Core Economics 3e

Aggregate Demand and Supply

Multiple Choice Questions

After watching the Aggregate Demand and Supply video lecture, consider the question(s) below. Then “submit” your response.

Question

1. The total output of goods and services that is demanded in the economy at different price levels is captured by the _____ demand curve.

product

labor

aggregate

useful

Question

2. The components of GDP are:

supply, demand, price level, labor supply, and total output.

consumption, investment, government spending, and net exports.

housing, consumption, employment, and manufacturing.

industrial production, health care, federal debt, and automobile output.

Question

3. The aggregate demand curve shifts in response to:

a change in any of the components of GDP.

growth in the work force and the level of employment.

an increase in both imports and exports.

an increase in production of consumer goods.

Question

4. In the long run, the aggregate supply curve is always:

horizontal.

downward sloping to the left.

equal to aggregate demand.

vertical.

Question

5. In the short run, the aggregate supply curve is:

positively sloped.

negatively sloped.

equilateral.

vertical.

Question

6. Because it takes time for input prices and wages to adjust, an increase in demand can temporarily increase the level of output in the economy. In this sense, prices and wages are considered:

discouraging.

sticky.

simulative.

depressive.

Question

7. Several factors can shift short-run aggregate supply curves, including:

the number of consumers and average population age.

input prices and government regulations.

aggregate demand and consumer tastes.

substitute and complementary products.

Question

8. If an economy is in recession, the intersection of the short-run aggregate supply curve and aggregate demand curve occurs at an output level _____ the long-run output capability of the economy.

equal to

above

parallel to

below

Question

9. The existence of high inflation in an economy means the economy is:

operating above its long-run equilibrium level of output.

not using all of its resources efficiently.

adding new productive capability faster than demand is growing.

gaining ground on the economies of other countries.

Question

10. An economy cannot increase its output level beyond its long-run maximum full-employment capacity unless:

more consumers migrate to the country.

firms reduce their output capabilities.

underlying improvements in production capacity take place.

government regulations permit productive capacity to grow.

True/False Questions

After watching the Aggregate Demand and Supply video lecture, consider the question(s) below. Then “submit” your response.

Question

1. The aggregate demand curve for an economy will not shift as a result of a change in consumption or government spending.

True

False

Question

2. The short- and long-run aggregate supply curves are identical in shape.

True

False

Question

3. The term "sticky," when applied to short-run aggregate supply and demand, means that prices and wages take time to adjust in response to an increase in aggregate demand in the economy.

True

False

Short Answer/Discussion Questions

After watching the Aggregate Demand and Supply video lecture, consider the question(s) below. Then “submit” your response.

Question

1. How might an economy shift its long-run aggregate supply curve to the right?

Suggested solution: The only way for an economy to shift its long-run aggregate supply curve to the right (increasing output capability) is to increase the economy’s capacity to produce. This can be accomplished by deploying greater technology (making current workers more productive), increasing capital investment (providing more tools to produce goods and services), or improving the quality of labor (improving the productivity of current workers). Increasing the size of the work force through increased labor participation or immigration also will help the economy increase its full employment output level.

Question

2. What might cause the short-run supply curve to shift to the left?

Suggested solution: Several factors can work to shift the short-run aggregate supply curve to the left. These include higher input prices, reduced labor productivity, increased taxes, and government regulations. Each of these increase per unit production costs and, at every price level, reduce firms’ incentive to produce. As a result, the short-run aggregate supply curve moves left.

Question

3. If an economy is in a recession, how is that condition depicted on an aggregate supply and demand diagram, what might be the impact of this recession on employment, and what might a government do in response to this recession?

Suggested solution: A recession is depicted on an aggregate supply or demand diagram by an intersection of short-run aggregate supply and aggregate demand that occurs significantly to the left of the long-run, or full-employment, aggregate supply curve. High unemployment usually accompanies a recession as the economy is not producing near its maximum level of output, so employees and other productive resources are idle or underutilized. In these situations, governments pursue policies designed to stimulate the economy and push it back to long-run macroeconomic equilibrium.