C719- Unit 3: Module 6: Aggregate Supply & Aggregate Demand Quiz

True or False. A shift of the aggregate demand (AD) curve to the right will have the greatest impact on the price level if the aggregate supply (AS) curve is horizontal. True False

False

True or False. According to Keynesian theorists, monetary policy intervention is necessary during a recession. True False

False

True or False. Classical economists believe that the aggregate supply (AS) curve is horizontal when the economy is at its full employment level. True False

False: Classical economists believe that when a full employment level output is achieved, the AS curve is vertical.

According to the graph below, if you start from AD1, an increase in government spending will shift aggregate demand to . This graph shows shifts in aggregate demand. On the y-axis, P represents the price level; there are points P3, P1, and P2. On the x-axis, Y represents real output, or the value of output adjusted for changes in the price level. An increase from AD1 to AD2 (a shift to the right) drives real output and the price level up. The x-axis contains points 0, Y3, Y1, and Y2. There are three parallel lines with negative slope labeled AD3, AD1, and AD2. There is a slant line with positive slope labeled AS. This line intersects all three of the parallel lines. Point (Y3, P3) is the point of intersection of lines AD3 and AS. Point (Y1, P1) is the point of intersection of lines AD1 and AS. Point (Y2, P2) is the point of intersection of lines AD2 and AS.

*AD3- wrong

Referring to the graph below, the widespread use of computers and the internet has increased productivity, which shifted the U.S.'s aggregate supply curve from AS1 to . This graph shows quantities 0, Y2, Y1, and Y3 on the x-axis, and P3, P1, and P2 prices on the y-axis. There are three parallel lines with positive slope labeled AS2, AS1, and AS3. There is one slant line with negative slope, labeled AD, that intersects all three lines. The point (Y2, P2) is on the top line, AS2. The point (Y1, P1) is on the middle line, AS1. The point (Y3, P3) is on the bottom line, AS3.

AS3: these conditions increased worker productivity, increasing aggregate supply, which is shown by shifting the original curve to the right

Classical economists strongly oppose government intervention, but argue that if there is a government policy that may have a positive role, it should be one that can do what? Shift the long-run aggregate supply (AS) to the left.- wrong Shift price level to a lower level. Shift the long-run aggregate supply (AS) to the right. Shift aggregate demand (AD) to the right.

Classical economists do not wish for there to be a policy that encourages the vertical AS to shift to the left, because in this situation both output and employment will decrease.

True or False. The dollar value of total expenditure in the economy depends on household and government consumptions only. True False

False: Expenditures on private investment and exports are also included in the dollar value of total expenditure.

True or False. The reason the aggregate supply curve might slope upward to the right is mainly because as production increases, people want to buy less. True False

False: The aggregate supply curve slopes upward because as price increases, producers want to supply more.

Transformation from analog to digital technology has shifted the aggregate supply of telecommunications services from AS1 to AS2, as shown in the graph below. This graph shows quantities 0, Y2, Y1, and Y3 on the x-axis, and P3, P1, and P2 prices on the y-axis. There are three parallel lines with positive slope labeled AS2, AS1, and AS3. There is one slant line with negative slope, labeled AD, that intersects all three lines. The point (Y2, P2) is on the top line, AS2. The point (Y1, P1) is on the middle line, AS1. The point (Y3, P3) is on the bottom line, AS3. True False

False: The transformation from analog to digital technology has increased productivity and the distribution efficiency of telecom access to millions of people. This shifts the aggregate supply curve to the right, which is shown by shifting from AS1 to AS3.

Which of the following is correct about Keynesian theorists? They are concerned about recurring high levels of unemployment. They are concerned about fluctuations in the money supply. They are concerned about conditions of overemployment. They are concerned about the level of stock prices.

They are concerned about recurring high levels of unemployment.

True or False. Keynesian economists believe that the market may fix itself in the long run, but unless the government intervenes, there will be suffering of the people due to declining output and widespread unemployment in the short run. True False

True: According to Keynesians, aggregate supply (AS) is below the full employment level during a recession, and instead of letting people suffer for long, the government can intervene in shifting AD rightward in an effort to realize full employment of output and labor faster.

If aggregate demand (AD) increases and the aggregate supply (AS) curve is upward sloping and unchanged, __________. price level falls and real GDP falls price level rises and real GDP falls price level falls and real GDP rises both price level and real GDP will rise

both price level and real GDP will rise: If AD increases and the AS curve is upward sloping and unchanged, both price level and real GDP will rise.

According to ________ economists, the best way to reduce unemployment is to wait for the economy to correct itself, whereas for _________ economists, government intervention is the best way to reduce unemployment.

classical, Keynesian

Aggregate demand is the total of planned ___________ in the economy, whereas aggregate supply is the total of all planned _________.

expenditure, production

True or False. A higher price of inputs causes the AS curve to shift right. True False

false

According to the Keynesian theory, the government should use its ______ policy to minimize unemployment.

fiscal

Classical economists are more concerned about ________ situations, but Keynesians are more concerned about ____________.

inflation, unemployment

Aggregate supply is the market value of ____ output supplied, and aggregate demand is the market value of ____ output purchased.

real, real

An increase in exports will shift aggregate demand (AD) to the _____, while a decrease in exports will shift aggregate demand to the _____.

