1. In practice in the actual economy, a reduction in aggregate demand reduces real output rather than the price level because

a. output is sticky or inflexible downward as a result of wage contracts, minimum wage laws, and menu costs among other reasons.

b. prices are sticky or inflexible downward as a result of resource scarcity, production costs, and interest rate costs among other reasons.

c. prices are sticky or inflexible downward as a result of wage contracts, minimum wage laws, and menu costs among other reasons.

d. output is sticky or inflexible downward as a result of resource scarcity, production costs, and interest rate costs among other reasons. b. A full-strength multiplier, where price doesn't change to mitigate the effects of an aggregate demand change, applies to a decrease in aggregate demand when the aggregate (Click to select) supply curve is horizontal / demand curve is horizontal / supply curve is vertical / demand curve is vertical.

2. What effects would each of the following have on aggregate demand or aggregate supply, other things equal?

a. A widespread fear among consumers of an impending economic depression

(Click to select) Aggregate supply / Aggregate demand will (Click to select) increase / decrease

b. A new national value added tax on producers based on the value added between the costs of the inputs and the revenue received from their output

(Click to select) Aggregate demand / Aggregate supply will (Click to select) increase / decrease

c. A reduction in interest rates at each price level

(Click to select) Aggregate demand / Aggregate supply will (Click to select) increase decrease

d. A major increase in spending for health care by the Federal government

(Click to select) Aggregate demand / Aggregate supply will (Click to select) increase / decrease

e. The general expectation of rapid inflation in the future

(Click to select) Aggregate demand / Aggregate supply will (Click to select) increase / decrease

f. The complete disintegration of OPEC, causing oil prices to fall by one-half

(Click to select) Aggregate demand / Aggregate supply will (Click to select) increase / decrease

g. A 10 percent across-the-board reduction in personal income tax rates

(Click to select) Aggregate demand / Aggregate supply will (Click to select) increase / decrease

h. A sizable increase in labor productivity (with no change in nominal wages)

(Click to select) Aggregate demand / Aggregate supply will (Click to select) decrease / increase

i. A 12 percent increase in nominal wages (with no change in productivity)

(Click to select) Aggregate demand / Aggregate supply will (Click to select) increase / decrease

j. An increase in exports that exceeds an increase in imports (not due to tariffs)

(Click to select) Aggregate demand / Aggregate supply will (Click to select) increase / decrease

3. The immediate short-run supply curve is horizontal because of

a. contractual agreements for both input and output prices that span the immediate short-run timeframe and imply that prices do not change during that time.

b. contractual agreements for both input and output prices that span the long-run timeframe and imply that prices do not change.

c. contractual agreements for labour wages that span the immediate short-run timeframe and imply that wage costs do not change during that time.

d. menu costs that span the immediate short-run timeframe and imply that prices do not change during that time.

b.The long-run aggregate supply curve is vertical because the economy's potential output is determined by

a. the availability and productivity of real resources, not by the price level.

b. the availability and productivity of real resources, not by the output level.

c. changes in wages, and these are unchanged in the long run.

d. changes in price and output that occur in the long run.

c.The shape of the short-run aggregate supply curve is

a. upsloping because wages adjust more slowly than the price level, increasing profits and output.

b. upsloping because wages adjust more rapidly than the price level.

c. horizontal because wages adjust at the same rate as the price level.

d. vertical because wages adjust at the same rate as the price level.

d.The short-run aggregate supply curveis relatively flat to the left of the full employment output because

a. most resources are already employed.

b. there are large amounts of unused capacity and idle human resources.

c. of menu costs.

d. there are shortages of capital.

e.The short-run aggregate supply curve is relatively steep to the right of the full employment output because

a. most resources are already employed.

b. there are large amounts of unused capacity and idle human resources.

c. there are shortages of capital.

d. of menu costs.

4. Consider the following statement: "Unemployment can be caused by a decrease in aggregate demand or a decrease in aggregate supply."Note whether this is true or false and specify the effect on the price-level in each case.

a. True. A decrease in aggregate supply will unambiguously increase the price level. A decrease in aggregate demand will reduce the price level if economy is operating above its full-employment output or if prices are not sticky.

b. False. A decrease in aggregate supply will unambiguously increase the price level. A decrease in aggregate demand will reduce the price level if economy is operating above its full-employment output or if prices are not sticky.

c. True. A decrease in aggregate supply will decrease the price level. A decrease in aggregate demand will increase the price level.

d. False. A decrease in aggregate supply will decrease the price level. A decrease in aggregate demand will increase the price level.

5. Match the following descriptions with the correct aggregate supply curve.

Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.

a. Immediate short run

check all that apply 1 ( i got these bolded answers)

• A vertical line.
• The price level is fixed.
• Output prices are flexible but input prices are fixed.
• A horizontal line.
• An upward-sloping curve.
• Output is fixed.

b. Short run

check all that apply 2( i got the bolded answer, not sure if they are correct)

• A vertical line. unanswered
• The price level is fixed. unanswered
• Output prices are flexible but input prices are fixed.
• A horizontal line. unanswered
• An upward-sloping curve.
• Output is fixed. unanswered

c. Long run

check all that apply 3 ( i got the bolded answer, not sure if they are correct)

• A vertical line.
• The price level is fixed.unanswered
• Output prices are flexible but input prices are fixed.unanswered
• A horizontal line.unanswered
• An upward-sloping curve.unanswered
• Output is fixed.

