Aggregate Demand and Aggregate Supply 8075
22.
A candidate for political office announces the following policies which, he says, economics clearly
demonstrates will
lead to higher output in the long run: 1. increase immigration from abroad 2.
make trade more open between the US
and other countries.
a.
1 and 2 both shift long–run aggregate supply right.
b.
1 and 2 both shift long-run aggregate supply left.
c.
1 shifts long-run aggregate supply right, 2 shifts long–run aggregate supply left.
d.
1 shifts long-run aggregate supply left, 2 shifts long-run aggregate supply right.
23.
Other things the same, if the long-run aggregate supply curve shifts right, prices
a.
and output both increase.
b.
and output both decrease.
c.
increase and output decreases.
d.
decrease and output increases.
24.
Other things the same, if the long-run aggregate supply curve shifts left, prices
a.
and output both increase.
b.
and output both decrease.
c.
increase and output decreases.
d.
decrease and output increases.
25.
Other things the same, if technology increases, then in the long run
a.
both output and prices are higher.
b.
output is higher and prices are lower.
c.
output is lower and prices are higher.
d.
both output and prices are lower.
26.
Which of the following, other things the same, would make the price level decrease and real GDP
increase?
a.
long–run aggregate supply shifts right
b.
long–run aggregate supply shifts left
c.
aggregate demand shifts right
d.
aggregate demand shifts left
27.
According to the aggregate demand and aggregate supply model, in the long run a decrease in the
money supply
leads to
a.
decreases in both the price level and real GDP.
b.
an increase in real GDP and an increase in the price level.
c.
a decrease in the price level but does not change real GDP.
d.
an increase in the price level but does not change real GDP.
28.
In the long run, an increase in the stock of human capital
a.
and increases in the money supply both make the price level rise.
b.
and increases in the money supply both make the price level fall.
c.
makes the price level rise, while increases in the money supply make prices fall.
d.
makes the price level fall, while increases in the money supply make prices rise.
29.
Other things the same, continued increases in technology lead to
a.
continued increases in the price level and real GDP.
b.
continued decreases in the price level and real GDP.
c.
continued increases in real GDP and continued increases in the price level.
d.
continued increases in real GDP and continued decreases in the price level.
30.
Other things the same, continued increases in the money supply lead to
a.
continued increases in the price level and real GDP.
b.
continued increases in the price level but not continued increases in real GDP.
c.
continued increases in real GDP but not continued increases in the price level.
d.
a one–time permanent increase in both prices and real GDP.
31.
Over the last fifty years both real GDP and prices have trended upward in most countries.
Continuing real GDP
growth and inflation can be explained by
a.
continuing technological progress alone.
b.
continuing increases in the money supply alone.
c.
continued technological progress and continuing increases in the money supply.
d.
None of the above can explain continuing real GDP growth and inflation.
32.
Since the end of World War II, the U.S. has almost always had rising prices and an upward trend
in real GDP. To
explain this
a.
it is only necessary that long-run aggregate supply shifts right over time.
b.
it is only necessary that aggregate demand shifts right over time.
c.
both aggregate demand and long-run aggregate supply must be shifting right and aggregate
demand must be
shifting farther.
d.
None of the above cases would produce rising prices and growing real GDP over time.
33.
Since the end of World War II, the U.S. has almost always had rising prices and an upward trend
in real GDP. This
can be explained
a.
only by technological progress.
b.
only by money supply growth.
c.
by technological progress and money supply growth.
d.
None of the above is correct.
34.
Other things the same, continued technological progress and continued increases in the money
supply would
unambiguously lead to
a.
rising prices only.
b.
rising real GDP only.
c.
rising prices and rising real GDP.
d.
neither rising prices nor rising real GDP.
35.
The aggregate supply curve is upward sloping in
a.
the short and long run.
b.
neither the short nor long run.
c.
the long run, but not the short run.
d.
the short run, but not the long run.
36.
