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What factors determine the vertical shape of the aggregate supply curve in the long run? Explain.

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The long-run aggregate supply curve is v...

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A) A B) B C) C D) D


A) A
B) B
C) C
D) D

E) B) and C)
F) A) and D)

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A) at any price level above G, a shortage of real output would occur. B) F represents a price level that would result in a surplus of real output of AC. C) a surplus of real output of GH would occur. D) F represents a price level that would result in a shortage of real output of AC.


A) at any price level above G, a shortage of real output would occur.
B) F represents a price level that would result in a surplus of real output of AC.
C) a surplus of real output of GH would occur.
D) F represents a price level that would result in a shortage of real output of AC.

E) B) and C)
F) C) and D)

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What percentage of the average U.S. firm's costs is accounted for by wages and salaries?


A) 40
B) 60
C) 75
D) 85

E) A) and B)
F) A) and C)

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The real-balance and interest-rate effects help explain why aggregate demand might shift to the right or to the left.

A) True
B) False

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1. Real-Balances Effect 2. Household Expectations 3. Interest-Rate Effect 4. Personal Income Tax Rates 5. Profit Expectations 6. National Incomes Abroad 7. Government Spending 8. Foreign Purchases Effect 9. Exchange Rates 10. Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve. Investment spending would most likely be influenced by changes in


A) 1 and 3.
B) 4 and 6.
C) 5 and 10.
D) 8 and 9.

E) A) and D)
F) None of the above

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Why can't the substitution and income effects be used to explain the downward slope of the aggregate demand curve?

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The demand for a single product slopes d...

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An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each Unit of labor, $3. If the per-unit price of raw materials rises from $4 to $8 and all else remains Constant, the per-unit cost of production will rise by about


A) 100 percent.
B) 50 percent.
C) 40 percent.
D) 30 percent.

E) None of the above
F) All of the above

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A decrease in government spending will cause a(n)


A) increase in the quantity of real output demanded.
B) decrease in the quantity of real output demanded.
C) decrease in aggregate demand.
D) increase in aggregate demand.

E) B) and C)
F) None of the above

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An increase in aggregate expenditures resulting from some factor other than a change in the price level is equivalent to


A) a rightward shift of the aggregate demand curve in the AD-AS model.
B) a leftward shift of the aggregate demand curve in the AD-AS model.
C) a movement downward along a fixed aggregate demand curve in the AD-AS model.
D) a decrease in aggregate supply in the AD-AS model.

E) A) and D)
F) A) and C)

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In the immediate short run, both input and output prices are fixed.

A) True
B) False

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The short-run version of aggregate supply assumes that


A) product prices are fixed, while resource prices are flexible.
B) product prices are flexible, while resource prices are fixed.
C) both input and product prices are flexible.
D) both input and product prices are fixed.

E) A) and B)
F) A) and C)

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In the early-1970s, changes in oil prices greatly affected U.S. inflation. When oil prices rose, the U.S. experienced


A) cost-push inflation and rising output.
B) demand-pull inflation and rising output.
C) cost-push inflation and falling output.
D) demand-pull inflation and falling output.

E) All of the above
F) B) and D)

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Cost-push inflation is characterized by a(n)


A) increase in aggregate supply and a decrease in aggregate demand.
B) increase in aggregate demand and no change in aggregate supply.
C) decrease in aggregate supply and no change in aggregate demand.
D) decrease in both aggregate supply and aggregate demand.

E) B) and D)
F) A) and D)

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Which of the following is not an effect that occurs when the general price level in our economy increases?


A) The purchasing power of people's savings will increase.
B) The interest rate will also tend to increase.
C) Foreign buyers will buy less of our output, and we tend to import more.
D) Our net exports will tend to decrease.

E) None of the above
F) A) and B)

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Identify the three major factors that can cause a shift in aggregate supply.

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The three major factors that s...

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A decrease in aggregate supply means


A) both the real domestic output and the price level will decrease.
B) the real domestic output will increase and rises in the price level will become smaller.
C) the real domestic output will decrease and the price level will rise.
D) both the real domestic output and rises in the price level will become greater.

E) A) and B)
F) B) and D)

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A) A B) B C) C D) D


A) A
B) B
C) C
D) D

E) None of the above
F) C) and D)

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Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a


A) rightward shift of the aggregate demand curve along a fixed aggregate supply curve.
B) rightward shift of the aggregate supply curve along a fixed aggregate demand curve.
C) rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve.
D) leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

E) C) and D)
F) B) and C)

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A) move the economy from A to C along AD A D _ { 1 } . B) move the economy from C to A along AD A D _ { 1 } . C) increase aggregate demand from AD A D _ { 1 } \text { to } A D _ { 2 } D) decrease aggregate demand from AD A D _ { 2 } \text { to } A D _ { 1 }


A) move the economy from A to C along AD AD1.A D _ { 1 } .
B) move the economy from C to A along AD AD1.A D _ { 1 } .
C) increase aggregate demand from AD AD1 to AD2A D _ { 1 } \text { to } A D _ { 2 }
D) decrease aggregate demand from AD AD2 to AD1A D _ { 2 } \text { to } A D _ { 1 }

E) A) and D)
F) All of the above

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