6. Which of the following events will shift the aggregate supply curve to the right?

Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.

check all that apply ( i got these bolded answers)

• a two-fold increase in the manufacturing wages as a result of a law passed by the government
• an increase in the overall productivity in the economy because of a new networking technology
• a decrease in business taxes
• a substantial increase in the price of oil

7. Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 3. If household wealth falls by 5percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? The aggregate demand curve will shift (Click to select) leftward / rightward by $ ___ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift (Click to select) leftward / rightward by $ _____ billion.

8. Answer the following questions on the basis of the three sets of data for the country of North Vaudeville:

(A)	(B)	(C)
Price Level	Real GDP	Price Level	Real GDP	Price Level	Real GDP
110	235	110	285	100	210
100	235	100	260	100	235
95	235	95	235	100	260
90	235	90	210	100	285

a. Which set of data illustrates aggregate supply in the immediate short-run in North Vaudeville? The data in (Click to select) A / B / C Which set of data illustrates aggregate supply in the short-run in North Vaudeville? The data in (Click to select) B / C / A Which set of data illustrates aggregate supply in the long-run in North Vaudeville? The data in (Click to select) A / B / C b. Assuming no change in hours of work, if real output per hour of work decreases by 5 percent, what will be the new levels of real GDP in the right column of B? Instructions: Round your answers to two decimal places. Price level 110: New output = _____ Price level 100: New output = ______ Price level 95: New output = ______ Price level 90: New output = _____ Does the new data reflect an increase in aggregate supply or does it indicate a decrease in aggregate supply? (Click to select) decrease / increase

9. Suppose that the table below shows an economy's relationship between real output and the inputs needed to produce that output:

Input quantity	Real domestic output
75	$400
56.25	300
37.5	200

a. What is the level of productivity in this economy? Instructions: Round your answer to two decimal places. ______ b. What is the per-unit cost of production if the price of each input unit is $3? Instructions: Round your answer to two decimal places. $ _______ c. Assume that the input price increases from $3 to $4 with no accompanying change in productivity.

9. Suppose that the table below shows an economy's relationship between real output and the inputs needed to produce that output:

Input quantity	Real domestic output
75	$400
56.25	300
37.5	200

a. What is the level of productivity in this economy? Instructions: Round your answer to two decimal places. _______ b. What is the per-unit cost of production if the price of each input unit is $3? Instructions: Round your answer to two decimal places. $ ______ c. Assume that the input price increases from $3 to $4 with no accompanying change in productivity. What is the new per-unit cost of production? Instructions: Round your answer to two decimal places. $ ________ In what direction would the $1 increase in input price push the aggregate supply curve? The aggregate supply curve would shift to the (Click to select) right / left . What effect would this shift of the short-run aggregate supply have on the price level and the level of real output? (Click to select) Price level would decrease and real output would remain the same. / Price level would increase and real output would decrease. / Both price level and real output would remain the same. / Price level would decrease and real output would increase.

d. Suppose that the increase in input price does not occur but, instead, that productivity increases by 75%. What would be the new per-unit cost of production? Instructions: Round your answer to three decimal places. $ _____

What effect would this change in per-unit production cost have on the short-run aggregate supply curve? The aggregate supply curve will shift to the (Click to select) right / left . What effect would this shift of the short-run aggregate supply have on the price level and the level of real output? (Click to select) Price level would decrease and real output would increase. / Price level would increase and real output would decrease. / Price level would decrease and real output would remain the same. / Both price level and real output would remain the same. What is the new per-unit cost of production? Instructions: Round your answer to two decimal places. $ ______ In what direction would the $1 increase in input price push the aggregate supply curve? The aggregate supply curve would shift to the (Click to select) right / left. What effect would this shift of the short-run aggregate supply have on the price level and the level of real output? (Click to select) Price level would decrease and real output would remain the same. / Price level would increase and real output would decrease. / Both price level and real output would remain the same. / Price level would decrease and real output would increase. d. Suppose that the increase in input price does not occur but, instead, that productivity increases by 75%. What would be the new per-unit cost of production? Instructions: Round your answer to three decimal places. $ ______ What effect would this change in per-unit production cost have on the short-run aggregate supply curve? The aggregate supply curve will shift to the (Click to select) right / left . What effect would this shift of the short-run aggregate supply have on the price level and the level of real output? (Click to select) Price level would decrease and real output would increase. / Price level would increase and real output would decrease. / Price level would decrease and real output would remain the same. / Both price level and real output would remain the same.

10. Refer to the data in the table given below. Suppose that the present equilibrium price level and level of real GDP are 100 and $235, and that data set B represents the relevant aggregate supply schedule for the economy.

(A)	(B)	(C)
Price Level	Real GDP	Price Level	Real GDP	Price Level	Real GDP
110	285	100	210	110	235
100	260	100	235	100	235
95	235	100	260	95	235
90	210	100	285	90	235

a. What must be the current amount of real output demanded at the 100 price level? Real output demanded = $ ______ b. If the amount of output demanded increases by $25 at the 100 price level shown in B, what will be the new equilibrium real GDP? The new equilibrium level of real GDP = $ ______ In business cycle terminology, what would economists call this change in real GDP? (Click to select) Recession / Expansion