3.3 & 3.4 - Short-Run and Long-Run AS

Which of the following would most likely cause a rightward shift in an economy's aggregate supply curve?

• An increase in interest rates

• A tax increase of 50 cents per gallon for gasoline

• An across-the-board reduction of wages in the manufacturing sector

• The passage of legislation mandating a reduction in automobile pollution

• The shutdown of plants and movement of production of goods abroad

Which of the following would cause the short-run aggregate supply curve to shift to the right?

• An increase in the wage rate

• An increase in the interest rate

• An increase in the natural rate of unemployment

• A decrease in the capital stock

• A decrease in the expected price level

Which of the following would cause both the aggregate demand and aggregate supply curves to shift to the right?

• A decrease in corporate income taxes

• A decrease in government spending

• A decrease in natural resource prices

• A decrease in the stock market prices

• An increase in the international value of the domestic currency

Which of the following is true of a horizontal aggregate supply curve?

• It is the usual assumption made by classical economists analyzing the long run.

• It suggests that increases in output can occur without increases in price levels.

• It suggests that a shift in the aggregate demand curve will lead to a change in the price level.

• It is likely to occur only in highly industrialized economies.

• It cannot shift, therefore output remains constant.

The diagram below shows two points on the short-run aggregate supply curve.

The movement from point g to point h is best described as which of the following?

• A decrease in full employment output

• A decrease in aggregate demand

• An increase in real output due to an increase in the price level

• An increase in real output due to technological change

• An increase in unemployment

The short-run aggregate supply curve would be vertical if

• nominal wages adjust immediately to changes in the price level

• nominal wages adjust slowly when there is unemployment

• both nominal wages and prices adjust slowly to changes in aggregate demand

• the spending multiplier is very low

• investment demand is very responsive to changes in interest rates

Which of the following must be true in the long run?

• Production increases when prices increase.

• An increase in the price level reduces aggregate demand.

• The natural rate of unemployment is not affected by changes in production capacity.

• Full employment increases when price level decreases.

• Prices and wages are flexible.

Which of the following is an assumption underlying an upward-sloping short-run aggregate supply curve?

• The economy is experiencing high inflation.

• The economy is at full employment.

• National income is fixed.

• Wages are sticky.

• The velocity of money is constant.

Which of the following will most likely cause the short-run aggregate supply curve to shift to the left?

• A decrease in nominal wages

• A decrease in the expected rate of inflation

• An increase in energy prices

• An increase in the price level

• An increase in the size of the labor force

Which of the following will cause aggregate supply to increase in Country X?

• An increase in personal income taxes

• The discovery of low-cost alternative sources of energy

• A decrease in labor productivity with no change in nominal wages

• Depreciation of country X’s currency on the foreign exchange market

• An increase in the price level