Question 1

Which curve in the first graph represents the relationship between the aggregate quantity of output supplied and the overall price level?

Accepted Answer

Aggregate supply curve

Question 2

In the first graph, what is the equilibrium price level and aggregate output?

Accepted Answer

$$P = 110$$, $$Y = 600$$ billion

Question 3

If an oil embargo occurs when the equilibrium output is $$600$$ billion, what is the most likely effect on equilibrium output and price level?

Accepted Answer

Decrease equilibrium output and increase price level

Question 4

Suppose wages decrease and government spending increases in the economy shown in the first graph. What is the most certain outcome?

Accepted Answer

Equilibrium output increases

Question 5

In the second graph, what does the vertical LRAS line at $$Y = 700$$ million represent?

Accepted Answer

Potential output

Question 6

If actual equilibrium output exceeds potential GDP, what happens to the price level?

Accepted Answer

The price level rises

Question 7

Which equation represents equilibrium in the goods market?

Accepted Answer

$$AE = C + I + G$$

Question 8

What determines the slope of the aggregate supply curve?

Accepted Answer

How fast the price of factors of production respond to changes in the price level

Question 9

The aggregate demand curve shows a ________ relationship between ________ and total quantity of output ________.

Accepted Answer

Negative; the price level; demanded

Question 10

An increase in government purchases shifts the ________ curve to the ________.

Accepted Answer

Aggregate demand; right

Question 11

Which sequence of events follows an open market purchase by the Fed?

Accepted Answer

$$r \downarrow \rightarrow I \uparrow \rightarrow AE \uparrow \rightarrow Y \uparrow$$

Question 12

The long-run aggregate supply curve is vertical if:

Accepted Answer

Wages and other costs fully adjust to changes in prices in the long-run

Question 13

The change in consumption brought about by a change in purchasing power of savings that results from a change in the price level is called:

Accepted Answer

Real wealth effect

Question 14

At aggregate output levels below $$500$$ billion, the economy is most likely experiencing:

Accepted Answer

Excess capacity

Question 15

When the general price level rises, what happens to consumption?

Accepted Answer

Consumption falls as a result of the real wealth effect

Question 16

The aggregate demand curve slopes downward because at higher price levels:

Accepted Answer

The purchasing power of consumers' assets declines and consumption decreases

Question 17

If the supply of oil increases when the equilibrium price level is $$110$$, what is the most likely effect?

Accepted Answer

Increase equilibrium output and decrease price level

Question 18

To decrease the price level, the government could:

Accepted Answer

Adopt policies that encourage immigration and decrease government spending

Question 19

The change in ________ brought about by a change in real wealth that results from a change in the ________ is the real wealth effect.

Accepted Answer

Consumption; price level

Question 20

In the second graph, what is the level of aggregate output that can be sustained in the long run without inflation?

Accepted Answer

$$700$$ million

Chapter 11 Study Guide: Aggregate Supply, Aggregate Demand, and Macroeconomic Equilibrium

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