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Principles of Macroeconomics, 9e - TB1 (Case/Fair/Oster)

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Chapter 13

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Aggregate Supply and the Equilibrium Price Level

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13.1

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The Aggregate Supply Curve

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Multiple Choice

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1)

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The graph that shows the relationship between the aggregate quantity of output supplied by all the firms in an economy and the overall price level is

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A)

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the aggregate supply curve.

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B)

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the aggregate production function.

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C)

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the production possibilities frontier.

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D)

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the aggregate demand curve.

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Answer:

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A

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Diff: 1

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Topic:

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The Aggregate Supply Curve

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Skill:

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Definition

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2)

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The quantity of output supplied at different price levels is represented by the

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A)

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production function.

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B)

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aggregate demand curve.

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C)

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aggregate supply curve.

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D)

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aggregate expenditures curve.

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Answer:

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C

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Diff: 1

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Topic:

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The Aggregate Supply Curve

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Skill:

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Definition

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3)

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The aggregate supply curve

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A)

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is the sum of the individual supply curves in the economy.

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B)

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is a market supply curve.

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C)

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embodies the same logic that lies behind an individual firm's supply curve.

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D)

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relates output with the price level.

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Answer:

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D

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Diff: 1

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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4)

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It is very important to distinguish between the short run and the long run when we are discussing

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A)

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the aggregate demand.

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B)

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the aggregate expenditures.

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C)

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the aggregate supply.

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D)

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changes in the price level.

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Answer:

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C

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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Refer to the information provided in Figure 13.3 below to answer the questions that follow.

Figure 13.3

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5)

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Refer to Figure 13.3. Between the output levels of $500 billion and $1,000 billion, the relationship between the price level and output is

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A)

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constant.

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B)

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negative.

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C)

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positive.

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D)

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indeterminate.

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Answer:

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C

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Diff: 1

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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6)

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Refer to Figure 13.3. This economy reaches capacity at

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A)

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$500 billion.

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B)

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$1,000 billion.

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C)

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$1,500 billion.

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D)

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an output level that is indeterminate from this information because aggregate demand is not given.

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Answer:

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C

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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7)

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Refer to Figure 13.3. At aggregate output levels below $500 billion, this economy is most likely experiencing

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A)

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rapid increases in the growth rate of the money supply.

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B)

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a boom.

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C)

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excess demand.

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D)

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excess capacity.

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Answer:

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D

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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8)

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Refer to Figure 13.3. At aggregate output levels above $1,500 billion, firms in this economy are most likely experiencing

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A)

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costs increasing as fast as output prices.

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B)

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costs lagging behind increases in output prices.

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C)

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costs falling as prices output increase.

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D)

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costs rising faster than output prices.

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Answer:

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A

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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Refer to the information provided in Figure 13.4 below to answer the questions that follow.

Figure 13.4

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9)

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Refer to Figure 13.4. Between the output levels of $300 billion and $600 billion, the relationship between the price level and output is

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A)

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negative.

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B)

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positive.

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C)

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constant.

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D)

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There is no relationship between the price level and output.

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Answer:

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B

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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10)

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Refer to Figure 13.4. This economy reaches capacity at

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A)

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$300 billion.

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B)

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$600 billion.

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C)

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$900 billion.

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D)

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an output level that is indeterminate from this information because aggregate demand is not given.

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Answer:

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C

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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11)

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What determines the slope of the aggregate supply curve is

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A)

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how fast the price of factors of production respond to changes in the price level.

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B)

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how much more the economy can produce without any change in the price level.

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C)

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how fast the output level changes after a technological advance.

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D)

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none of the above

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Answer:

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A

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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12)

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When the aggregate supply curve is horizontal,

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A)

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the price of factors of production is fixed, with little or no upward pressure on price.

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B)

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the economy is close to full capacity.

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C)

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resources are being utilized at full capacity.

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D)

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the prices level increases with additional production.

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Answer:

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A

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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13)

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When the aggregate supply curve is vertical, which of the following is NOT true?

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A)

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The economy is at capacity.

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B)

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The economy is producing the maximum sustainable level of output.

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C)

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Any increase in the price level will not cause an increase in aggregate output.

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D)

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The economy is expanding quickly.

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Answer:

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D

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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14)

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If the economy is operating on the relatively vertical segment of the aggregate supply curve, an increase in aggregate demand causes a ______change in the price level and a ______change in output.

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A)

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small; small

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B)

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big; big

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C)

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big; small

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D)

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small; big

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Answer:

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C

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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15)

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If the economy is operating way below capacity, an increase in aggregate demand causes a ______change in the price level and ______change in output.