The aggregate supply curve is
a.
vertical in the long run and slopes upward in the short run.
b.
upward sloping in the long run and vertical in the short run.
c.
vertical in the short run and in the long run.
d.
upward sloping in the short run and in the long run.
37.
Wages tend to be sticky
a.
because of contracts, social norms, and notions of fairness.
b.
because of contracts, but not social norms or notions of fairness.
c.
because of social norms and notions of fairness, but not contracts.
d.
None of the above are correct.
38.
The sticky-wage theory of the short–run aggregate supply curve says that when the price level
rises more than
expected,
a.
production is more profitable and employment rises.
b.
production is more profitable and employment falls.
c.
production is less profitable and employment rises.
d.
production is less profitable and employment falls.
39.
The sticky-wage theory of the short-run aggregate supply curve says that when the price level is
lower than
expected,
a.
production is more profitable and employment rises.
b.
production is more profitable and employment falls.
c.
production is less profitable and employment rises.
d.
production is less profitable and employment falls.
40.
The sticky-wage theory of the short–run aggregate supply curve says that when the price level is
lower than
expected,
a.
relative to prices wages are higher and employment rise.
b.
relative to prices wages are higher and employment falls.
c.
relative to prices wages are lower and employment rises.
d.
relative to prices wages are lower and employment falls.
41.
Sticky nominal wages can result in
a.
lower profits for firms when the price level is lower than expected.
b.
a decrease in real wages when the price level is lower than expected.
c.
a short–run aggregate-supply curve that is vertical.
d.
a long-run aggregate-supply curve that is upward-sloping.
42.
The sticky–wage theory of the short–run aggregate supply curve says that the quantity of output
firms supply will
increase if
a.
the price level is higher than expected making production more profitable.
b.
the price level is higher than expected making production less profitable.
c.
the price level is lower than expected making production more profitable.
d.
the price level is higher than expected making production less profitable.
43.
If the price level rises above what was expected and nominal wages are fixed, then
a.
production becomes less profitable so firms will hire fewer workers.
b.
production becomes less profitable so firms will hire more workers.
c.
production becomes more profitable so firms will hire fewer workers.
d.
production becomes more profitable so firms will hire more workers.
44.
If wages are sticky, then a greater than expected increase in the price level
a.
raises the real costs of production, so the short-run aggregate supply curve shifts left.
b.
raises the real costs of production, so the aggregate quantity of goods and services declines.
c.
reduces the real costs of production, so the short–run aggregate supply curve shifts right.
d.
reduces the real costs of production, so the aggregate quantity of goods and services rises.
45.
Which of the following can explain the upward slope of the short–run aggregate supply curve?
a.
nominal wages are slow to adjust to changing economic conditions
b.
as the price level falls, the exchange rate falls
c.
an increase in the money supply lowers the interest rate
d.
an increase in the interest rate increases investment spending
46.
Other things the same, if workers and firms expected prices to rise by 2 percent but instead they
rise by 3 percent,
then
a.
employment and production rise.
b.
employment rises and production falls.
c.
employment falls and production rises.
d.
employment and production fall.
47.
Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then
a.
employment and production rise.
b.
employment rises and production falls.
c.
employment falls and production rises.
d.
employment and production fall.
48.
Other things the same, if prices fell when firms and workers were expecting them to rise, then
a.
employment and production would rise.
b.
employment would rise and production would fall.
c.
employment would fall and production would rise.
d.
employment and production would fall.
49.
If there are sticky wages, and the price level is greater than what was expected, then
a.
the quantity of aggregate goods and services supplied falls, which is shown by a shift of the
short-run
aggregate supply curve to the left.
b.
the quantity of aggregate goods and services supplied falls, as shown by a movement to the left
along the
short–run aggregate supply curve.
c.
the quantity of aggregate goods and services supplied rises, as shown by a shift of the short-
run aggregate
supply curve to the right.
d.
the quantity of aggregate goods and services supplied rises, as shown by a movement to the
right along the
short-run aggregate supply curve.
50.
