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Test Bank for Chapter 26 Aggregate Supply and Aggregate Demand[Economics: Canada in the Global Environment, 7e (Parkin) [Verified Solutions]$9.99
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Economics: Canada in the Global Environment, 7e (Parkin)
Chapter 26 Aggregate Supply and Aggregate Demand
26.1 Aggregate Supply
Use the figure below to answer the following questions.
Figure 26.1.1
1) Refer to Figure 26.1.1. Which graph illustrates what happens when factor prices decrease?
A) (a)
B) (b)
C) (c)
D) (d)
E) (a) and (b)
Answer: A
Diff: 2
Topic: Aggregate Supply
Source: Study Guide
2) Refer to Figure 26.1.1. Which graph illustrates what happens when factor prices rise?
A) (a)
B) (b)
C) (c)
D) (d)
E) (a) and (b)
Answer: B
Diff: 2
Topic: Aggregate Supply
3) Which one of the following newspaper quotations describes a movement along an LAS curve?
A) "The decrease in consumer spending may lead to a recession."
B) "The increase in consumer spending is expected to lead to inflation, without any increase in
real GDP."
C) "Recent higher wage settlements are expected to cause higher inflation this year."
D) "Growth has been unusually high the last few years due to more women entering the labour
force."
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton."
Answer: B
Diff: 3
Topic: Aggregate Supply
4) Which one of the following newspaper quotations describes a shift of only the SAS curve?
A) "The decrease in consumer spending may lead to a recession."
B) "The increase in consumer spending is expected to lead to inflation, without any increase in
real GDP."
C) "Recent higher wage settlements are expected to cause higher inflation this year."
D) "Growth has been unusually high the last few years due to more women entering the work
force."
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton."
Answer: C
Diff: 2
Topic: Aggregate Supply
5) Which one of the following newspaper quotations describes a rightward shift of the LAS
curve?
A) "The decrease in consumer spending may lead to a recession."
B) "The increase in consumer spending is expected to lead to inflation, without any increase in
real GDP."
C) "Recent higher wage settlements are expected to cause higher inflation this year."
D) "Growth has been unusually high the last few years due to more women entering the work
force."
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton."
Answer: D
Diff: 2
Topic: Aggregate Supply
6) Which one of the following newspaper quotations describes a leftward shift of the LAS curve?
A) "The decrease in consumer spending may lead to a recession."
B) "The increase in consumer spending is expected to lead to inflation, without any increase in
real GDP."
C) "Recent higher wage settlements are expected to cause higher inflation this year."
D) "Growth has been unusually high the last few years due to more women entering the work
force."
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton."
Answer: E
Diff: 2
Topic: Aggregate Supply
7) Which of the following does not change short-run aggregate supply?
A) A change in the money wage rate.
B) Technological change.
C) A change in the full-employment quantity of labour.
D) An increase in the quantity of capital.
E) A change in expected future profits.
Answer: E
Diff: 2
Topic: Aggregate Supply
8) Complete the following sentence. Potential GDP
A) increases as the price level rises.
B) is the level of real GDP when unemployment is zero.
C) increases as the quantity of money in the economy increases.
D) does not vary with the price level.
E) never changes.
Answer: D
Diff: 2
Topic: Aggregate Supply
9) A vertical long-run aggregate supply curve indicates that
A) an increase in the price level will not expand an economy's output in the long run.
B) output rates greater than the long-run output rate are unattainable.
C) an increase in the price level will permit the economy to achieve a higher level of output.
D) an increase in the price level will increase technological change and economic growth.
E) the long-run aggregate supply curve never shifts.
Answer: A
Diff: 2
Topic: Aggregate Supply
10) The long-run aggregate supply curve is vertical because
A) potential GDP is independent of the price level.
B) actual output can never exceed, even temporarily, the output rate implied by the economy's
long-run aggregate supply curve.
C) a vertical long-run aggregate supply curve indicates the maximum output rate that an
economy can ever reach.
D) a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a
larger real GDP, but not a larger nominal GDP.
E) potential GDP never changes.
Answer: A
Diff: 2
Topic: Aggregate Supply
11) The short-run aggregate supply curve indicates
A) the relationship between the price level and real GDP demanded by consumers, investors,
governments, and net exporters.
B) the relationship between the price level and the natural unemployment rate.
C) the relationship between the purchasing power of wages and the quantity of labour supplied
by households.
D) the relationship between the quantity of real GDP supplied and the price level when the
money wage rate, the prices of other resources, and potential GDP remain constant.
E) the various quantities of real GDP producers supply at different income levels.
Answer: D
Diff: 1
Topic: Aggregate Supply
12) The long-run aggregate supply curve is
A) vertical.
B) negatively sloped.
C) positively sloped but extremely steep.
D) almost flat.
E) positively sloped at low levels of real GDP and vertical at high levels of real GDP.
Answer: A
Diff: 1
Topic: Aggregate Supply
13) The short-run aggregate supply curve is the relationship between the quantity of real GDP
supplied and
A) the quantity of real GDP demanded.
B) real income.
C) the inflation rate.
D) the real interest rate.
E) the price level.
Answer: E
Diff: 1
Topic: Aggregate Supply
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