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11) A decrease in investment leads to ________ in aggregate demand and ________ in real
GDP.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
E) no change; a decrease
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
12) A deep recession hits the world economy, and real GDP in the rest of the world
decreases. In the United States,
A) aggregate supply and aggregate demand both increase, and the price level rises.
B) aggregate supply decreases while aggregate demand does not change, and the price
level rises.
C) aggregate demand decreases while aggregate supply does not change, and the price
level falls.
D) aggregate supply increases and aggregate demand decreases, so the efect on the price
level is uncertain.
E) aggregate supply and aggregate demand both decrease, and the price level rises.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
13) If the AD curve shifts rightward, then
A) both the price level and real GDP will increase.
B) the price level will increase, but no change will occur in real GDP.
C) the price level will not change, but real GDP will increase.
D) both the price level and real GDP will decrease.
E) potential GDP increases.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
91
14) An economy is at a full-employment equilibrium, and then the aggregate demand curve
shifts leftward. As a result, the price level ________ and real GDP ________.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
E) falls; does not change
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
15) An increase in government expenditure on goods and services ________ aggregate
demand, shifting the aggregate demand curve ________ and potentially bringing the ________
phase of the business cycle.
A) decreases; rightward; expansion
B) increases; rightward; recession
C) decreases; leftward; recession
D) increases; rightward; expansion
E) increases; leftward; recession
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
16) The the government increases the level of government expenditure. If there is no
change in the aggregate supply curve, then aggregate demand will ________, real GDP will
________, and the price level will ________.
A) increase; remain the same; increase
B) remain the same; increase; increase
C) increase; increase; increase
D) decrease; increase; increase
E) decrease; remain the same; decrease
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
92
17) If the AD curve shifts rightward while the AS curve and potential GDP don't change,
then
A) the economy will move from a peak into recession.
B) the expansion phase of the business cycle occurs.
C) there will be no change in real GDP, so the economy is at the peak of the cycle.
D) there will be no change in real GDP, so the economy is at the trough of the cycle.
E) real GDP does not change.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Relective thinking
18) The global economy enters a recession, thereby decreasing the level of U.S. exports. If
the aggregate supply curve does not shift, then aggregate demand will ________, real GDP
will ________, and the price level will ________.
A) increase; remain the same; increase
B) remain the same; increase; increase
C) increase; increase; remain the same
D) decrease; increase; increase
E) decrease; decrease; decrease
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
19) The government passes a law which doubles the wages of all workers. Aggregate
supply will ________, and real GDP will ________, and the price level will ________.
A) increase; remain the same; increase.
B) remain the same; increase; increase.
C) increase; increase; remain the same.
D) decrease; increase; increase.
E) decrease; decrease; increase.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
93
20) A technological advance ________ aggregate supply, shifting the aggregate supply curve
________ and potentially bringing the ________ phase of the business cycle.
A) decreases; rightward; expansion
B) decreases; leftward recession
C) increases; rightward; expansion
D) increases; rightward; recession
E) increases; leftward; expansion
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
21) An increase in the price of oil ________ aggregate supply, shifting the aggregate supply
curve ________ and potentially bringing the ________ phase of the business cycle.
A) decreases; rightward; expansion
B) increases; rightward; recession
C) increases; rightward; expansion
D) decreases; leftward; recession
E) decreases; rightward; recession
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
22) A crisis in the Middle East drastically raises the price of petroleum. If the aggregate
demand curve does not shift, then aggregate supply will ________, real GDP will ________,
and the price level will ________.
A) increase; remain the same; increase
B) decrease; decrease; increase
C) increase; increase; increase
D) remain the same; increase; increase
E) decrease; remain the same; decrease
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
94
23) Which of the following could result in a recession?
A) a rise in the price of oil
B) an increase in investment
C) a tax cut
D) an increase in the quantity of money
E) an increase in government expenditures on goods and services
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Relective thinking
24) ________ could result in a recession because it would ________.
A) A rise in the price of oil; shift the AS curve to the left.
B) An increase in investment; shift the AD curve to the right.
C) A tax cut; shift the AS curve to the left.
D) An increase in the quantity of money; shift the AS curve to the right.
E) An increase in government expenditures on goods and services; shift the AD curve to the
right.
Skill: Level 4: Applying models
Section: Integrative
Status: New
AACSB: Relective thinking
25) Real GDP deinitely increases if
A) both the AD curve and the AS curve shift rightward.
B) both the AD curve and AS curve shift leftward.
C) the AD curve shifts leftward and the AS curve shifts rightward.
D) the AS curve shifts leftward and the AD curve does not shift.
E) potential GDP decreases so that real GDP exceeds potential GDP.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Analytical thinking
95
13.6 Essay: Aggregate Supply
1) Name the four factors of production that determine the quantity of real GDP supplied.
Which one luctuates the most over the course of the business cycle?
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Written and oral communication
2) What factor changes the quantity of real GDP supplied and results in a movement along
the AS curve?
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
3) Does a rise in the price level bring a movement along the aggregate supply curve or
does it shift the aggregate supply curve?
Skill: Level 1: Deinition
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
4) If the money wage rate is constant and the price level increases, what happens to the
real wage rate, irms' proits, and the aggregate quantity supplied?
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Written and oral communication
96
5) List three changes that lead to a shift of the aggregate supply curve. Discuss why each
change shifts the aggregate supply curve and in which direction the curve shifts.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Written and oral communication
6) How does a fall in the money wage rate afect the aggregate supply curve?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
7) Give examples of factors that decrease aggregate supply. Which way does the AS curve
shift?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Written and oral communication
8) What is the efect on aggregate supply and potential GDP of an increase in the money
wage rate?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Relective thinking
97
9) "Moving along the AS curve, the real wage rate is constant while moving along the
potential GDP line, the real wage rate changes." Explain whether the previous statement is
correct or incorrect.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.1
Status: Old
AACSB: Written and oral communication
10) What can lead to the shift illustrated in the igure above?
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
98
11) In the above igure, illustrate the efect on the AS curve from an increase in the money
price of a key resource such as oil.
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
99
