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D. a decrease in aggregate demand.
108. Refer to the graph shown. A movement from D to C is most likely to be caused by:
A. an increase in input prices.
B. a reduction in sales taxes.
C. an increase in aggregate demand.
D. an increase in import prices.
109. Refer to the graph shown. A movement from D to B is most likely to be caused by:
A. an increase in expected inflation.
B. a decrease in input prices.
C. a decrease in import prices.
D. a decrease in aggregate demand.
110. Refer to the graph shown. A decrease in aggregate demand in the short run is likely to
cause a movement from:
A. C to D.
B. B to D.
C. B to A.
D. C to A.
111. Refer to the graph shown. A decrease in production costs is likely to cause a movement
from:
A. C to D.
B. B to D.
C. B to A.
D. C to A.
112. Refer to the graph shown. A decrease in input prices in the short run is likely to cause a
movement from:
A. C to D.
B. B to D.
C. B to A.
D. C to A.
113. The long-run aggregate supply curve shows the output level that an economy can produce
when:
A. firms adjust quantity rather than price.
B. capital is fully employed.
C. labor is fully employed.
D. both capital and labor are fully employed.
114. The long-run aggregate supply curve plays an important role in determining:
A. the price level in the short run.
B. output in the short run.
C. output in the short run and long run.
D. output in the long run.
115. Which of the following factors will not shift the long-run aggregate supply curve?
A. An increase in capital accumulation
B. An increase in available resources
C. An increase in the price level
D. An improvement in production technology
116. In the long run, the position of the short-run aggregate supply curve determines:
A. output.
B. the price level.
C. both output and the price level.
D. neither output nor the price level.
117. A change in which of the following will shift the long-run aggregate supply curve?
A. Aggregate demand
B. Available resources
C. The price level
D. Sales or excise taxes
118. Refer to the graph shown. An economy is in both short- and long-run equilibrium at
point(s):
A. A.
B. B only.
C. C only.
D. Both B and C.
119. Refer to the graph shown. An economy is in short-run equilibrium at point(s):
A. A only.
B. B.
C. C only.
D. Both A and C.
120. An increase in aggregate demand:
A. raises potential output.
B. reduces potential output.
C. does not change potential output.
D. has an unpredictable effect on potential output.
121. Many economists have argued that labor market regulations in the European Union have
stifled efficiency and held down potential GDP. If this argument is correct, the removal of these
regulations should:
A. shift the short-run aggregate supply curve in to the left.
B. shift the long-run aggregate supply curve out to the right.
C. shift the aggregate demand curve out to the right.
D. not affect the aggregate supply or aggregate demand curves.
122. If actual output exceeds potential output for a prolonged period of time, we would
eventually expect factor prices to:
A. rise, causing the SAS curve to shift up (to the left).
B. fall, causing the SAS curve to shift down (to the right).
C. rise, causing the LAS curve to shift out to the right.
D. fall, causing the LAS curve to shift in to the left.
123. The rapid development of Internet technologies during the 1990s allowed businesses to
produce goods and services more cheaply than before and also gave rise to completely new
services. We would show this change in the AD/AS model by moving the short-run aggregate:
A. demand curve right with little change in short-run aggregate supply.
B. demand curve left with little change in short-run aggregate supply.
C. supply curve down (to the right) with little change in aggregate demand.
D. supply curve up with little change in aggregate demand.
124. In 1979, the Federal Reserve decided to tighten monetary policy in order to reduce
inflation, which had risen to double-digit levels. The AD/AS model framework suggests that the
short-run effect of this policy was to reduce:
A. output primarily with little change in inflation.
B. inflation primarily with little change in output.
C. both inflation and output.
D. neither inflation nor output.
125. At points on the short-run aggregate supply curve, but to the right of the long-run aggregate
supply curve, resources are:
A. over-utilized, making it more likely that the short-run aggregate supply curve will shift up (to
the left).
B. over-utilized, making it more likely that the short-run aggregate supply curve will shift down
(to the right).
C. under-utilized, making it more likely that the short-run aggregate supply curve will shift up
(to the left).
D. under-utilized, making it more likely that the short-run aggregate supply curve will shift
down (to the right).