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A)

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big; big

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B)

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big; small

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C)

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small; big

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D)

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small; small

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Answer:

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C

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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16)

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An increase in aggregate demand when the economy is operating at high levels of output is likely to result in

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A)

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a large increase in both output and the overall price level.

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B)

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an increase in the overall price level but little or no increase in output.

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C)

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an increase in output but little or no increase in the overall price level.

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D)

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little or no increase in either output or the overall price level.

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Answer:

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B

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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17)

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An increase in aggregate demand when the economy is operating at full capacity is likely to result in

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A)

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an increase in both output and the overall price level.

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B)

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an increase in output but no increase in the overall price level.

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C)

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an increase in the overall price level but no increase in output.

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D)

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no increase in either output or the overall price level.

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Answer:

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C

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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18)

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An increase in the price level is likely to increase the aggregate amount of output supplied in the short run because

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A)

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interest rate is high in the short-run.

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B)

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wages and interest rates are relatively fixed in the short-run.

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C)

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wages change in the short-run.

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D)

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the aggregate supply curve is vertical in the short-run.

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Answer:

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B

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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19)

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When the economy is producing at full capacity, the aggregate supply curve becomes

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A)

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horizontal.

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B)

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downward sloping.

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C)

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vertical.

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D)

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upward sloping.

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Answer:

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C

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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20)

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If input prices changed at exactly the same rate as output prices, the aggregate supply curve would be

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A)

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vertical.

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B)

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upward sloping.

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C)

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horizontal.

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D)

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downward sloping.

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Answer:

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A

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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21)

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A movement down the aggregate supply curve is caused by a(n)

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A)

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decrease in aggregate supply.

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B)

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increase in aggregate supply.

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C)

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decrease in the price level.

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D)

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increase in the price level.

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Answer:

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C

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Diff: 1

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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22)

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If there is a decrease in the percentage of employees whose wages adjust automatically with changes in the price level, the aggregate supply curve will become

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A)

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steeper.

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B)

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flatter.

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C)

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horizontal.

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D)

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vertical.

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Answer:

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B

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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23)

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If there is an increase in the percentage of employees whose wages adjust automatically with changes in the price level, the aggregate supply curve will become

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A)

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steeper.

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B)

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flatter.

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C)

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horizontal.

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D)

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vertical.

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Answer:

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A

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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24)

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Coal is used as a source of energy in many manufacturing processes. Assume a long strike by coal miners reduced the supply of coal and increased the price of coal. This would cause

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A)

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the short-run aggregate supply curve to shift to the right.

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B)

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the short-run aggregate supply curve to become flatter.

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C)

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the short-run aggregate supply curve to shift to the left.

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D)

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the short-run aggregate supply curve to become nearly vertical at all levels of output.

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Answer:

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C

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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25)

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If the United States were to pass legislation that would make it easier for people to emigrate to the United States, this would cause

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A)

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the short-run aggregate supply curve to become nearly vertical at all levels of output.

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B)

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the short-run aggregate supply curve to shift to the left.

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C)

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the short-run aggregate supply curve to become flatter.

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D)

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the short-run aggregate supply curve to shift to the right.

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Answer:

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D

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Diff: 2

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Topic:

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The Aggregate Supply Curve

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Skill:

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Analytic

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AACSB:

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Analytic Skills

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26)

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All of the following shift the short-run aggregate supply curve EXCEPT

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A)

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a change in the price level.

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B)

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a change in the price of oil.

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C)

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a change in the price of raw material.

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D)

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a change in wages as a result of a labor strike.

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Answer:

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A

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Diff: 1

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

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Reflective Thinking

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27)

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Which of the following would cause the short-run aggregate supply curve to shift to the right?

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A)

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higher energy prices

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B)

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an increase in taxes

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C)

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increases in government regulation

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D)

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retired workers reentering the labor force

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Answer:

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D

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Diff: 1

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Topic:

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The Aggregate Supply Curve

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Skill:

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Conceptual

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AACSB:

1

Reflective Thinking

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Refer to the information provided in Figure 13.5 below to answer the questions that follow.

Figure 13.5

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28)

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Refer to Figure 13.5. Hurricane Katrina destroyed a large portion of the infrastructure in the gulf south of United States. This caused

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A)

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the short-run aggregate supply curve to shift from AS1 to AS2.

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B)

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the short-run aggregate supply curve to shift from AS1 to AS0.

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C)

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the economy to move from Point B to Point A along AS1.

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D)

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the economy to move from Point C to Point B along AS1.

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Answer:

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A

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Diff: 2

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Topic: