Quiz #9: Chapter 12

In the diagram, the economy's short-run AS curve is line ___ and its long-run AS curve is line ___. 1; 3 2; 4 3; 4 2; 1

2; 1

An increase in business excise taxes will shift the aggregate supply curve leftward. True False

True

Menu costs: increase during recession. decrease during recession. are the costs to firms of changing prices and communicating them to customers. are sunk costs and therefore should be disregarded.

are the costs to firms of changing prices and communicating them to customers.

The economy's long-run AS curve assumes that wages and other resource prices: eventually rise and fall to match upward or downward changes in the price level. are flexible upward but inflexible downward. rise and fall more rapidly than the price level. are relatively inflexible both upward and downward.

eventually rise and fall to match upward or downward changes in the price level.

The economy's long-run aggregate supply curve: slopes upward and to the right. is vertical. is horizontal. slopes downward and to the right.

is vertical.

(Consider This) The idea that the price level readily moves upward but not downward is called the: elevator effect. escalator effect. ratchet effect. stair-step effect.

ratchet effect.

The aggregate demand curve: is upsloping because a higher price level is necessary to make production profitable as production costs rise. is downsloping because production costs decline as real output increases. shows the amount of expenditures required to induce the production of each possible level of real output. shows the amount of real output that will be purchased at each possible price level.

shows the amount of real output that will be purchased at each possible price level.

Per-unit production cost is: real output divided by inputs. total input cost divided by units of output. units of output divided by total input cost. a determinant of aggregate demand.

total input cost divided by units of output.

The real-balances, interest-rate, and foreign purchases effects all help explain: why the aggregate demand curve is downsloping. why the aggregate supply curve is upsloping. shifts in the aggregate demand curve. shifts in the aggregate supply curve.

why the aggregate demand curve is downsloping.

A decrease in per-unit production costs will shift the aggregate supply curve leftward. True False

False

An increase in wealth from a substantial increase in stock prices will move the economy along a fixed aggregate demand curve. True False

False

Cost-push inflation is depicted as a rightward shift of the aggregate demand curve along an upsloping aggregate supply curve. True False

False

The greater the upward slope of the AS curve, the larger is the realized multiplier effect of a change in investment spending. True False

False

The aggregate demand curve is: vertical under conditions of full employment. horizontal when there is considerable unemployment in the economy. downsloping because of the interest-rate, real-balances, and foreign purchases effects. downsloping because production costs decrease as real output rises.

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines: 4 and 3. 4 and 1. 2 and 4. 2 and 3.

4 and 3.