Chapter 23.2

Question 1

Aggregate supply refers to the
A) decisions of firms to decrease inputs in order to produce outputs.
B) effects of increases in input prices on output.
C) economy’s potential output at each possible labour force.
D) supply of labour inputs in the economy.
E) total output of goods and services that firms would like to produce and sell.

Answer 1

E

Question 2

The economy’s aggregate supply (AS) curve shows the relationship between the
A) equilibrium real GDP and marginal cost.
B) equilibrium real GDP and desired consumption.
C) price level and the marginal propensity to consume (MPC).
D) price level and the total output that firms wish to produce and sell, with technology and input prices held constant.
E) price level and the total output that firms wish to produce and sell, as technology and input prices vary.

Answer 2

D

Question 3

The economy’s aggregate supply (AS) curve shows the relationship between the price level and the total
A) investment that firms wish to make, with input prices given.
B) investment that firms wish to make, as input prices vary.
C) output that firms wish to produce and sell, with input prices given.
D) output that firms wish to produce and sell, as input prices vary.
E) wealth accumulated by households, with national income given.

Answer 3

C

Question 4

The aggregate supply (AS) curve is drawn with which variables on the axes of the graph?
A) the price level on the vertical axis and MPC on the horizontal axis
B) national income on the vertical axis and total desired consumption on the horizontal axis
C) the price level on the vertical axis and real GDP on the horizontal axis
D) national income on the vertical axis and marginal cost on the horizontal axis
E) the price level on the vertical axis and real disposable income on the horizontal axis
Answer: C

Answer 4

C

Question 5

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell, given the assumption that
A) technology and the prices of all factors of production remain constant.
B) unit costs remain constant.
C) all firms are price takers.
D) all firms are price setters.
E) technology and the prices of all factors of production do not remain constant.

Answer 5

A

Question 6

In the short run, the aggregate supply curve has a positive slope because, as the price level rises, producers can
A) accumulate inventories.
B) charge a higher price sufficient to cover their higher unit costs.
C) experience rising factor prices.
D) produce less in response to falling profits.
E) increase output at unchanged unit costs.

Answer 6

B

Question 7

In building a macro model with an AS curve, it is assumed that producers will
A) increase prices without changing their output.
B) decrease their prices without changing output.
C) decrease their prices when they expand output.
D) produce as much as possible at the existing price level.
E) produce more output only if prices rise.

Answer 7

E

Question 8

The economy’s aggregate supply (AS) curve is assumed to slope upward because
A) inputs become more expensive at higher levels of output.
B) inputs become less expensive at higher levels of output.
C) firms’ unit costs rise as output increases.
D) firms’ unit costs fall as output increases.
E) aggregate demand increases at higher levels of national income.

Answer 8

C

Question 9

The economy’s aggregate supply curve is drawn under two main assumptions. They are
A) firms’ unit costs are constant; prices of all factors of production are constant.
B) firms’ unit costs are constant; the state of technology is constant.
C) firms will produce more output only if prices rise; technology improves only if prices rise.
D) the prices of all factors of production are constant; the state of technology is constant.
E) the prices of all factors of production are constant; productivity improves as the price level rises.

Answer 9

D

Question 10

A decrease in aggregate supply in the short run is
A) shown by a shift to the left of the AS curve.
B) shown by a shift to the right of the AS curve.
C) interpreted to mean that more national output will be supplied at any given price level.
D) caused by a decrease in the price level.
E) caused by an increase in the price level.

Answer 10

A

Question 11

A decrease in aggregate supply in the short run is
A) reflected in a movement to the left along the AS curve.
B) reflected in a shift to the right in the AS curve.
C) interpreted to mean that less total output will be supplied at any given price level.
D) caused by a decrease in the price level.
E) caused by an increase in the price level.

Answer 11

C

Question 12

Consider the basic AD/AS model. If there is a decrease in the cost of non-labour inputs to production, the result will be to
A) shift the AD curve to the left.
B) shift the AD curve to the right.
C) shift the AS curve to the left.
D) shift the AS curve to the right.
E) cause a movement to the left along the AS curve.

Answer 12

D

Question 13

Consider the basic AD/AS model. If major labour unions succeed in increasing wages across the economy, the AS curve will shift
A) downward (to the right), reducing the price level.
B) downward (to the right) and then return immediately to its original position.
C) upward (to the left) and then return immediately to its original position.
D) upward (to the left), increasing the price level.
E) None of the above; there will no effect on the AS curve.

Answer 13

D

Question 14

A movement along the economy’s AS curve could be caused by a change in
A) labour productivity.
B) the cost of capital.
C) the price level, caused in turn by an AD shock.
D) technology.
E) the wage rate.

Answer 14

C

Question 15

The economy's AS curve will shift upward in the short run if there is
A) an improvement in technology.
B) a decrease in the cost of capital.
C) an increase in the price level.
D) a decrease in nominal wages.
E) an increase in nominal wages.

Answer 15

E

Question 16

Other things being equal, the economy's AS curve will shift upward in the short run if there is
A) an increase in the cost of capital.
B) a decrease in the cost of capital.
C) a decrease in nominal wages.
D) a decrease in the price level.
E) an improvement in technology.

Answer 16

A

Question 17

Other things being equal, the economy’s AS curve will shift downward if there is
A) a decrease in labour productivity.
B) a decrease in the cost of capital inputs.
C) a decrease in the price level.
D) an increase in the price level.
E) an increase in nominal wages.

