Aggregate Demand and Supply Quiz

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are

• the price level, real output.

• real output, employment.

• employment, the inflation rate.

• the value of money, the price level.

Imagine two economies that are identical except that for a long time, economy A has had a money supply of $500 billion while economy B has had a money supply of $1,000 billion. It follows that

• a real GDP and the price level are higher in country B.

• real GDP, but not the price level, is higher in country B.

• the price level, but not real GDP is higher in country B.

• neither the price level nor real GDP is higher in country B.

Which of the following is not a determinant of the long-run level of real GDP?

• the price level

• the supply of labor

• available natural resources

• available technology

The long-run aggregate supply curve

• is vertical.

• is a graphical representation of the classical dichotomy.

• indicates monetary neutrality in the long run.

• All of the above are correct.

Which of the following is correct?

• The short-run, but not the long-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables.

• The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables.

• The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real variables.

• Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables affect real variables.

The position of the long-run aggregate supply curve

• is determined by the things that determine output in the classical model.

• is at the point where unemployment is zero.

• shifts to the right when the price level increases.

• is at the point where the economy would cease to grow.

The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change

• in the price level and real GDP.

• in the price level, but not real GDP.

• in real GDP, but not the price level.

• in neither the price level nor real GDP.

The long-run aggregate supply curve would shift right if immigration from abroad

• increased or Congress made a substantial increase in the minimum wage.

• decreased or Congress abolished the minimum wage.

• increased or Congress abolished the minimum wage.

• decreased or Congress made a substantial increase in the minimum wage.

The long-run aggregate supply curve shifts right if

• immigration from abroad increases.

• the capital stock increases.

• technology advances.

• All of the above are correct.

The long-run aggregate supply curve shifts left if

• the capital stock increases.

• there is a hurricane.

• the government removes some environmental regulations that limit production methods.

• None of the above is correct.