Chapter 23 - Real GDP and the Price Level in the Short Run

Question 1

Assume the economy has horizontal AS curve. A leftward shift of the AD curve will result in:
A) An increase in both real GDP and prices.
B) A decrease in prices and no change in real GDP.
C) A decrease in both real GDP and prices.
D) An increase in prices and no change in real GDP.
E) An increase in real GDP and no change in prices.
F) A decrease in real GDP and no change in prices.

Answer 1

F

Question 2

What can explain the positive slope of the AS curve:
A) The presence of firms that are price setters.
B) The presence of firms that are price-takers.
C) The law of diminishing returns.
D)The rising unit costs associated with rising output levels.
E) All of the above.

Answer 2

E

Question 3

Macroeconomics equilibrium occurs at the intersection of _____ and ______, and determines equilibrium levels of ______ and _______.

Answer 3

AD;AS;prices;GDP

Question 4

If the AS curve is upward sloping, a positive AD shock will cause the price level to ______ and real GDP to _____.

Answer 4

increase;increase

Question 5

A positive AS shock will cause the price level to ______ and real GDP to _______.

Answer 5

decrease;increase

Question 6

The simple multiplier measures the change in real GDP in response to a change in autonomous expenditure when the price level is constant. When the price level varies, the multiplier is ______ than the simple multiplier.

Answer 6

smaller

Question 7

An increase in autonomous government spending is a _____ AD shock, which will initially cause ________ shift of the AE curve and a ______ shift of the AD curve. Given an upward sloping aggregate supply curve, there will be ______ in the price lvel, which leads to a partial ____ shift of the AE curve.

Answer 7

positive;an upward;rightward;an increase;downward

Question 8

The ____ curve relates the price level to the quantity of output that firms would like to sell.
Each aggregate supply curve is drawn under assumption that _________ and _______ remain constant.
The AS curve is upward sloping because firms will produce more output only if prices ______ to offset higher unit costs.
The AS curve is flat when GDP is low (way below potential output) because firms typically have ________ and are able to expand production with little or no increase in _________.
The AS curve is steep when GDP is high (above potential output) because firms are operating above _____ and _____ are rising rapidly.

Answer 8

AS;factor prices;technology;increase;excess capacity;unit costs;capacity;unit costs

Question 9

The AS curve shifts in response to changes in:
A) prices of inputs and changes in productivity.
B)consumer prices and changes in government expenditures.
C)prices of inputs and changes in government expenditures
D)consumer prices and changes in productivity

These are known as aggregate __________

Answer 9

A;

supply shocks

Question 10

The economy’s AS curve will shift downward in the short run if there is:
A) an increase in price level.
B) an increase in world prices of raw materials.
C) an improvement in technology.
D) an increase in cost of capital.
E) an increase in wage rate.

Answer 10

C

Question 11

Consider the AD/AS model. An increase in government purchases will change equilibrium real GDP but have no impact on equilibrium price level if:
A) the simple multiplier is very small.
B) the simple multiplier is very large.
C) the AS curve is horizontal
D) the AS curve slopes upward.

Answer 11

C

Question 12

Assume the economy has horizontal AS curve. A leftward shift of the AD curve will result in:
A) an increase in both real GDP and prices.
B) a decrease in prices and no change in real GDP.
C) a decrease in both real GDP and prices
D) an increase in prices and no change in real GDP.
E) an increase in real GDP and no change in prices.
F) a decrease in real GDP and no change in prices.

Answer 12

F