True / False
1. Supply-side economics concerns itself with the interaction between demand and supply, the price level, and real GDP.
a.
True
b.
False
True
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Puzzle: What Causes Stagflation?
2. The 2006-2008 period can be accurately described as a time of stagflation.
a.
True
b.
False
False
Easy
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
Puzzle: What Causes Stagflation?
3. Demand-side changes explain everything about stagflation.
a.
True
b.
False
False
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Puzzle: What Causes Stagflation?
4. The aggregate supply curve is a fixed point representing potential GDP.
a.
True
b.
False
False
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
5. An increase in the price level causes the aggregate supply curve to shift to another supply schedule.
a.
True
b.
False
False
Moderate
6. A change in the aggregate price level moves the economy along a given aggregate supply curve.
a.
True
b.
False
True
Moderate
7. The slope of the aggregate supply curve decreases as total output increases.
a.
True
b.
False
False
Moderate
8. The aggregate supply curve is the relationship between the price level and the quantity of real GDP purchased.
a.
True
b.
False
False
Easy
9. Like the supply curve for individual goods and services, the aggregate supply curve slopes upward and to the right.
a.
True
b.
False
True
Moderate
10. Input prices are fixed for a period of time and this causes firms to increase production as prices increase.
a.
True
b.
False
True
Moderate
11. Labor contracts often fix wages for more than one year.
a.
True
b.
False
True
Easy
12. The aggregate supply curve shows how much the nation’s businesses are willing and able to produce at each price
level.
a.
True
b.
False
True
Easy
13. Profit per unit can be expressed as price – cost per unit.
a.
True
b.
False
True
Easy
14. The aggregate supply curve slopes upward because as price rises the quantity of output supplied rises.
a.
True
b.
False
True
Moderate
15. If the selling price falls and input costs are fixed, profit margins will increase.
a.
True
b.
False
False
Moderate
16. Decreasing profit margins indicate a need to increase production in an economy.
a.
True
b.
False
False
Moderate
17. If wages or prices of other inputs change, the aggregate supply curve will shift to another position.
a.
True
b.
False
True
Moderate
18. The money wage rate has little effect on the supply curve. It mainly affects the aggregate demand curve.
a.
True
b.
False
False
Difficult
19. Wage decreases lead to a decrease in aggregate quantity supplied.
a.
True
b.
False
False
Moderate
20. Wage increases are resisted by firms because they decrease profits.
a.
True
b.
False
True
Moderate
21. An improvement in productivity will usually increase profits.
a.
True
b.
False
True
Moderate
22. Increases in the price of imported oil in 2011 led to a leftward shift of the aggregate supply curve.
a.
True
b.
False
True
Easy
23. Increases in the prices of imported energy in 2002-2008 caused the aggregate supply curve to shift inward.
a.
True
b.
False
True
Easy
24. A price level lower than equilibrium will cause quantity supplied to exceed quantity demanded.
a.
True
b.
False
False
Moderate
25. If aggregate demand is $2,000 billion and aggregate supply is $2,300 billion, the price level will rise.
a.
True
b.
False
False
Moderate
26. Inflation reduces the multiplier effect by reducing consumers’ wealth and purchasing power.
a.
True
b.
False
True
Difficult
27. A vertical aggregate supply curve increases the size of the multiplier effect.
a.
True
b.
False
False
Moderate
28. When equilibrium GDP is greater than potential GDP, jobs are plentiful and labor is in great demand.
a.
True
b.
False
True
Moderate
29. An inflationary gap exists when consumers and businesses are demanding more output than the economy is capable of
producing at full employment.
a.
True
b.
False
True
Moderate
30. A recessionary gap exists when aggregate demand is above the full employment level of output.
a.
True
b.
False
False
Moderate
31. Recessionary gaps are associated with output below potential and high unemployment rates.
a.
True
b.
False
True
Moderate
32. When equilibrium GDP is below potential GDP, jobs are plentiful and unemployment is low.
a.
True
b.
False
False
Moderate
33. In our modern economy, the adjustment process necessary to eliminate a recessionary gap is very rapid.
a.
True
b.
False
False
Moderate
34. Economists do not agree on why wages are more rigid now than they were before World War II.
a.
True
b.
False
True
Moderate
35. The recessionary gap of the 1990s in Japan led to decreases in the price level.
a.
True
b.
False
True
Moderate
36. College graduates looking for jobs were less fortunate in 2007 than graduates in 2009.
a.
True
b.
False
False
Easy
37. If short-run equilibrium GDP is above potential GDP, prices will eventually rise.
a.
True
b.
False
True
Moderate
38. GDP in excess of potential GDP will shift the aggregate supply curve to the left and the price level will increase.
a.
True
b.
False
True
Difficult
39. When OPEC cut energy production in 1973, the aggregate supply curve shifted outward.
a.
True
b.
False
False
Moderate
40. Aggregate supply grows over time because of growing consumer and government spending.
a.
True
b.
False
False
Easy
41. If the economy experiences inflation and economic growth, this means that aggregate demand grows by more than
aggregate supply.
a.
True
b.
False
True
Moderate
42. Over time, aggregate demand and aggregate supply grow by the same amount.
a.
True
b.
False
False
43. For a given growth rate in aggregate supply, slower growth in aggregate demand will lead to lower inflation.
a.
True
b.
False
True
Moderate
44. If the data show that periods of high economic growth rate accompanied by high inflation rates, then changes in
aggregate demand are the primary source of economic fluctuations.
a.