right, left

Using the graph below, which of the following shifts the aggregate demand (AD) curve from AD1 to AD2? This graph shows shifts in aggregate demand. On the y-axis, P represents the price level; there are points P3, P1, and P2. On the x-axis, Y represents real output, or the value of output adjusted for changes in the price level. An increase from AD1 to AD2 (a shift to the right) drives real output and the price level up. The x-axis contains points 0, Y3, Y1, and Y2. There are three parallel lines with negative slope labeled AD3, AD1, and AD2. There is a slant line with positive slope labeled AS. This line intersects all three of the parallel lines. Point (Y3, P3) is the point of intersection of lines AD3 and AS. Point (Y1, P1) is the point of intersection of lines AD1 and AS. Point (Y2, P2) is the point of intersection of lines AD2 and AS. Increasing taxes Increased imports An increase in government spending A decrease in consumer wealth

An increase in government spending: Increasing government spending increases aggregate demand, which is shown by shifting the curve to the right.

Which of the following is not a reason why the aggregate demand curve has a negative slope? Higher prices reduce the demand for consumption. Higher prices increase net export. Higher prices increase interest rates. Higher prices reduce the purchasing power of assets.- wrong

Higher prices will reduce the purchasing power of household savings, thereby reducing households' willingness to purchase more goods and services.

Aggregate supply shows the relationship of which of the following? The sum of all market supply curves Real output to the level of consumer spending Nominal output to the price level Real output to the price level

Real output to the price level

True or False. The relationship between the number of workers and output, with a fixed amount of capital, is that output increases at a decreasing rate as we add workers. True False

True: Based on the law of diminishing return, with an increase in number of workers, real output is increasing at a decreasing rate.

True or False. According to Keynesian theorists, an unemployment problem could be minimized in the short run without causing inflation. True False

True: For Keynesians, the aggregate supply is horizontal at certain price levels, and the introduction of a fiscal policy could push the aggregate demand to the right to increase output and employment without any change in price level.

True or False. Inflation may cause people to fall into a higher tax bracket, reducing overall spending and therefore reducing AD. True False

True: When a price rises, nominal income will increase and household income will fall into a higher tax bracket.

True or False. With an increase in capital or an improvement in technology, the production function will shift to the right, real output will rise, and price level will decline. True False

True: With an increase in capital or an improvement in technology, the production function will shift to the right, real output will rise, and price level will decline.

True or False. The aggregate demand (AD) curve shifts to the right when government spending increases. True False

True: With increased government spending, business get more revenue, they expand more, they employ more, and incomes rise, which leads to more spending.

True or False. An increase in government spending shifts the aggregate demand (AD) curve from AD1 to AD2, as shown in the graph below. This graph shows shifts in aggregate demand. On the y-axis, P represents the price level; there are points P3, P1, and P2. On the x-axis, Y represents real output, or the value of output adjusted for changes in the price level. An increase from AD1 to AD2 (a shift to the right) drives real output and the price level up. The x-axis contains points 0, Y3, Y1, and Y2. There are three parallel lines with negative slope labeled AD3, AD1, and AD2. There is a slant line with positive slope labeled AS. This line intersects all three of the parallel lines. Point (Y3, P3) is the point of intersection of lines AD3 and AS. Point (Y1, P1) is the point of intersection of lines AD1 and AS. Point (Y2, P2) is the point of intersection of lines AD2 and AS. True False

True: With increased government spending, businesses get more revenue to demand more goods and services for expansion, which shifts the AD curve to the right.

Keynesian theories encourage the government to do what? Regulate the level of stock prices. Control inflation. Control fluctuations in the money supply. Use fiscal policy to stabilize the economy.

Use fiscal policy to stabilize the economy.

At an equilibrium of output and employment, a left shift in aggregate demand will cause a(n) ________ in real output and a(n) _______ in employment.

decrease, decrease

Having a vertical aggregate supply (AS) curve and a left shift in aggregate demand (AD) will ________ price level, but a right shift in AD will ________ price level.

decrease, increase

In aggregate production function, real output is a(n) _________ variable and employment is a(n) __________variable.

dependent, independent

One reason that the AD curve slopes downward is because rising prices will cause _______to fall.

exports

Classical economists believe that government intervention in aggregate demand (AD) will cause a(n)________ of inflation, whereas Keynesians believe that government intervention in AD will cause a(n) ________ in unemployment.

increase, increase

An increase in government spending will __________. have no effect on either aggregate supply or aggregate demand shift aggregate supply to the right shift aggregate demand to the right shift aggregate demand to the left

shift aggregate demand to the right: An increase in the money supply will build consumers' confidence to spend more, so aggregate demand will shift to the right.

Economists in the classical tradition __________. believe that the aggregate supply curve is horizontal advocate the use of fiscal policy to stabilize the economy are primarily concerned with unemployment tend to be more concerned about inflation than unemployment

tend to be more concerned about inflation than unemployment

According to classical economists, the AS curve will be steep or vertical in the long run when ___________. the economy is operating at full employment aggregate demand (AD) is absent the aggregate demand (AD) curve is shifting to the left output and price levels rise together

the economy is operating at full employment

The price level has no effect on output when the aggregate supply (AS) curve is _______. The price level has an effect on output when the AS curve is _______.

vertical, upward sloping