Chapter 9

The aggregate supply curve depicts the relationship between: a) the unemployment rate and the total quantity of goods and services that firms supply. b) the cost of labor and the total quantity of goods and services that firms supply. c) the cost of inputs and the total quantity of goods and services that firms supply. d) the level of prices and the total quantity of goods and services that firms supply.

d) the level of prices and the total quantity of goods and services that firms supply.

According to the short-run aggregate supply curve, the level of overall economic activity: a) is positively affected by increases in the price level. b) is not affected by increases in the price level. c) is negatively affected by increase in the price level. d) is not affected by increases in aggregate demand.

a) is positively affected by increases in the price level.

An increase in government expenditure has a multiplier effect on aggregate demand due to: a) the fact that the marginal propensity to consume is larger than one. b) the additional spending by consumers stimulated by the actual government expenditure. c) the autonomous nature of private consumption expenditure d) the negative slope of the consumption function.

b) the additional spending by consumers stimulated by the actual government expenditure.

The reason why an increase in government expenditure has a more than proportional impact on aggregate demand is known as: a) the wealth effect. b) the multiplier effect. c) the divider effect. d) the interest rate effect.

b) the multiplier effect.

When, in a boom economy, output exceeds the full employment level of output: a) wages and prices increase over time and the long-run aggregate supply curve shifts downward over time. b) wages and prices increase over time and the short-run aggregate supply curve shifts upward over time. c) wages and prices increase over time and the long-run aggregate supply curve shifts upward over time. d) wages and prices increase over time and the short-run aggregate supply curve shifts downward over time.

b) wages and prices increase over time and the short-run aggregate supply curve shifts upward over time.

A technological improvement will cause: a) a rightward shift in the aggregate demand curve. b) a leftward shift in the aggregate demand curve. c) a rightward shift in the aggregate supply curve. d) a leftward shift in the aggregate supply curve.

c) a rightward shift in the aggregate supply curve.

Sticky prices are an example of: a) labor union influence. b) government regulation of the economy. c) economic coordination problems. d) lack of coordination between auction prices and custom prices.

c) economic coordination problems.

The aggregate supply curve in the short run is different from the aggregate supply curve in the long run due to: a) the recurring nature of supply shocks. b) the crowding out effect. c) the wealth effect. d) the existence of sticky prices in the short run.

d) the existence of sticky prices in the short run.

Prices do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are: a) sticky prices. b) fixed prices. c) regulatory prices. d) market prices.

a) sticky prices.

If the marginal propensity to consume is 0.2 and there is a $10 million increase in one component of spending, the aggregate demand curve will shift horizontally to the right by: a) $8 million. b) $12.5 million. c) $15 million. d) $2 million.

b) $12.5 million.

An increase in taxes will cause: a) a rightward shift in the aggregate demand curve. b) a leftward shift in the aggregate demand curve. c) a rightward shift in the aggregate supply curve. d) only a movement along the aggregate demand curve.

b) a leftward shift in the aggregate demand curve.

Based on our understanding of the aggregate demand curve, we know that a(n)--------in the price level causes the quantity of real GDP demanded to-------------. a) increase; increase b) decrease; increase c) decrease; remain unchanged d) decrease; decrease

b) decrease; increase

The aggregate demand curve shifts to the left if: a) the government increases spending. b) household consumption falls. c) the government decreases taxes. d) the supply of money rises.

b) household consumption falls.

The short-run aggregate supply curve assumes that in the short run: a) the unemployment rate is equal to the natural rate of unemployment. b) the inflation rate is zero, that is, the economy is stagflated. c) prices are slow to adjust. d) the economy does not experience supply shocks.

c) prices are slow to adjust.

A rightward shift in the aggregate demand curve can be caused by: a) an increase in government spending. b) a decrease in taxes. c) an increase in money supply. d) all of the above.

d) all of the above.

If prices are slow to adjust, then it is possible that: a) there will be a demand surplus. b) there will be a supply shortage. c) some markets will not be in equilibrium. d) all of the above.

d) all of the above.

Which of the following would cause the long-run aggregate supply curve to shift to the right? a) higher energy prices b) an increase in taxes c) increases in government regulation d) an increase in the labor supply

d) an increase in the labor supply

In the short run, a decrease in aggregate demand will: a) decrease the price level and leave the level of output unchanged. b) increase the price level and leave the level of output unchanged. c) increase both the price level and the level of output. d) decrease both the price level and the level of output.

d) decrease both the price level and the level of output.

The aggregate demand curve shows a(n)------- relationship between the-------. a) positive; interest rate and investment b) negative; level of real GDP and investment c) positive; price level and real GDP d) negative; price level and real GDP

d) negative; price level and real GDP