Answer 17

B

Question 18

A rightward shift in the economy’s AS curve implies that
A) at any given price level, a lower level of output will be supplied.
B) at any given price level, a higher level of output will be supplied.
C) there is a decrease in aggregate supply.
D) there is a demand shock.
E) the same output will be produced, but only at a higher price level.

Answer 18

B

Question 19

A leftward shift in the economy’s AS curve implies that
A) at any given price level, a lower level of output will be supplied.
B) at any given price level, a higher level of output will be supplied.
C) there is an increase in aggregate supply.
D) there is a demand shock.
E) the same output will be produced in equilibrium, but at a lower price level.

Answer 19

A

Question 20

The economy’s AS curve is often assumed to be relatively flat at low levels of real GDP. The underlying reasoning is that
A) consumer demand for most goods tends to be non-responsive to price when output is low.
B) consumer demand for most goods tends to be very responsive to price when output is low.
C) at low levels of output, firms are faced with unused capacity and thus can increase output without significantly increasing their costs.
D) the price level is constant.
E) profits are normally high in this section of the AS curve, so firms are willing to expand output.

Answer 20

C

Question 21

Consider the economy’s aggregate supply curve. Other things being equal, unit costs will tend to increase if
A) there is a rise in the price of oil.
B) the government reduces payroll taxes.
C) wage increases exceed productivity increases.
D) wages rise.
E) wage and price controls are in effect.

Answer 21

C

Question 22

Consider the economy’s aggregate supply curve. Other things being equal, unit costs will tend to fall if
A) there is a fall in the price of oil.
B) the government increases payroll taxes.
C) wages fall.
D) wage and price controls are in effect.
E) wage increases are less than productivity increases.

Answer 22

E

Question 23

Consider the basic AD/AS model. When wage rates rise faster than the increase in labour productivity, the
A) AD curve shifts left.
B) AS curve shifts upward.
C) output gap falls.
D) output gap increases.
E) AS curve shifts downward

Answer 23

B

Question 24

Suppose there is a drop in the price of an important factor input. What will be the effect on the aggregate supply curve?
A) There will be movement to the left, along the AS curve.
B) The AS curve will shift to the left.
C) There will be movement to the right, along the AS curve.
D) The AS curve will shift to the right.
E) There will be no change in the AS curve.

Answer 24

D

Question 25

Consider the basic AD/AS model. Suppose that a rising percentage of high-school graduates are illiterate, resulting in a decrease in average labour productivity. This change will
A) shift the AD curve to the left.
B) shift the AD curve to the right.
C) shift the AS curve to the left.
D) shift the AS curve to the right.
E) cause a movement to the right along the AS curve.

Answer 25

C

Question 26

Consider the basic AD/AS model. Suppose that high-school graduates have better computing skills than did graduates in the past, resulting in an increase in average labour productivity. This change will
A) shift the AS curve to the left.
B) shift the AS curve to the right.
C) shift the AD curve to the left.
D) shift the AD curve to the right.
E) cause a movement along the AS curve to the right.

Answer 26

B

Question 27

Consider the basic AD/AS model. If their unit costs rise as output increases, price-taking firms will be prepared to produce \_\_\_\_\_\_\_\_ only if \_\_\_\_\_\_\_\_.
A) more; prices decrease
B) more; the economy is in equilibrium
C) their current output; prices increase
D) less; prices increase
E) more; prices increase

Answer 27

E

Question 28

The aggregate supply curve will shift as a result of a change in 
1) the wage rate;
2) the price level;
3) technology.
A) 1 only
B) 2 only
C) 3 only
D) 1 and 3
E) 2 and 3

Answer 28

D

Question 29

The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above \_\_\_\_\_\_\_\_ and \_\_\_\_\_\_\_\_ are rising rapidly.
A) equilibrium output; unit costs
B) profit-maximizing output; total costs
C) capacity; unit costs
D) equilibrium output; total costs
E) equilibrium output; average costs

Answer 29

C

Question 30

The aggregate supply curve is usually assumed to get progressively steeper at relatively higher levels of output because
A) of increasing factor prices.
B) of increasing productivity of the factors of production.
C) of diminishing marginal productivity of the factors of production.
D) of rising competition among price setters.
E) of excess capacity at higher levels of output.

Answer 30

C

Question 31

Consider the basic AD/AS model. If firms' unit costs remained constant as firms increased their output levels, this would lead to a 
A) vertical AD curve. 
B) horizontal AD curve. 
C) vertical AS curve. 
D) horizontal AS curve. 
E) horizontal AE curve.

Answer 31

D

Question 32

The concept of “demand-determined output” requires ________ to remain constant as output increases.
A) technology of production
B) government purchases
C) firms’ unit costs
D) labour productivity
E) the ratio of price setters to price takers

Answer 32

C

Question 33

Refer to Figure 23-2. Which of the following events could cause the upward shift of the AS curve?
A) a decrease in the price of raw materials
B) a decrease in the world supply of oil as a result of a major hurricane
C) improved quality of the national education system
D) rapid technological advances in mass production
E) an increase in consumption

Answer 33

B

Question 34

Refer to Figure 23-2. Which of the following events could cause the upward shift of the AS curve?
A) improvements in communications technology
B) a decrease in business confidence that reduces desired investment
C) a recession in the U.S. that reduces our net exports
D) a major discovery of new oil reserves that will increase the world supply
E) a massive drought that reduces agricultural output

Answer 34

E

Question 35

Refer to Figure 23-2. The shift from   to   shown in the diagram is referred to as a(n)
A) increase in aggregate supply.
B) increase in unit costs.
C) negative aggregate supply shock.
D) positive aggregate supply shock.
E) decrease in unit costs.

Answer 35

C