Multiple Choice Questions:

1. If exports increased and imports decreased?

a. AD would decrease.

b. AD would increase.

c. AD would be unaffected.

d. AD could either increase or decrease.

2. The short-run aggregate supply curve slopes?

a. downward because firms can sell more, and hence, will produce more when prices are lower.

b. downward because firms find it costs less to purchase labor and other inputs when prices are lower, and hence they produce more.

c. upward because when the price level rises, output prices rise relative to input prices (costs), raising profit margins and increasing production and sales.

d. upward because firms find that it costs more to purchase labor and other inputs when prices are higher, and hence they must produce and sell more in order to make a profit.

3. If the price level rises, what will happen to the quantity of RGDP produced along the long-run aggregate supply curve?

a. It will increase.

b. It will usually increase, but not always.

c. Nothing will happen to it.

d. It will decrease.

e. It will usually decrease, but not always.

4. If the price level rises, what happens to the level of real GDP supplied?

a. It will increase in both the short run and long run.

b. It will increase in the short run but not in the long run.

c. It will decrease in both the short run and long run.

d. It will decrease in the short run but not in the long run.

e. It will usually decrease, but not always.

5. What is the typical response of firms to an increase in the price of what they sell, for given input prices?

a. An increase in output

b. An increase in hiring factors of production

c. An increase in the profit level of firms

d. An increase in employment in the industry

e. All of the above

6. The short run is?

a. A time period in which the prices of output cannot change but in which the prices of inputs have time to adjust.

b. A time period in which output prices can change in response to supply and demand but in which all input prices have not yet been able to completely adjust.

c. A time period in which neither the prices of output nor the prices of inputs are able to change.

d. Any time period of less than a year.

7. The profit effect is explained in the text as follows:?

a. When the price level decreases, output prices rise relative to input prices (costs), raising producers’ short-run profit margins.

b. At equilibrium prices, when costs rise, profit margins are able to float with them and be passed along.

c. The profit effect is only a long-run phenomenon.

d. When the price level rises, output prices rise relative to input prices (costs), raising producers’ short-run profit margins.

8. The text’s explanation of the misperception effect for an upward-sloping short-run aggregate supply curve is based on?

a. Falling profit margins as the price level rises.

b. Rising costs of production as the price level rises.

c. Fixed-wage labor contracts.

d. The fact that producers may be fooled into thinking that the relative price of the item they are producing is rising and as a result increase production.