ECON CH 12 QUIZ

If Nike sells basketball shoes for $150 per pair and the cost of producing and selling a pair of basketball shoes is $15, Nike's profit per unit on a pair of basketball shoes is:

$135

(Figure: The Multiplier) Look at the figure The Multiplier. If this economy is at Y1 and the price level decreases:

(Figure: The Multiplier) Look at the figure The Multiplier. If this economy is at Y1 and the price level decreases:

The correct formula for the output gap is:

(actual aggregate output- potential output)/potential output x100

(Figure: AD-AS Model II) Look at the figure AD-AS Model II. Which of the following will raise the price level?

SRAS curve shifts to the left.

Which of the following is TRUE with respect to short-run and long-run aggregate supply?

The economy can be on both curves simultaneously.

The short-run aggregate supply curve illustrates:

The short-run aggregate supply curve illustrates:

An increase in Social Security benefits will likely increase consumption and shift the aggregate demand curve to the right.

True

In long-run macroeconomic equilibrium, actual aggregate output equals potential output.

True

Short-run aggregate supply increases when producers are willing to supply more at any given price level.

True

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. The intersection of AD with SRAS in panel (b) indicates:

a short-run equilibrium.

Suppose that a presidential candidate who promised large personal income tax cuts is elected. Which of the following is most likely?

an increase in aggregate demand

An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

an increase; an increase

Suppose the economy is in a short-run equilibrium and actual output is greater than potential output. The economy is in:

an inflationary gap; nominal wages will increase and SRAS will shift to the left until actual GDP is equal to potential GDP in the long run.

A change in _____ would cause a shift in the short-run aggregate supply curve.

commodity prices

When the price level decreases, firms in imperfectly competitive markets will:

decrease output and decrease the price.

The aggregate demand curve slopes:

downward in part because as the price level falls, the ability of households and firms to borrow cheaply increases.

In the long run, as the economy self-corrects, a decrease in aggregate demand, all other things unchanged, will cause the price level to _____ and potential output to _____.

fall; remain stable

Aggregate demand will shift to the RIGHT if:

government purchases increase.

A positive demand shock leads to:

higher prices and higher employment.

(Figure: Shift of the Aggregate Demand Curve) Look at the figure Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 could have resulted from a(n):

increase in the total quantity of consumer goods and services demanded.

Potential output:

is the level of output that the economy would produce if all prices, including nominal wages, were fully flexible.

The short-run aggregate supply curve will shift to the:

left if nominal wages increase.

The aggregate supply curve shows the relationship between the aggregate price level and the aggregate:

output supplied.

An economic policy maker would rank a _____ shock as the MOST preferred type.

positive supply

Profit per unit equals:

price per unit minus cost per unit.

The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate:

quantity of output demanded by households, businesses, the government, and the rest of the world.

In the long run, as the economy self-corrects, an increase in aggregate demand will cause the price level to _____ and potential output to _____.

rise; remain stable

Assuming that prices remain constant, suppose that consumer assets and wealth lose value. The aggregate demand curve will undergo a:

shift to the left.

(Figure: An Increase in Aggregate Demand) Look at the figure An Increase in Aggregate Demand. Because of the pressures at the short-run equilibrium at Y2 and P2:

the SRAS curve will shift to the left.

Suppose that an economy is in an inflationary gap in the short run. In the long run:

the economy's self-correcting mechanism will restore GDP to its potential level.

The short-run aggregate supply curve is:

upward sloping.

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This, the _____ effect, is a reason the _____ curve slopes _____.

wealth; aggregate demand; downward