Question 1

What impact will a permanent increase in the supply of a major input have on real output?

Accepted Answer

A) It will increase real output in both the short run and the long run. 
B) It will decrease real output in both the short run and the long run. 
C) It will decrease real output in the short run but not the long run. 
D) It will increase real output in the short run but not in the long run.

Question 2

What impact does a sudden increase in input prices have on the price level and real output?

Accepted Answer

A) The price level increases and real output decreases. 
B) The price level increases and real output increases. 
C) The price level decreases and real output increases. 
D) The price level decreases and real output decreases.

Question 3

Figure 9-4
 
-Refer to Figure 9-4.Which of the following best describes what is happening to inventories at output Y₁?

Accepted Answer

A) Inventories are exactly as planned, and output will not change. 
B) Inventories are unexpectedly falling, but output will not change. 
C) Inventories are unexpectedly falling, and output will rise to Y₀. 
D) Inventories are unexpectedly rising, and output will fall to Y₂.

Question 4

How does the misperception effect explain why a short-run aggregate supply curve is upward sloping?

Accepted Answer

A) Because the costs of production rise as the price level rises. 
B) Because of fixed wage labour contracts. 
C) Because people mistake changes in aggregate demand for changes in the demand for their goods relative to other goods and services. 
D) Because profit margins fall as the price level rises.

Question 5

What impact does good supply shock have on the price level and real output?

Accepted Answer

A) The price level increases and real output increases. 
B) The price level decreases and real output decreases. 
C) The price level decreases and real output increases. 
D) The price level increases and real output decreases.

Question 6

What happens to unemployment and real output during the self-correction process after a fall in aggregate demand?

Accepted Answer

A) Unemployment decreases and real output increases. 
B) Unemployment decreases and real output decreases. 
C) Unemployment increases and real output increases. 
D) Unemployment increases and real output decreases.

Question 7

How will an increase in money wages affect the short-run aggregate supply curve?

Accepted Answer

A) It will shift left (an increase in short-run aggregate supply). 
B) It will shift left (a decrease in short-run aggregate supply). 
C) It will shift right (a decrease in short-run aggregate supply). 
D) It will shift right (an increase in short-run aggregate supply).

Question 8

If real output is currently less than the natural level of real output,what impact will an increase in aggregate demand have on the market?

Accepted Answer

A) It will make the current recessionary gap smaller. 
B) It will make the current inflationary gap smaller. 
C) It will make the current inflationary gap larger. 
D) It will make the current recessionary gap larger.

Question 9

What is the effect of an increase in input prices on the short-run aggregate supply curve?

Accepted Answer

A) It shifts rightward, which means the quantity supplied at any price level increases. 
B) It shifts leftward, which means the quantity supplied at any price level increases. 
C) It shifts rightward, which means the quantity supplied at any price level declines. 
D) It shifts leftward, which means the quantity supplied at any price level declines.

Question 10

What could an increase in LRAS due to an expansion in the working-age population in a country potentially be offset by?

Accepted Answer

A) improving training and education levels of the workforce 
B) decreasing capital investment 
C) increasing the search for usable supplies of natural resources 
D) advancing technology

Question 11

When there is a contractionary gap,one is likely to see an increase in overtime work and more hours worked by part-time workers.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that personal income rises from $3000 to $4000 per month,and consumption rises from $2000 to $2600 per month.If taxes are 25 percent of income,what must marginal propensity to consume be?

Accepted Answer

A) 0.60 
B) 0.70 
C) 0.80 
D) 0.90

Question 13

Why do wage increases along with increases of other input prices impact the short-run aggregate supply but not the long-run aggregate supply,unless they reflect permanent reductions in the supply of those inputs?

Accepted Answer

The answer of Why do wage increases along with increases...

Question 14

Figure 9-2
 
-Refer to Figure 9-2.If the economy is operating at GRDP₁,what would you conclude about this level of production?

Accepted Answer

A) that the natural rate of unemployment has increased 
B) that this point is possible and is permanent 
C) that this point is possible, but only temporarily 
D) that this point is impossible to achieve

Question 15

Increases in government regulations can make it more costly for producers,and the increase in production costs results in a leftward shift of the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 16

If the government permanently eliminated many of the costly paperwork requirements imposed on businesses and individuals,how would this impact the SRAS and LRAS curves?

Accepted Answer

A) SRAS would increase but LRAS would not. 
B) SRAS and LRAS would both increase. 
C) SRAS and LRAS would both decrease. 
D) SRAS would decrease but LRAS would not.

Question 17

If a one-time natural disaster such as an earthquake struck,raising the cost of production,what would the result on the short-run and long-run aggregate supply curves be?

Accepted Answer

A) It would shift LRAS left, but leave SRAS unchanged. 
B) It would leave both the SRAS and LRAS unchanged. 
C) It would shift SRAS left, but leave LRAS unchanged. 
D) It would shift both the SRAS and the LRAS left.

Question 18

Which of the following statements best illustrates the misperception effect?

Accepted Answer

A) Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 22 percent. 
B) Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 10 percent. 
C) Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 5 percent. 
D) Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 12 percent.

Question 19

Which of the following statements about short-run aggregate supply is the most accurate?

Accepted Answer

A) It is not affected in any manner by the price level. 
B) It reflects how much real GDP suppliers are willing and able to produce at different price levels. 
C) It shifts only when the LRAS shifts. 
D) It is a fixed volume of output.

Question 20

What does the long-run aggregate supply relationship refer to?

Accepted Answer

A) a time period long enough for the prices of both outputs and inputs to adjust to changes in the economy 
B) a time period in which input prices can change, but output prices have not had time to adjust 
C) a time period in which output prices can change but input prices have not had time to adjust 
D) any time period of more than a year

Exam 9: Aggregate Supply and Macroeconomic Equilibrium