An unexpected increase in the price level that temporarily lowers real wages and induces more
employment and
output in an economy, occurs in
a.
nominal-supply theory.
b.
stagflation.
c.
misperceptions theory.
d.
sticky-wage theory.
51.
The sticky-price theory implies that
a.
the short–run aggregate-supply curve is upward-sloping.
b.
an unexpected fall in the price level induces firms to reduce the quantity of goods and services
they produce.
c.
menu costs influence the speed of adjustment of prices.
d.
All of the above are correct.
52.
Menu costs help explain
a.
sticky-price theory.
b.
misperceptions theory.
c.
sticky-wage theory.
d.
All of the above are correct.
53.
Other things the same, an unexpected fall in the price level results in some firms having
a.
lower than desired prices, which increases their sales.
b.
lower than desired prices, which depresses their sales.
c.
higher than desired prices, which increases their sales.
d.
higher than desired prices, which depresses their sales.
54.
Other things the same, when the price level rises more than expected, some firms will have
a.
higher than desired prices, which increases their sales.
b.
higher than desired prices, which depresses their sales.
c.
lower than desired prices, which increases their sales.
d.
lower than desired prices, which depresses their sales.
55.
When the price level rises more than expected, a firm with a sticky price will sell its output at a
price that is
a.
less than it desires and increase its production.
b.
less than it desires and decrease its production.
c.
more than it desires and increase its production.
d.
less than it desires and decrease its production.
56.
The sticky-price theory of the short-run aggregate supply curve says that when the price level is
higher than
expected, some firms will have
a.
higher than desired prices, which leads to an increase in the aggregate quantity of goods and
services
supplied.
b.
higher than desired prices, which leads to a decrease in the aggregate quantity of goods and
service supplied.
c.
lower than desired prices, which leads to an increase in the aggregate quantity of goods and
services supplied.
d.
lower than desired prices, which leads to a decrease in the aggregate quantity of goods and
services supplied
57.
Other things the same, if the price level rises by 2% and people were expecting it to rise by 5%,
then some firms
have
a.
higher than desired prices, which increases their sales.
b.
higher than desired prices, which depresses their sales.
c.
lower than desired prices, which increases their sales.
d.
lower than desired prices, which depresses their sales.
58.
Other things the same, if the money supply rises by 2% and people were expecting it to rise by
5%, then some firms
have
a.
higher than desired prices, which increases their sales.
b.
higher than desired prices, which depresses their sales.
c.
lower than desired prices, which increases their sales.
d.
lower than desired prices, which depresses their sales.
59.
The sticky-price theory of the short–run aggregate supply curve says that if the price level rises
by 5% and people
were expecting it to rise by 2%, then firms have
a.
higher than desired prices, which leads to an increase in the aggregate quantity of goods and
services
supplied.
b.
higher than desired prices, which leads to a decrease in the aggregate quantity of goods and
services supplied.
c.
lower than desired prices, which leads to an increase in the aggregate quantity of goods and
services supplied.
d.
lower than desired prices, which leads to a decrease in the aggregate quantity of goods and
services supplied.
60.
People had been expecting the price level to be 120 but it turns out to be 122. In response
Robinson Tire Company
increases the number of workers it employs. What could explain this?
a.
both sticky price theory and sticky wage theory
b.
sticky price theory but not sticky wage theory
c.
sticky wage theory but not sticky price theory
d.
neither sticky wage theory nor sticky price theory
61.
People had been expecting the price level to be 140 but it turns out to be 138. Johnson Family
Restaurants increases
the number of workers it employs. What could explain this?
a.
both sticky price theory and sticky wage theory
b.
sticky price theory but not sticky wage theory
c.
sticky wage theory but not sticky price theory
d.
neither sticky wage theory nor sticky price theory
62.
The misperceptions theory of the short-run aggregate supply curve says that if the price level is
higher than people
expected, then some firms believe that the relative price of what they produce
has
a.
decreased, so they increase production.
b.
decreased, so they decrease production.
c.
increased, so they increase production.
d.
increased, so they decrease production.