True
b.
False
True
Moderate
45. From 2005 to 2006 the U.S. economy experienced significant inflation because the aggregate demand curve shifted
outward more than the aggregate supply curve shifted outward.
a.
True
b.
False
False
Moderate
46. In 1973, the U.S. experienced a decline in output and high inflation.
a.
True
b.
False
True
Easy
47. Stabilization policy may be necessary to slow down the speed of the adjustment process.
a.
True
b.
False
False
Moderate
48. Stabilization policy may be necessary to modify or counteract volatile changes in aggregate demand.
a.
True
b.
False
True
Easy
49. From the mid-1980s until late 2007, the less world’s less volatile economies were probably due, at least in part, to
good luck.
a.
True
b.
False
True
Moderate
50. Stagflation may follow an inflationary boom.
a.
True
b.
False
True
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Stagflation from a Supply Shock
51. As long as the multiplier process is working, firms will meet additional demand without raising prices.
a.
True
b.
False
False
Difficult
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Inflation and the Multiplier
Multiple Choice
52. Economists generally assume that there is a short-run trade-off between
a.
b.
c.
d.
e.
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Puzzle: What Causes Stagflation?
53. When the expenditure schedule is too low, the result is a(n)
a.
unemployment surplus.
b.
inflationary gap.
c.
recessionary gap.
d.
budgetary gap.
c
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Puzzle: What Causes Stagflation?
54. Recessionary gap arises when
a.
inventory stock falls.
b.
government spending increases.
c.
when the general price level increases.
d.
there is less spending than desired.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Puzzle: What Causes Stagflation?
55. When the expenditure schedule is too high, the result is a(n)
a.
unemployment surplus.
b.
inflationary gap.
c.
recessionary gap.
d.
budgetary gap.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Puzzle: What Causes Stagflation?
56. The existence of an inflationary gap or an recessionary gap depends on the
a.
aggregate supply only.
b.
expenditure schedule.
c.
leakages schedule.
d.
injections schedule.
e.
aggregate demand and aggregate supply schedules.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Puzzle: What Causes Stagflation?
57. The combination of high unemployment and high inflation is termed
a.
reflation.
b.
stagflation.
c.
depression.
d.
unflation.
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Puzzle: What Causes Stagflation?
58. “Stagflation” refers to the unwelcome combination of
a.
b.
c.
d.
c
Easy
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Puzzle: What Causes Stagflation?
59. In the period from 1996-2000, the United States economy experienced the unusual combination of
a.
high unemployment and high inflation.
b.
high unemployment and low inflation.
c.
low unemployment and high inflation.
d.
low unemployment and low inflation.
Easy
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
Puzzle: What Causes Stagflation?
60. In spite of the fact that unemployment rates were at a 30-year low in 1996-2000, the United States economy also
experienced
a.
declining inflation.
b.
balance of payments surpluses.
c.
large budget deficits.
d.
low growth.
a
Moderate
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
Puzzle: What Causes Stagflation?
61. The concept of aggregate supply refers to a
a.
fixed number of output.
b.
list of products demanded.
c.
schedule of output.
d.
schedule of production costs.
c
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
62. The major cost of production in the economy is
a.
interest expense.
b.
capital costs.
c.
rents.
d.
profits.
e.
wages.
e
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
63. For most firms in the economy, the largest part of factor costs is the cost of
a.
labor.
b.
capital.
c.
property and machinery.
d.
land and natural resources.
a
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
64. To calculate a firm’s per unit of output profit, it is necessary to subtract
a.
price from cost per unit.
b.
price from resource costs.
c.
cost per unit from product price.
d.
cost per unit from cost of resources.
c
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
65. The slope of the aggregate supply curve is
a.
perfectly vertical.
b.
perfectly horizontal.
c.
upward.
d.
downward.
c
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
66. The aggregate supply curve is
a.
generally flatter as the level of resource use rises.
b.
never vertical, even at full employment.
c.
relatively flat at low levels of output.
d.
relatively steep at low levels of output.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
67. The aggregate supply curve normally
a.
slopes downward and to the right due to higher resource prices.
b.
has a horizontal slope equal to zero.
c.
is very steep in the lower portion and flatter in the upper portion.
d.
slopes upward to the right due to short-run fixed costs of production.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
68. If resource prices are fixed and the selling price rises, then
a.
profits will decrease.
b.
profits will increase.
c.
profits will remain constant.
d.
both profits and output will decrease.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
69. As the U.S. labor force grows and the nation’s capital stock is augmented by investment, the
a.
price level will rise.
b.
aggregate supply curve shifts inward.
c.
aggregate supply curve shifts outward.
d.
aggregate supply curve becomes steeper.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
70. As a result of the war in Afghanistan, the population of Afghanistan as well as their capital stock was reduced. This
can be illustrated by aggregate supply curve
a.
shifting outward.
b.
becoming flatter.
c.
shifting inward.
d.
becoming more elastic.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
71. The aggregate supply curve slopes
a.
downward because firms can sell more at lower prices.
b.
downward because firms can hire more workers at lower prices.
c.
upward because firms want to hire more workers at higher wage levels.
d.
upward because firms can hire labor at fixed wages for short-run periods.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Aggregate Supply Curve
72. The aggregate supply curve is
a.
a schedule showing the relationship between the price level and the quantity of real GDP supplied.
b.
usually upward sloping.
c.
relatively flat at low levels of resource utilization.
d.
All of the above are correct.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic