward along
E) neither a shift of the potential GDP line nor a movement along
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
2
7) 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.
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
8) 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
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
9) The real wage rate deinitely 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
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
3
10) A fall in the real wage rate ________ irms’ proits 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
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
11) 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.
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
12) 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.
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
4
13) 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 changes aggregate supply nor changes the quantity of real GDP supplied.
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
14) 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.
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
15) Moving along the aggregate supply curve, when the price level rises,
A) the 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.
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
5
16) 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.
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
17) 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
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
18) 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
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
6
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 proit
D) A rise in the price level
E) An increase in potential GDP
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
20) 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 afect the quantity of real GDP supplied.
E) amount of potential GDP increases when the price level rises.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
21) 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
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
7
22) 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) upward-sloping; negatively
B) downward-sloping; positively
C) upward-sloping; positively
D) downward-sloping; negatively
E) vertical; not
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: New
AACSB: Relective thinking
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
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
24) 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; a decrease
B) upward; an increase
C) downward; an increase
D) upward; a decrease
E) upward; no change
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: New
AACSB: Relective thinking
8
25) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
26) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
27) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
9
28) The quantity of real GDP supplied ________ when the price level increases because
________.
A) decreases; investment increases
B) increases; the quantity of money increases
C) increases; the real wage rate falls
D) decreases; the real wage rate rises
E) increases; aggregate demand increases
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: New
AACSB: Relective thinking
29) During 2010, a country reports that its price level fell and the money wage rate did not
change. These changes led to
A) a higher real wage rate, lower proits, and a decrease in the quantity of real GDP
supplied.
B) a higher real wage rate, higher proits, and an increase in the quantity of real GDP
supplied.
C) a lower real wage rate, lower proits, and a decrease in the quantity of real GDP
supplied.
D) a lower real wage rate, higher proits, and an increase in the quantity of real GDP
supplied.
E) no change in the real wage rate and an increase in aggregate demand.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
30) 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 their country experienced a(n) ________.
A) decrease in the quantity of real GDP supplied; higher real wage rate and lower proits
for irms
B) increase in the quantity of real GDP supplied; higher real wage rate and lower proits for
irms
C) decrease in the quantity of real GDP supplied; lower real wage rate and lower proits for
irms
D) increase in the quantity of real GDP supplied; lower real wage rate and higher proits for
irms
E) decrease in aggregate demand; economic expansion
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: New
AACSB: Relective thinking
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