126. The short-run aggregate supply is most likely to shift down (to the right) when actual
output is:
A. equal to potential output.
B. less than potential output
C. greater than potential output.
D. not equal to potential output, regardless of whether it is above or below.
127. If potential output is unknown:
A. we can still determine how the short-run aggregate supply curve will shift.
B. factor prices are more likely to change.
C. factor prices are less likely to change.
D. we cannot determine precisely how the short-run aggregate supply curve will shift.
128. At the intersection of the short-run aggregate supply curve and the aggregate demand
curve, the economy is in:
A. a short-run equilibrium but not necessarily a long-run equilibrium.
B. a long-run equilibrium but not necessarily a short-run equilibrium.
C. both a short-run and a long-run equilibrium.
D. neither a short-run nor a long-run equilibrium.
129. At the intersection of the short-run aggregate supply curve, the aggregate demand curve,
and the long-run aggregate supply curve, the economy is in:
A. a short-run equilibrium but not a long-run equilibrium.
B. a long-run equilibrium but not a short-run equilibrium.
C. both a short-run and long-run equilibrium.
D. neither a short-run nor long-run equilibrium.
130. Refer to the graph shown. The economy is in a short-run equilibrium at:
A. point A.
B. point B.
C. point C.
D. no point in the graph.
131. Refer to the graph shown. The economy is in both a short-run and a long-run equilibrium
at:
A. point A.
B. point B.
C. point C.
D. no point in the graph.
132. An increase in aggregate demand in the long run, will change:
A. output but not price level.
B. the price level but not output.
C. both output and the price level.
D. neither output nor the price level.
133. An increase in the aggregate demand curve will, in the short run, change:
A. output but not price level.
B. the price level but not output.
C. both output and the price level.
D. neither output nor the price level.
134. A shift in the long run aggregate supply curve will change:
A. output but not the price level.
B. the price level but not output.
C. both output and the price level.
D. neither output nor the price level.
135. An inflationary gap exists when:
A. aggregate demand exceeds output.
B. actual output exceeds potential output.
C. output exceeds aggregate demand.
D. potential output exceeds actual output.
136. A recessionary gap exists when:
A. aggregate demand exceeds output.
B. actual output exceeds potential output.
C. output exceeds aggregate demand.
D. potential output exceeds actual output.
137. If actual output exceeds potential output, the economy:
A. is experiencing an inflationary gap.
B. is experiencing a recessionary gap.
C. may be in a long-run equilibrium but is not in a short-run equilibrium.
D. is in neither a short-run nor long-run equilibrium.
138. If potential output exceeds actual output, the economy:
A. is experiencing an inflationary gap.
B. is experiencing a recessionary gap.
C. may be in a long-run equilibrium but is not in a short-run equilibrium.
D. is in neither a short-run nor long-run equilibrium.
139. If potential output exceeds actual output, eventually:
A. input prices will rise and output will fall.
B. both input prices and output will rise.
C. input prices will fall and output will rise.
D. both input prices and output will fall.
140. If actual output exceeds potential output, eventually:
A. input prices will rise and output will fall.
B. both input prices and output will rise.
C. input prices will fall and output will rise.
D. both input prices and output will fall.
141. If potential output is less than actual output, eventually the short-run aggregate supply
curve will shift:
A. up and eliminate the recessionary gap.
B. down and eliminate the recessionary gap.
C. up and eliminate the inflationary gap.
D. down and eliminate the inflationary gap.
142. Suppose the economy is in a recessionary gap. In the absence of any policy intervention,
the short-run aggregate supply curve will eventually shift:
A. down (to the right), causing the price level to fall and output to rise.
B. down (to the right), causing the price level to fall and output to fall.
C. down (to the right), causing the price level to rise and output to fall.
D. up (to the left), causing the price level to fall and output to rise.
143. An economy's resources:
A. can never be over-utilized.
B. can always be over-utilized.
C. are always fully employed.
D. can be over-utilized, but only temporarily.
144. Refer to the graph shown. In the graph, an inflationary gap exists if the price level is:
A. P0 and the aggregate demand curve is AD0.
B. P0 and the aggregate demand curve is AD1.
C. P1 and the aggregate demand curve is AD0.
D. P1 and the aggregate demand curve is AD1.
145. Refer to the graph shown. In the graph, a recessionary gap exists if the price level is:
A. P0 and the aggregate demand curve is AD0.
B. P0 and the aggregate demand curve is AD1.
C. P1 and the aggregate demand curve is AD0.
D. P1 and the aggregate demand curve is AD1.
146. Refer to the graph shown. In the graph, if the price level is P0 and the aggregate demand
curve is AD0, then the economy is in:
A. a recessionary gap.
B. an inflationary gap.
